Nigeria: The NNPC Profit Announcement

13 September 2021
editorial

The announcement of the business profit by the Presidency is curious

A presidential statement recently claimed that the Nigerian National Petroleum Corporation (NNPC) for the first time in its 44-year history made a profit after tax (PAT) of N287 billion for the year 2020. Aside the fact that the statement lacked clarity, it was strange that it emanated from the Villa rather than the corporation which statutorily owes its shareholders (the Nigerian people) that responsibility. According to his spokesman, Femi Adesina, President Muhammadu Buhari was delighted that the corporation cut down its losses from N803 billion in 2018 to N1.7 billion in 2019, before claiming a profit of N287 billion in 2020.

With the release last week of the 2020 financial statement, pertinent questions remain unanswered. The corporation loudly celebrated its net profit of N287bn but went quiet on its current liabilities which (at about N10.8 trillion) exceeds its current assets (N6.2trn) by N4.6trn. Indeed, this was flagged by auditors who explained that a material uncertainty does exist, which may cast significant doubt on NNPC's ability to continue as a going concern. The corporation needs to come clean on this especially when it is obvious that its four refineries in Warri, Port Harcourt and Kaduna remain loss-making centres.

The International Standard on Auditing (ISA) uses the phrase 'material uncertainty' to situate events or conditions that should be disclosed in financial statements. As it were, when a firm's assets are valued less than its liabilities, it is technically considered insolvent. Additionally, negative cash flows, declining sales, and a high debt load are the other red flags that a firm's financial health may be at risk. How then is the NNPC making its celebrated profits?

Historically, we know that oil wealth fuels the patronage-driven politics which has for decades characterised governance in the country and the NNPC is at the centre of it. That explains the suspicion by many of the profit declaration even before the financial statement was eventually released. Besides, institutions that take corporate governance very seriously do not proclaim major business-related news from the mouth of political actors. President Buhari, as the principal petroleum minister for the past six years, may find a way to justify his announcement of NNPC's 2020 business profit, but he is not the chairman or a member of the board of directors of the corporation.

Perhaps, it is important to remind the NNPC and Aso Rock that as a practice, corporate governance is underpinned on adherence to clear-cut rules, practices, and processes. At the heart of this practice are roles and responsibilities which company executives or officials must carry out. Additionally, a company's board of directors is key in shaping corporate governance which also upholds transparency.

For many years, Nigeria has failed to shed the toga of an oil rentier state, thus nourishing sector corruption and restricting quality reforms that could engender excellence and profitability. That is the meaning of all the reforms being initiated. That President Buhari considers it fine to announce the financial statement of the NNPC from the Villa indicates that the leading logic of governance of the sector is still that of allocation of resources and opportunities in ways that do not promote transparency and accountability. Simply put, the NNPC isn't free from the apron strings of the president. This also suggests that the federal government has never really believed in the reforms that it has mouthed for about six years now. If it did, such announcement of the corporation's financial statement would have come from the GMD or board chairman.

Even without looking at the specific issues that have now been thrown up by the 2020 financial statement, the presidential announcement of profit was a political gambit that communicated nothing valuable to the investment community.

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