The Nigerian National Petroleum Corporation (NNPC) was unable to meet its debt obligations as due in January, as a result of inadequate finances, documents seen by PREMIUM TIMES have shown.
The national oil company was also encumbered by huge outstanding Federation Accounts Allocation Committee (FAAC) remittances and other financial obligations which impeded its operations and financial stability.
Documents seen by this newspaper show that at the height of the nationwide fuel crisis between December 2017 and January 2018, the NNPC could not import petroleum products because of lack of funds.
The documents detail the challenges the NNPC faced early this year, and include an exchange between Presiding Muhammadu Buhari and the corporation, in which its management expressed frustration with growing fuel consumption level in the country.
In a memo dated January 19, addressed to Mr Buhari, the Group Managing Director of the NNPC, Maikanti Baru, raised concerns over the depletion in the nation’s strategic fuel reserve as a result of massive diversion and hoarding of petroleum products.
Mr Baru told the president petrol consumption had exponentially gone up to 47 million litres per day — even though the actual national consumption was estimated at 35 million litres. He said if the scarcity went unaddressed, it could lead to social unrest, and made a case for flush funds to address the shortage.
In an apparent response to suggestions raised by the president in a previous communication, Mr Baru claimed that by the status of the NNPC’s balance sheet and its free cash position, the corporation would not be able to use its funds to import petrol.
He also suggested the NNPC be allowed access to foreign exchange at the appropriate rate corresponding to supply of petrol, to ensure stability in price, adding that the corporation did not have the cash flow to finance petrol importation that would meet immediate requirement of flush volumes and strategic reserve replenishment.
“The current balance sheet of NNPC group may not support any additional debt capacity based on the 2016 audit report,” Mr Baru wrote. “As at December 31st 2016, current liabilities of NNPC exceeded current assets by 1 trillion naira. In the auditors’ opinion, the NNPC audited financial statement from 2013 up to 2016 indicate that the corporation would not meet its debt obligation as they become due.”
On the oil company’s free cash position, the NNPC boss said the corporation’s unencumbered N176 billion and $8 million cash position of January 12, 2018 could not support additional capacity of the volumes of petrol required to address the shortage.
“This is further compounded by the outstanding FAAC remittances estimated at N406.13 billion ($1.39 billion) for October to December 2017. Crude Oil and accumulated value of unserviced product order in excess of N120 billion,” the memo stated.
“From the foregoing, the Corporation will find it extremely difficult to source financing for PMS supply using its fund or resort to balance sheet based financing structure.”
In the same memo, Mr Baru also disclosed how the NNPC was directed to scale down its expenditure profile in the 2018 federation budget by the Budget Office. This, he said, necessitated the discharge of N239 billion from the corporation’s proposed budget. The action was meant to provide support for the closure of the envisaged 2018 budget funding gap which made it unable to accommodate further trimming of its budget, Mr Baru explained.
A spokesperson, Ndu Ughamadu, said the corporation’s financial position has since improved.
Mr Ughamadu told PREMIUM TIMES Monday that NNPC had been financially stable since it secured a ‘revolving loan’ from the Nigerian Liquefied Natural Gas, NLNG.
He said as the sole importer of petroleum products, the corporation had to source for the loan when it was directed by the National Assembly to do everything possible within its capacity to ensure availability of petroleum products.
“To fulfill the directive by the National Assembly, we had to source for a revolving loan from the NLNG dividend which the corporation is a shareholder,” he said.
“And that revolving loan of $1.05 billion is what is being utilized now to bring in products into the country.
“There is no room for financial constraint; there is no room for difficulties right now. We are financially enabled and empowered to bring in products which we augment with locally produced products. So there is no issue of financial constraint as we speak because that revolving loan is still running.”
If that had been true for fuel importation and supply, it seems not true for other obligations of the corporation as subsequent events have shown months after.
Between January and July, the Federation Accounts Allocation Committee (FAAC) meetings on several occasions ended in deadlock amidst disagreement over discrepancies in the revenue figures presented by the NNPC.
In March, the meeting convened for representatives of the 36 states of the federation and the Federal Capital Territory to consider and approve statutory allocation to the tiers of government for February ended in deadlock as the committee said it could not approve the allocations to the three tiers of government due to discrepancies in revenue figures presented by the NNPC.
In July, to guarantee a lasting solution to the crisis, the then minister of finance, Kemi Adeosun, said Mr Buhari intervened in the crisis by convening a reconciliation meeting to discuss the issues and come up with solutions.
According to Mrs Adeosun, the president directed that a revised revenue remittance template be developed jointly between the NNPC, Ministry of Finance, Office of the Accountant General of the Federation and Revenue Mobilization Allocation and Fiscal Commission. However, in August, the committee agreed that a new revenue reporting template be designed for the NNPC and other members of the revenue sharing committee.
Meanwhile, the unilateral use of the NLNG money for federal transactions is illegal. The money normally should go to the federal, state and local governments.
But the documents seen by PREMIUM TIMES revealed how the Nigerian government illegally diverted $1.05 billion (N378 billion at N360 to a dollar) sourced from the NLNG dividend funds to secretly fund subsidy payment on petroleum products.
These details came after accusations that the NNPC had a $3.5 billion subsidy fund it had been spending without appropriation by the National Assembly.
In October, a motion by Biodun Olujimi (Ekiti-PDP) had triggered debates in the Senate on the purported $3.5 billion fund alleged to be managed by the state oil company. The Senate immediately began a probe of the claim. But the NNPC said it had no such fund in its custody. Rather, it said it had a $1.05 billion fund it was using to stabilise petrol supply and distribution in the country.
While the NNPC, through Mr Ughamadu, initially claimed the corporation sourced the fund from an ‘international agency’, Mr Baru admitted last week that the money was sourced from the NLNG dividend fund.
Already, the Senate has ordered a separate probe into the diversion following PREMIUM TIMES’ report last week.