The global oil and gas industry had an underwhelming year in 2020 as the twin shocks of the oil price crash and the COVID-19 pandemic adversely influenced demand and supply of crude oil in an unprecedented manner; thus, leading Nigeria to its second recession in six years.
Nigeria, a country heavily dependent on crude oil sales, was forced into reactive strategies, such as palliative measures and several fiscal initiatives, to charge the economy into recovery. Crude oil prices also plummeted drastically. As of nighttime on April 21, 2020, Brent crude fell to $15.98 per barrel. Production became unviable for Nigeria as it couldn’t find buyers for its crude despite a barrel of Bonny Light crude going for $10 as of May 1, 2020.
The 2020 Nigerian National Petroleum Corporation (NNPC) Annual Performance Review delves into the impact of the COVID-19 pandemic on NNPC’s operations & performance, along with the inflow of investment into the oil fields in Nigeria.
As is our annual tradition, we reviewed the operations and financial performance data of NNPC in 2020 with the intent of identifying potential areas of leakages that need to be plugged in and areas of opportunity that need to be exploited by NNPC. Based on the findings within the report, we invited officials from NNPC, Civil Society Organisations, and private individuals for a roundtable meeting to discuss and bring better precision to issues raised in the annual report.
In his opening address, Gabriel Okeowo, the Chief Executive Officer of BudgIT, stated that the primary purpose of the roundtable discussion is to have a meaningful engagement. BudgIT has hosted this discussion for five years, with support from the Natural Resource Governance Institute (NRGI). However, the 2021 edition was supported by Oxfam.
In his goodwill message, Mr Tijani Hamzat, the Country Director for Oxfam, iterated reasons why Oxfam, in partnership with BudgIT, invested in this research work, and the need to continually empower stakeholders in driving initiatives for extractive transparency and improved fiscal governance in Nigeria. “Our initiatives and advocacy should translate into more prudent management of oil resources, thereby reducing inequality,” he said.
The Group General Manager, Corporate Planning and Strategy of NNPC, Mrs Oritsemeyiwa Eyesan, who represented the Group Managing Director of NNPC in her opening remark, reiterated NNPC’s commitment to ensuring improved processes for fiscal transparency and accountability through feedback from partners and stakeholders. The Kyari-led administration blazed the trail, no doubt, but more work needs to be done.
“Despite the Covid-19 pandemic, NNPC was able to declare a profit in 2020. This has not been achieved in the last 44 years. It is all about continuous improvement and the blockage of loopholes. NNPC is committed to this,” she said.
BudgIT’s Extractive Transparency Lead, Engineer Adejoke Akinbode, who presented the research work, said this report is notable because NNPC had a profit despite experiencing a huge loss, especially when the oil price crashed to the lowest. This is a big win for NNPC and the country as a whole.
NNPC has struggled to keep its refineries operating profitably. According to the research, the refineries were out of operation throughout 2020, adding that the last time the refineries were in operation was July 2019. NNPC’s ailing refineries, led by Kaduna Refining and Petrochemical Company, wiped out a total of N100.03bn from the corporation’s revenue in 2020, despite past announcements of investments in turnaround maintenance.
“Also, despite announcing a deal to boost PHRC’s performance through a colocation agreement with Maire Tecnimont SPA a few years ago, the Federal Executive Council recently approved another $1.5bn for a rehabilitation exercise of the PHRC,” Adejoke said.
Most of the participants were curious to know how NNPC got to make a significant profit in a peculiar year like 2020. Can Nigeria have a functional refinery without depending so much on the international market? Is there a transitional mechanism NNPC is employing to make them pay more attention to sustainability, especially considering the energy transition that is currently ongoing? These and many more were the questions asked.
According to one of the participants, NNPC needs to demystify misconceptions about its operations in a public forum. “It is good that we have started having conversations around the work NNPC is doing. Audited reports are now in the open, and citizens can directly engage, which creates a forum for transparency and accountability. With the PIA, there will be a transformation within the NNPC. How do we block expenditure and revenue leakages?” he added.
In her response to some of the questions asked by participants, Mrs Eyesan stated that looking at crude oil production in 2020 – OPEC did a mandatory cut back on production. NNPC stepped in immediately to revise its budget by the end of March to April due to the global oil price crash. “We had to cut back production because of the restriction. We spent money to ramp up production, but we also spent money to unwind processes for cut back. We want to see production increase, but we are limited by OPEC’s restriction by now,” said Mrs Eyesan.
Clearing the air on how NNPC declared profit amid the Covid-19 pandemic, she said NNPC swung into action after the pandemic. They had to cut costs and manage their cost profile, limited spending drastically, renegotiated contracts and also blocked leakages. NNPC commenced automation of most of their processes, and the pandemic sped up these processes.
As regards the refineries – NNPC is concerned it is still spending money on the refineries. “They were not built to be idle; we want to meet our domestic needs and export.” She said
Unfortunately, NNPC failed in this regard. Now, we are evaluating whether there is an opportunity for rehabilitation. We are working to clean out the docks.
The Technical Director of NEITI, Dr Dieter Ahmed Bassi, who represented the Executive Secretary of NEITI, Dr Orji Ogbonnaya Orji, noted that the declaration of profit by the NNPC in a year when the global economy was affected by the Covid-19 pandemic was a remarkable feat. He added that the NEITI 2020 audit reports would be published in October to drive more insights into progress made.