Fuel Subsidy: How NNPCL almost went bankrupt- Umar Ajiya

● Admits zero funds remittance to Federation Account in 2022

Amid the biting hardship occasioned by the Federal Government’s economic reforms, the Nigerian National Petroleum Company Limited (NNPC Ltd) says the Oil giants almost went into bankruptcy due to the heavy burden of fuel subsidy payment.

This is as the organization also admitted remitting zero funds to the Federation Account in 2022 because of having to part with huge sums as subsidy payments on Premium Motor Spirit, popularly called petrol.

The Chief Financial Officer (CFO) of NNPC Ltd, Umar Ajiya, who made this disclosure, said the lingering constraint of fuel subsidy payment hampered the Company’s growth potential and almost sent it into bankruptcy.

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In a 5.24-minute video released by the oil major on Sunday, Ajiya said fuel subsidy stopped the revenue-generating firm from remitting taxes and royalties to the Federation Account, as well as halted the company from making any profit.

The documentary stated thus; “The lingering constraint of fuel subsidy payment hampered its (NNPC Ltd) growth potential, until a new administration emerged, bringing an end to the subsidy regime and saving the company from bankruptcy and setting it on a path of financial prosperity.”

He said the gains from subsidy removal are evident in the oil firm growing its profit from N674.1 billion in 2021 to N2.54 trillion by the third quarter of 2022.

Ajiya further said President Bola Tinubu’s inaugural speech declaration on May 29, 2023, that “subsidy is gone!” proved life-saving for the NNPCL, adding; “That action of saying subsidy has gone, literally saved this nation N400 billion on average every month.

“And what that meant was that the totality of the entitlements of tax, royalties, and profits were all going into subsidy. And that was why we reached a position in 2022 where we literally remitted zero to the Federation Account. It was unpalatable, but we can’t give what we don’t have.

“We were taking NNPC’s cash flows from other operations to augment for products and it could not be sustained beyond June 2023.”

With the Federal Government struggling to hold the cost of the product far below its global market price, fuel subsidy reported consumed over N3.3 trillion in 2022, and the NNPC Ltd’s CFO confirmed that subsidy removal not only recalibrated the company but saw it making remittances into the Federation Account as required by law.

According to him; “We have now begun to pay dividends to the federation. We are also paying our due obligations in terms of taxes and royalties”, adding that the end to subsidy enabled the oil giant to contribute N4.5 trillion to the Federation Account in nine months.

Hinting at the company’s financial gains post-subsidy removal, the documentary explained; “For the first time in a long time, NNPC Ltd in 2023 contributed to the Federation Account, accounting for N4.5 trillion between January and September 2023”.

The CFO’s viral video is coming on the heels of the recently released 2022 Audited Financial Statement of NNPCL as the major revenue-generating agency that operates as the national oil company in charge of the management, sales, etc, of the country’s crude oil and gas, among other key functions.

The audited Financial Statement shows that the NNPCL Group generated about N8.82 trillion while the company made about N2.9 trillion as revenue in 16 months between September 2021 and December 2022.

For the NNPC Ltd Group, the Profit Before Income (PBI) is N1.81 trillion; the income tax credit at N717 billion; the Profit stood at N2.52 trillion, and the total comprehensive income for the period came to N4.7 trillion.

On the part of NNPC Ltd Company, the profit before income was N1.53 trillion; income tax credit stood at N459.7 billion; Profit came to N1.992 trillion with total comprehensive income for the period showing about N3.77 trillion.

Explaining that “revenue from crude oil sales is from sales of utilized crude during the period and liftings of equity interest in various oil assets, the financial statements disclosed that NNPCL Group generated N3.53 trillion in revenue from crude oil sales; N.4.51 trillion from petroleum products sales; N683 billion from sales of natural gas; and N100.5 billion from services.

On the expenditure side, its books indicated that an estimated N2.9 trillion on wages, entertainment, bank charges, running costs, and other sundry expenses between September 2021 and December 2022.

Further breakdown of expenditure indicated that while the NNPC Ltd Group expended a total of N1.7 trillion on its general and administrative charges for 16 months, the company on its part spent the sum of N1.2 trillion on the same sub-head.

Additionally, both the Group and the company spent a total of N872 billion on “other expenses” not specifically explained in the financial statements, even as security expenses by the Group, and the company gulped N532 billion with N8.35 billion recorded as entertainment expenses.

Similarly, the period under review saw the Company spending about N373 billion on employees’ benefits including salaries, wages, allowances, pensions, and gratuities.

With N1.2 billion covering Directors’ expenses, office running costs as well as management and facilitation fees gulped N1.8 billion and N295 million respectively while N1.65 billion went into donations; N2 billion as audit fees and N45 billion as fines and penalties during the review period.

Also captured in the financial statements are advertisement and publicity – N4.9 billion; traveling and transport – N354.2 billion; legal and professional fees – N8.3 billion; printing and stationery – N57.5 billion; rents and rates – N35 billion; repairs and maintenance N219.9 billion.

Others include bank charges – N675 million; minimum tax and levy – N15.65 billion; write-off of property, plant and equipment – N139.8 billion; postages and telephone – N3.46 billion; depreciation of other property, plants and equipment – N67.9 billion; depreciation of right of use asset, N1.3 billion etc.