How NNPC’s Subsidiaries Incurred N22trn Debt In One Year

How NNPC’s subsidiaries incurred N22trn debt in one year

By Aremu Adebayo

A whole thirty-two (32) subsidiaries of the Nigerian National Petroleum Company Ltd (NNPC) are grappling with N22 trillion debt incurred over a 12-month period, raising questions over their viability.

Data gleaned from the latest financials of NNPC showed 32 subsidiaries of the state-owned oil company grew their debts by 155 percent from N8.6 trillion in 2022 to N22 trillion in 2023.

The subsidiaries and joint venture partners owe NNPC Limited for activities such as funding of operations, back charge of expense, operating lease and processing fees charged for the year ended December 2023.

NNPC said the transactions with related parties are made at “terms equivalent to those that prevail in arm’s length transactions.”

“Outstanding balances at the year-end are unsecured and interest-free,” NNPC said in its 2023 financial statement.

Debts in Refineries

Among the most striking changes, Port-Harcourt Refining Company Limited saw its debts to NNPC escalate by 144 percent, reaching N1.97 trillion in 2023 compared to N806 billion the previous year.

NNPC explained that the nature of the transactions for the Port Harcourt Refinery was for “funding of operations, operating lease and processing fees charged for the period.”

The debt increases in Port Harcourt mirror similar challenges at other major refining units.

The Kaduna Refining and Petrochemical Company Limited (KRPC) saw its debt swell by 127.8 percent, reaching N1.36 trillion in 2023 from N597.2 billion in 2022. Similarly, the Warri Refining and Petrochemical Company Limited (WRPC) reported a 140 percent rise in debt, climbing to N1.17 trillion from N487.3 billion.

Most analysts wonder why NNPC continues to pile up losses, wasting resources on idle refining machinery and personnel amid perennial losses, and the obvious lack of capacity to manage them.

Despite producing zero fuel and recording a loss of N50.5 billion, the Port Harcourt refinery raised the payment made as salary and benefits for staff to N22.2 billion in 2019, from N21.76 billion the previous year.

Six directors collected N59.65 million in fees, compared to N58.7 million received in 2018, meaning that each received an average payment of N9.94 million a month in 2019 from a company that recorded no revenue.

A 2023 parliamentary report showed Nigeria had spent more than N11.35 trillion ($25 billion) on fixing the country’s three moribund refineries in the past 10 years.

The NNPC is pumping nearly $3 billion into the revamp of Port Harcourt, Warri and Kaduna refineries.

BusinessDay findings showed the six major refineries in the United Kingdom belong to the likes of Shell, Chevron, INEOS, and ExxonMobil.

Saudi Aramco owns the 600,000 barrels per day (bpd) Port Arthur Refinery in Texas, America’s largest. Aramco is constructing a 300,000 bpd $10 billion refinery in China. In Canada, the private sector operates the 18 refineries there.

“NNPC Ltd did not do much construction of any sort in the 30 years between 1990 and 2020 and a lot of organisational knowledge has certainly been lost in this period,” said Dimeji Bassir, an oil and gas industry executive.

“We can infer therefore that the refinery revamp projects being spearheaded by NNPC are much bigger than the individuals leading them, particularly with little to no operational history to leverage—in planning and executing the projects—along with ingrained cultural inefficiencies to contend with,” he added.

Northern Oil Exploration

NNPC Energy Services Limited’s debt surged by 118.9 percent to N154.2 billion from N70.42 billion.

Explaining the details of the debts, NNPC said N53.33 billion was granted to NNPC Energy Services Limited by NNPC Limited for Keana drilling campaign, Chad Basin re-entry as well as other 3D Seismic acquisition projects.

“The loan was effective on 16 October 2023 with interest accruing at a rate of 13.85% Prime Lending Rate (PLR) for naira portion of the loan and 4.43% (30-Day Average SOFR) plus a margin of 5.5% for the dollar portion of the loan,” NNPC said in its 2023 financial statement.

It added, “The loan repayment is expected over a 3-year period. Interest of N1.69 billion has been paid on the loan, however, principal repayment has not started.”

NNPC had last year announced it would begin drilling the first oil well in Obi/Keana Nasarawa State on March 21, 2023.

Increased Debts

Other major contributors to the overall debt include: the NNPC Gas Infrastructure Company Ltd, with a debt of N1.86 trillion, and the Nigerian Pipelines and Storage Company Limited (NPSC) which experienced a 52-fold increase in debts to N236.1 billion in 2023 from just N4.46 billion the previous year.

NNPC LNG Limited also reported a dramatic rise in debt, with its obligations soaring by 2201 percent to N13.9 billion in 2023 from N604 million the previous year.

Similarly, NNPC Medical Services Limited saw its debt grow by 200.5 percent in 2023, reaching N56.5 billion from N18.8 billion in 2022.

NNPC noted that ‘other related parties’ debt increased by 175.5 percent to N14.3 trillion from N5.19 trillion during the period.

Debt Decreases

On the other hand, NNPC Retail Limited and NNPC Gas Marketing Company Limited saw reductions in their debt levels. NNPC Retail Limited’s debt decreased by 21.8 percent to N38.7 billion in 2023 from N49.5 billion in 2022, while NNPC Gas Marketing Company Limited reduced its debt by 23 percent to N20.9 billion from N27.2 billion.

New and Rising Debts

While some subsidiaries managed to reduce their debts, others experienced significant increases. For instance, the NNPC Shipping and Logistics Limited, which had no debt in 2022, now owes N28.6 billion.

The Maiduguri Emergency Power Plant recorded a debt of N71.08 billion in 2023, up from no debt in the previous year. NNPC New Energy Limited also recorded a new debt of N80 million, as against no debt in 2022.

Similarly, Nikorma Transport Limited’s debt grew 102 percent to N4.87 billion from N2.41 billion.

Foreign Operations

The report also highlights the increasing financial burden on NNPC’s foreign subsidiaries. NNPC Trading SA, for instance, incurred a debt of N503.1 billion in 2023, while NNPC Trading Services (UK) Limited’s debt surged to N730 million from N37 million.

Experts’ View

Financial experts said this is a pointer to the maladministration that has defined the NNPC’s operations through the years.

“NNPC is supposed to rival other national oil companies like Petronas of Malaysia, Equinor of Norway, and Petrobras of Brazil,” Charles Akinbobola, a Lagos-based energy analyst, said.

“These companies play pivotal roles in the management of energy assets and economic development of their countries. The NNPC remains a source of distress for Nigeria,” he added.

A source who pleaded anonymity said most of the NNPC’s woes have been due to political interference and control.

“It has never been run as a business. Its funds have been used as a source of patronage with sweetheart deals and contracts given to enrich a privileged few,” he explained.