Despite declaring a net profit of N287.2 billion for 2020 financial year, the Nigerian National Petroleum Corporation (NNPC) Group current liabilities exceeded its current assets by N4.6 trillion making its auditors question its viability as a company.
This was highlighted by its auditors PricewaterhouseCoopers (PWC), SIAO Partners and Muhtari Dangana & Co, as a threat to its going concern status, according to its 2020 Annual Financial Statement reviewed by MoneyCentral.
“These events…indicate that a material uncertainty exists that may cast significant doubt on the group and corporation’s ability to continue as a going concern,” the 3 accounting firms said in a statement signed 6th September 2021.
Going concern is an accounting term for a company that has the resources needed to continue operating indefinitely until it provides evidence to the contrary.
If a business is not a going concern, it means it’s gone bankrupt and its assets were liquidated.
The auditors noted that NNPC Group has sustained recurring losses over the years culminating into accumulated losses of approximately N1.5 trillion, and therefore may be unable to realize its assets and discharge its liabilities in the normal course of business.
NNPC had total current assets of N6.258 trillion and total current liabilities of N10.818 trillion as at year end 2020, hence the gap flagged by the auditors.
The biggest contributor to the current liabilities were trade and other payables.
This was made up of trade payables of N2.985 trillion, which are non-interest bearing and usually settled within 60 days, payables to the Federation of N1.661 trillion, intercompany payables of N780 billion, and other payables of N3.513 trillion.
A breakdown of payables to the Federation shows that NNPC owed a balance of N637.78 billion for crude supplies for domestic use and N1.024 trillion as other payables.
Crude supplies for domestic use represents the cost of crude purchased by the Corporation from the Federation at the prevailing international market price for local market consumption.
When the crude is then converted to refined product through the refineries or direct sale, direct purchase (DSDP) crude-for-fuel swap arrangement, the Premium Motor Spirit (PMS) is usually sold to the local market at a price below the prevailing market price leading to under recovery of cost.
The amount to be remitted based on crude oil purchased is due 90 days after the period of lifting. In 2020 financial year, the Corporation made a total cash payment of N1.502 trillion to the Federation leaving an outstanding payable of N665 billion (less costs recovered by NNPC HQ of N202.8 million).