Nigeria’s state-run oil company, NNPC, earned less revenue in 2020 than it did in 2019, but managed to record a historic profit that relied mostly on the reversal of amounts impaired for years, and on income from other sources, its audited statement released Wednesday said.
Impairment reversal is when a company declares an asset valuable after it previously declared it a liability.
The reversal related mainly to its recovery of “strategic alliance” amounts from the federation, the report said without giving further details, while its non-core business income included gain from the devaluation of the naira as well as refunds from the federation for expenses that had previously been written off.
Both subheads injected a huge boost to the corporation’s bottom-line to the tune of N1.39 trillion as against N11.5 billion loss recorded a year earlier.
“The impairment reversals during the year relate mainly to the recovery of strategic alliance receivable amounts from the federation and reversal of full impairment on receivables which are no longer doubtful,” it said.
“These amounts were previously impaired in previous years.”
The results were published by the corporation over a week after President Muhammadu Buhari announced that the Nigerian National Petroleum Corporation, known for its notoriously opaque financials until 2018 when its annual report was first made public, broke even in 2020 as the coronavirus pandemic pummelled economies and significantly cut crude oil demand.
The president, who named himself the Minister of Petroleum Resources, said the development was consistent with his “administration’s commitment to ensuring prudent management of resources and maximization of value for the Nigerian people from their natural resources.”
Since the announcement, Nigerians and analysts curious to scrutinise how the oil firm dramatically cut losses from N803 billion in 2018 to N1.7 billion in year 2019, to a huge profit in 2020 at a time of Covid – the first time in its 44-year history – sought without success to make sense of the claim as the corporation held back its report.
The fact that the announcement from Mr Buhari instead of the NNPC itself, and happened shortly after the enactment of the Petroleum Industry Act with provisions that statutorily tax the corporation’s profit, deepened scepticism.
The founder of Stanbic IBTC Plc., Atedo Peterside, said there was an allegation that NNPC “dipped their fingers in the Federation Cookie Jar in order to announce bumper 2020 profits.”
“They should come clean and publish details of all dividends received by them and tell us which ones they recently diverted from the Federation to themselves,” he tweeted on August 29.
Revenue and Profit
The released report says in 2020, the NNPC Group recorded N3.72 trillion as revenue as against N4.63 trillion recorded in 2019.
The corporation spent big on the cost of sales of petroleum products, selling and distribution expenses, and general and administrative expenses.
The bulk of the cost of sales went to payment of fuel subsidy, which exceeded a trillion naira, while the revenue came from crude oil sales, petroleum product sales, sales of natural gas and other services.
The NNPC ran for decades without transparency and successive governments illegally deployed its proceeds to finance expenditure not approved by the National Assembly. In 2019, the Mele Kyari-led management released its first audited report.
Kyari told journalists on August 26 the 2020 profit became possible after the firm “cut costs”.
“There are very drastic changes to the way we do our business. One is to cut costs, to be more efficient, and also to ensure that this company is transparent and accountable to Nigerian people, and therefore is a process that started in 2015,” Vanguard quoted him as saying.
“The first principle of course elimination is that, don’t buy what you don’t need. And we simply stopped buying what we don’t need. Also, particularly in fiscal 2020 whoever they engaged in all our contracts we insisted on cutting costs to at least 30 percent.
“This worked, and we’re able to pull down most of our procurement costs by 30 percent totally. We saw the opportunity to be much more efficient by automating our system and process, and processes that made us faster and also ultimately it reduced so much of logistic costs that ordinarily would have been additional costs on our business so why do you combine all these.”