The shortcomings of NNPC – Nairametrics

With a varying number of natural resources in abundance in different parts of the country, crude oil has been Nigeria’s biggest export for the past couple of years. Crude oil has become Nigeria’s biggest contributor to its economy. Nairametrics previously reported that crude oil was Nigeria’s biggest export in 2021 at N14.41 trillion, which accounts for a total of 76% of the country’s total revenue in the country. Contrary to fortunes, the top of Nigeria’s highest imports in 2021 was Premium Motor Spirit (PMS), otherwise known as gasoline, which stood at N3.97 trillion, or 19% of total imports . Although four major refineries are under the control of the Nigeria National Petroleum Company (NNPC), Nigeria’s importation of PMS or refined gasoline highlights the shortcomings of the NNPC.

Ongoing fuel subsidy crisis/fuel shortage

Since the introduction of fuel subsidies in the 1970s, Nigeria has been locked in a never-ending debate over the continued payment of oil subsidies. This endless debate has seen fuel prices skyrocket in Nigeria from 65 naira per liter in 2007, and currently sells for 167 naira per litre, but subsidy payments have risen to a record high of 4,000 billion naira. This figure represents 70% of Nigeria’s 5.4 trillion naira expected to be spent on capital expenditure in 2022. The lingering fuel subsidy crisis is a shortcoming of NNPC’s failure to secure refineries, coupled with weak security on pipelines across the country, which led to a daily loss of 150,000 barrels. The fuel shortage is closely linked to the ongoing fuel subsidy crisis. According to the NNPC, Nigeria has a maximum generation capacity of 2.5 trillion per day, this amount does not translate into the availability of fuel as Nigerians suffer to obtain fuel, due to its unavailability. The latest was the fuel shortage issue in February 2022, when fuel shortage hit the major city in Nigeria after around 100 million liters of contaminated fuel was imported into the country. The fuel shortage lasted for more than a month and many questioned the efficiency of NNPC’s quality inspectors.

Transparency

The lack of transparency on the part of the NNPC, vis-à-vis the Nigerian people and the rest of the world, is one of its shortcomings. NNPC, in its 45 years of existence, released its first audit in 2020. However, it has yet to release financial statements for the year ending 2021. (Saudi Aramco released its statements financial audited for 2021). Foreign investors and stakeholders need this information in their decision-making process. In addition, discrepancies in the remittance report with the Auditor General further cloud NNPC’s operations.

Debt

Despite being Nigeria’s main export source, NNPC’s debt profile is another shortcoming. According to reports, NNPC in April 2022 paid “a total of $3.68 billion of the $4.689 billion cash call debt to five international oil companies which are its joint venture partners.” This debt owed by NNPC is paid out of the revenues it realizes, although it does not reach its projected revenues. NNPC between January and November 2021 generated revenue of N2.992 trillion, falling short of the expected revenue of N4.564 trillion during the period.

The shortcomings of the NNPC do not just affect the society but the country as millions of dollars are lost and lost which has a huge impact on Nigeria’s GDP. Moreover, with the shortage of fuel, the economic impacts are huge as Nigerians are forced to pay more to run transport and businesses among others despite having significantly lower incomes.

Corruption

Corruption tops all shortcomings of any sector in Nigeria, the private and public sectors are not exempt from this canker worm. The NNPC, as the company in charge of what might be called Nigeria’s wealth, since oil remains Nigeria’s biggest export, has been embroiled in corruption scandals which have led to the inefficiency of the society. The Nigerian National Petroleum Corporation and the scandal seem to be inextricably linked, one of the major corruption scandals that rocked the NNPC dates back to 2011, when the federal government under Goodluck Jonathan hired KPMG (a company specializing in taxation, financial and advisory audit) to audit NNPC. The company discovered that the NNPC had obtained a surplus of approximately 28.5 billion naira from the claims related to the subsidies and the amount had not been accounted for. A testament to corruption at the NNPC was the admission by NNPC Group Managing Director (GMD), Mela Kyari, after his appointment in 2019, that he will work with the EFCC to tackle corruption within the NNPC.

Dying Refineries

Nigeria is generally described as an oil-rich country. Another shortcoming of the NNPC is the presence of moribund refineries in the country. NNPC has four refineries, two of which are located in Port Harcourt, Warri and Kaduna. The NNPC in its report announced that 100 billion was spent on refinery rehabilitation in 2022. With a combined installed capacity of 445,000 bpd, Nigerian refineries have not processed any fuel in recent years. Despite being Africa’s largest oil producer, the country has had to rely heavily on imported oil due to NNPC’s inability to operate refineries.

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