Last month, Nigeria’s national oil company – the Nigerian National Petroleum Corporation (NNPC) – published its group-level audited financial statement for the first time in the corporation’s 43-year history. These were published alongside the 2019 audited accounts of its subsidiaries, following the disclosure of the 2018 audited accounts in June.
The move represents a significant milestone for NNPC. Since Mele Kolo Kyari became the Group Managing Director in July 2019, the corporation has undergone a number of reforms to bring about greater transparency and accountability – chief of which is the Transparency Accountability and Performance Excellence (TAPE) agenda. Since early 2020, NNPC has been publishing FAAC monthly reports which show how much the corporation transfers to the state from the sale of oil and gas, including royalty and tax payments. In August, NNPC became an EITI supporting company, signalling its commitment to publish the group’s financial statements.
Subsidiary profits the key to offset losses
Nigeria’s oil and gas sector accounts for about 50% of government income and 90% of its foreign exchange earnings. Yet the COVID-19 pandemic has significantly affected these revenues, with crude oil prices falling to a record 18-year low of about USD 20 per barrel in April 2020. The government had to revise its budget, cutting projected benchmark prices for crude oil from USD 57 to about USD 30 per barrel. These realities have positioned NNPC – being the main revenue generating organisation in Nigeria – to play a vital role in increasing revenue to meet the government’s budget constraints and strengthen the nation’s economy.
NNPC’s Group Audited Financial Statement presents key information on the corporation’s financial health. The statement shows that NNPC reduced its loss by 99.7% – from N803 billion in 2018 to N1.7 billion in 2019 – thanks to a significant increase in profits from its subsidiaries between 2018 and 2019. These include:
A nearly 15,000% increase (N23 billion profit in 2019) by the Integrated Data Sciences Limited (IDSL)
A 167% increase (N478 billion profit in 2019) by the Nigerian Petroleum Development Company (NPDC)
A 124% increase (N2.83 trillion profit in 2019) by the National Petroleum Investment Management Service (NAPIMS)
A 52% increase (N14.2 billion profit in 2019) by Petroleum Products Marketing Company (PPMC)
A 15% increase (N10 billion profit in 2019) by the Nigerian Gas Marketing Company (NGMC)
These significant gains mean that NNPC will need to spend less of its resources offsetting losses and puts the corporation on course to generate profit from its operations, which could help to maximise revenues for the state. NNPC’s Chief Financial Officer, Mr. Umar Ajiya, explained that the improved performance in the 2019 financial year was mainly attributable to operational efficiency, cost optimisation and contract renegotiations. According to the disclosures, NNPC reduced its administrative costs by 22% between 2018 and 2019.
A new era of transparency for NNPC?
The recent publication of NNPC’s financial statements, in addition to other disclosures, indicates that transparency is becoming an integral and routine feature of NNPC’s governance and management systems. These disclosures allow stakeholders and citizens to scrutinise NNPC’s operations, thereby providing an avenue for public debate around the management of Nigeria’s natural resources.
NNPC’s disclosures help to address pressing governance challenges, enabling the government and public to have oversight of important revenue streams at a time when Nigeria’s economy is under strain. The publication of financial statements is key to ensure that NNPC is held accountable, and shows a good example for other state-owned enterprises (SOEs) in the region.
Nevertheless, there is scope for NNPC to go further to uphold its commitment to transparency and accountability. For example, NNPC is encouraged to disclose its oil and gas sales contract and champion the publication of Nigeria’s upstream oil and gas contracts in line with the EITI Standard, to make public the terms of the country’s petroleum deals. Furthermore, NNPC is expected to meet the Expectations for EITI supporting companies as well as fully implement its action plan to disclose information in a systematic and routine manner.
Building on its latest milestones, these actions may help position NNPC as a leader and champion of SOE transparency both in Africa and on the global stage, paving the way for others to follow suit.