NPDC’s N483.5 billion bad debt casts doubts on NNPC’s fiscal prudence and adherence to EITI standards

The Nigerian National Petroleum Corporation (NNPC) wrote off debts incurred by its subsidiary, the Nigerian Petroleum Development Company (NPDC), raising questions about fiscal prudence and commitment to the Extractive Initiative Transparency Initiative (EITI) standards. 

Analysis of its 2019 financial statement by Dataphyte reveals how the upstream subsidiary wrote off N483.5 billion as losses in controversial production funding, operation and service arrangements with several companies. 

The deals dubbed Strategic Alliance Agreements (SAA) and Service Contracts involved SEPTA Energy Nigeria Limited, Atlantic Energy Drilling Nigeria Limited, Atlantic Energy Brass Development Limited, and Agip Energy and Natural Resources (AENR) Limited.

In its 2019 financial report, NPDC said the Strategic Alliance Agreements (SAA) were terminated between 2014 and 2016. It further explained that the amount expected  – as receivables for the government from these companies – had been fully impaired.

The SAA scheme was the subject of controversy for years between the present government, the previous administration of President Jonathan and the beneficiary companies. Prof Yemi Osinbajo, Nigeria’s Vice President, alleged $3 billion was the amount stolen through the contract agreements. 

The Strategic Alliance Agreement was part of the oil fraud allegations in the 2014 memo written by then governor of the Central Bank of Nigeria (CBN), Mr Sanusi Lamido Sanusi. The former CBN governor had estimated that Strategic Alliance Agreements accounted for some $7 billion of the lost oil revenues between January 2012 and July 2013.

 What is the Strategic Alliance Agreement (SAA)?

The SAA was an initiative of former Petroleum Minister, Mrs Alison-Madueke, introduced to the oil and gas sector in 2010. Under the SAA programme, the NNPC retained its 55% ownership of the oil licenses but assigned its financing and operating role to its subsidiary, the National Petroleum Development Corporation (NPDC). 

However, the NPDC lacked the in-house financial resources and technical expertise to fulfil this role. It, therefore, entered into strategic agreements with third parties ‘who were able to provide the requisite finance and operating experience’.

In return, the SAA partners were entitled to recoup their costs by selling a portion of the oil or gas they lifted. After costs had been recouped, the remaining profits were then split between the SAA contractor and the NPDC. The SAAs were signed exclusively for fields in which the international oil companies (notably Shell) had divested their 45% interest to Nigerian oil companies. The programme was justified to further indigenise crude oil production.

Breakdown of the N483 billion impairment

Per the NNPC’s financial statements, a total of N447.8 billion was written off as losses from NPDC accounts concerning production funding and operation arrangements known as Strategic Alliance Agreements (SAA). The amount was in respect of eleven Oil Mining Leases (OMLs).

The OMLs and the companies below: 

In addition to the losses incurred on the Strategic Alliance Agreements, NPDC also declared N35.72 billion impairment on Service Contract. This time, with Agip Energy and Natural Resources (AENR) Limited over OML 116. 

The total impairment/losses on production arrangements comes to N483.5 billion. 

The upstream subsidiary recorded N925 billion as impairment and owed roughly $5 billion in overdue taxes, royalties and asset sale fees, according to Dataphyte’s analysis of the 2018 financial statements. The amount represented most of what the government needed to finance the budget shortfall in 2020. 

Other financial improprieties in the NPDC’s 2019 account

Further analysis of the 2019 audited financial statement of the NPDC showed other financial improprieties. In its book, the NNPC subsidiary owed the Nigerian government N303.7 billion in unpaid tax at the end of 2019, collectable by the Federal Inland Revenue Service (FIRS).

Within the same period, the company also had N134 million expenses for staff local tour and advance payments to employees yet to be accounted for at the end of 2019. In 2018, it wrote off N164 million staff loans and advances.

FIRS, NNPC, NPDC’s positions

When Dataphyte contacted Dr Kennie Obateru, the spokesperson for the NNPC said the subsidiaries are working on guidelines and directives from the corporation to ensure transparency, accountability and financial integrity. He said, “these are the reasons why the financial statement was released for public scrutiny. All subsidiaries keyed into the NNPC framework to ensure accountability and transparency.” 

However, with regards to the financial prudence issues in the NPDC account, Dr Obateru, said “the new leadership at the NNPC led by the GMD, Mallam Mele Kolo Kyari, is pushing its philosophy of transparency, accountability and performance excellence across the corporation-at all subsidiaries and business units- to ensure that the corporation gets to a position to declare profit soonest.

“The effort is already yielding fruit and the 2020 Audited Financial Statement will attest to this when released.”

The spokesperson of the FIRS, Mr Abdullah Ismaila Ahmed, did not pick calls sent to his mobile phone.

When asked on WhatsApp messenger what FIRS is doing to recoup huge unpaid tax in the account of the NNPC subsidiaries, Mr Ahmed simply replied, “Sorry, I am on the road.”

NPDC’s operations question the integrity of NNPC

At various fora, the Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), Mallam Mele Kyari, promised to ensure the corporation’s operations are conducted transparently and place it on the path of profitability. 

Last year, the corporation entered into a partnership with the Extractive Industries Transparency Initiative (EITI) to promote transparency and accountability in the Nigerian oil industry. The partnership has three broad areas – revenues and payments to the government, contracts governing petroleum exploration, and production and consolidated group-level financial statements. But running an entity without making judicious use of the nation’s resources and maximising profits stained the integrity of these commitments to such an international organisation.

To ensure that Nigerians benefit from the wealth derived from their natural resources, the parent body, NNPC, needs to look into the financial management of the NPDC account.

The impact on social-economic development

Owing a substantial N303.7 billion in unpaid tax and recording almost half a trillion as bad debt in a financial year greatly impacts the country’s revenue. The amount, totalling N786.7 billion, could have helped the government to provide basic amenities for citizens. Likewise, the amount is equivalent to the budgetary allocation to the education sector in 2021.

Besides, NPDC’s revenue losses due to accounting and operational improprieties could have provided consumables to primary health centres across the country. According to a procurement document on Nigerian Open Contracting Portal (NOCOPO), the National Primary Health Care Development Agency (NPHCDA) uses an average of N25 million to procure hospital consumables for health centres nationwide. At that cost, the federation could have procured hospital consumables to all the 30,000 primary health centres in Nigeria.

This story was produced under the NAREP Media Oil and Gas 2021 Fellowship of the Premium Times Centre for Investigative Journalism