Some Questions Arising from NNPCL’s 2023 Accounts

Postscript by Waziri Adio

First, credit where it is due. NNPC Limited (NNPCL) deserves commendation for releasing its 2023 audited financial statement on time and for continuing the recent tradition of opening itself to public scrutiny. The first time the company publicly disclosed its audited accounts was in 2020. That was 43 years after the organisation came into being. Within four years, NNPCL has released its audited accounts for 2018 to 2023. That’s six financial years already. Though the 2022 financial statement was released late (in January 2024), the company’s commitment to transparency in this wise is worthy of praise. Mr. Mele Kyari, NNPCL’s group CEO, and his colleagues have earned their stripes for starting and sustaining this desirable tradition.

However, the regularity of the disclosure should be matched by its comprehensiveness. While NNPCL scores high marks on the former, it has started falling short on the latter. The 2023 audited account that NNPCL released on its website on 20 August 2024 is quite bulky at 120 pages. But bulkiness is not exactly the same as exhaustiveness. Four of the six audited statements released by NNPCL so far included separate accounts for the group and its subsidiaries. For the 2021 financial year, for example, the company released 21 different reports. But for the 2022 financial year, NNPCL released only one report, a practice that it has carried into 2023. This is not good enough.

Without stand-alone audited reports on the subsidiaries, it will be difficult to have a full view of how the different components of the company are faring or know the value they add to their shareholders (who, in this case, are all Nigerians). This is more so because NNPCL has stopped publishing the monthly financial and operations reports that Dr. Ibe Kachikwu started in 2016 when he became the GMD of the organisation. The last NNPC monthly financial and operations report released was for August 2021. No reason was given for discontinuing this granular and useful report. Unlike its peers, NNPCL does not accompany its audited financial statements with comprehensive operational reports that lay its operations bare to all in a comprehensible and well-visualised manner. It is difficult to make a compelling case for why the corporation that transformed into a company will opt for less disclosure instead of more.

But there are even more fundamental issues and questions arising from the 2023 audited accounts. It is important to state upfront that these questions do not necessarily suggest wrongdoing or coverup on the part of the management of the company or its auditors. Between the numbers and the notes, audited financial statements should be self-explanatory and should provide a good window into the operations of the entity. Where there are questions without obvious or adequate answers, then someone has dropped the ball. Whether accidental or deliberate, such gaps or inadequacies invite doubt and distrust. This is not good for any organisation, especially one with a rich, dark history.

The first set of questions is about the ballooning of the total assets of the company. NNPCL claims that its total assets increased from N58.49 trillion in 2022 to N246.82 trillion in 2023. This is an exceptional growth of 322% from a year to the other. The natural question to ask is: what explains a four-fold expansion in total assets between two consecutive years? As provided for in the Petroleum Industry Act (PIA), joint venture oil and gas assets belonging to the Federation were transferred to NNPCL in return for dividends. So, it is understandable that the company’s assets grew from N16.27 trillion in 2021 to N58.49 trillion in 2022. But what was the exceptional event that occurred in 2023 that led to increase in total assets by more than 300%? Were newer assets transferred to NNPCL? This is doubtful. The massive increase cannot be explained by exchange rate gains alone, as the difference between the rates used by the company to calculate its assets in the two years—N907.11/$ in 2023 and N448.55/$ in 2022—does not fully capture such significant disparity. Something doesn’t appear to add up here.    

The relationship between the current and non-current assets of the company in 2022 and 2023 invites a question of its own. In 2022, NNPCL’s non-current assets amounted to N36.89 trillion while current assets were N21.39 trillion. But in 2023, non-current assets at N74.18 trillion were completely dwarfed by current assets at N172.64 trillion. The logical question to ask is what happened or what is going on here? But it gets more interesting. Under non-current assets, Property, Plant and Equipment (PPE) shrank from 54% of total assets in 2022 to 27% of total assets in 2023. As a capital-intensive company, NNPCL’s assets should tilt more towards non-current assets, especially its PPE. So, what explains the shrinking of both the PPE and the non-current assets in 2023? For context, PPE normally constitutes more than 50% of the total assets of global oil companies, private and public. So, what is going on with NNPCL?

There is a partial hint in what happens to be the major component of the current assets for the financial year under review. Trade and Other Receivables (what NNPCL was owed) grew from N17.7 trillion in 2022 to N162.96 trillion in 2023, an increase of 820%. Again: what explains this significant jump in two consecutive years? Also, Trade and Other Receivables rose from 30% to 66% of total assets from one year to the other. This suggests that in 2023, NNPCL looked more like a trading company than an oil production company if two-thirds of its total assets are in what it was owed as opposed to what it owned.  

Notes 24 on page 80 has a breakdown of the Trade and Other Receivables. This shows that Other Receivables alone amounted to N108.44 trillion. Note 24.3, also on page 80, has a disaggregation of the Other Receivables, and this indicates that Sundry Receivables accounted for N108.15 trillion or 99.7% of Other Receivables. Then, Note 24.3.1 on page 81 defines Sundry Receivables as: “mainly recovered but yet to be settled debt, receivables from defunct bank and deposits for letters of credit, joint venture receivables and strategic alliance receivables.”  That was all the explanation offered for assets worth about $120 billion (based on the N907.11/$ conversion rate used by the company for its assets). By all standards, $120 billion is a significant sum that deserves fuller explanation.

This scanty level of disclosure is duly replicated on the liability side, in a more perfunctory manner.  According to NNPCL, its Trade and Other Payables (basically what it owed others) increased from N25.03 trillion in 2022 to N163.73 trillion in 2023. This means that Trade and Other Payables increased by 554% from one year to the other. Trade and Other Payables also constituted 66% of the Total Equity and Liabilities of the company for the year as against 43% of the previous year. The natural question to ask again is: what is going on here or why is this so?

But this is not the catch. Note 38 on page 96 has a disaggregation of the Trade and Other Payables. This reveals that Other Payables alone accounted for N112.58 trillion. This is further broken down in Note 38.3, on the same page, which shows that Accrued Expenses alone amounted to N104.13 trillion. In 2022, Accrued Expenses amounted to N442.58 billion in 2022. This means that there was a whopping increase of 23,427% in Accrued Expenses from one year to another. Is that not amazing? Again, it is logical to ask: what’s going on here?

Note 38.3.2 on page 97 simply explains Accrued Expenses as consisting of “retention fees, legal fees accruals and audit fees accruals.” That’s all the explanation for N104.13 trillion or $115 billion (based on the N907.11/$ conversion rate that the company used for its assets). That is it? NNPCL and its auditors (PWC, SIAO, and Muhtari Dangana & Co. and their partners that signed the statement) can surely do better than just state, in a rather flippant manner, that the company had accrued expenses of $115 billion in just 2023. The scanty way that $120 billion and $115 billion were treated as Sundry Receivables and Accrued Expenses seems to suggest a deliberate design and betrays a grave lack of respect for Nigerians. The treatment clearly doesn’t meet the significance threshold. The quality of disclosure here should clearly be of interest to the Financial Reporting Council of Nigeria.

According to the audited financial statement, NNPCL’s total assets was N246.82 trillion in 2023. This news should gladden the hearts of all Nigerians. Assuming this represented a true reflection of the total assets of the company, this should make the current administration deliriously joyous. Using NNPCL’s conversion rate for assets for the year, this means that the company had total assets of $272 billion as at 31^st December 2023 (a magical increase from $129 billion of 2022 when the company used N448.55/$ as the conversion rate for its assets).

Total assets of $272 billion in 2023 put NNPCL in the league of the biggest oil companies in the world by assets. In 2023, NNPCL had assets bigger than those of national oil companies and global international oil companies such as PEMEX ($136 billion), Equinor ($143 billion), Petronas ($179 billion), Petrobras ($217 billion) and Chevron ($261 billion). NNPCL’s assets in 2023 amounted to 72% of ExxonMobil’s ($376 billion), 67% of Shell’s ($406 billion) and 41% of Saudi Aramco’s ($660 billion). Is that not amazing?

This is more fantastic news than NNPCL’s ‘gravity defying’ profit and other pretty spins it has put on its 2023 financials. With such supposed assets, NNPCL can be more useful in addressing the forex liquidity challenge that has led to the serious undervaluation of the Naira after the free float compounded by the drying up of the forex from crude oil that accounts for more than 80% of Nigeria’s exports. If NNPCL’s assets are as disclosed, the company can easily attract a valuation above $100 billion. Listing 20% of the company on a foreign stock exchange will bring greater relief to the country than the recent habit of pledging future crude oil for some paltry loans. It will thus be important to fast-track the promised Initial Public Offering (IPO) on major stock exchanges. Let’s just hope the total assets are really as stated.  

There many other things that should get eyebrows raised in NNPCL’s 2023 financials. Some of these include: the value that the company provided to the country for the N669 billion it got as management fee from 30% of profit oil alone and whether that portion of the PIA should not be looked at again; whether the company is adequately flogging its assets and deriving enough profit from its revenue, when compared to its peers.

Other issues include: the size of and the increase in related-parties loans between NNPCL and its subsidiaries and the sundry things such loans are used for; the logic of declaring profit of N3.3 trillion while carrying liabilities of N8.7 trillion in taxes and royalties; and the rationale for the multitude of Funding and Technical Service Agreements (FTSAs) entered into by NNPC Exploration and Production Limited (NEPL), which not only constrain the crude oil available to the company and the country, but also raise questions about the technical and financial capacity of the E&P subsidiary of the company and the need for independent assessment of the worth of such agreements to the country, and evoke the spectre of the discredited Strategic Alliance Agreements (SAAs). There are other questions and concerns depending on how you look at the report and where you look.

While some of these questions arise because of the woolly nature of some of the disclosures, others are based on the need for better and more accountable stewardship of a national patrimony.  It is worth restating that these questions do not impute or establish wrongdoing yet. A company that received more than half a trillion Naira from just managing Production Sharing Contracts (PSCs) alone can sure do better with the quality and depth of its disclosures. It should also be held to, and should expect, a higher level of scrutiny. Disclosure seemingly for the sake of it, or just to appear to fulfil all righteousness, will not suffice. It will not pass muster.