Is the NNPC Broke? Queries for NNPC and CBN

It came as no surprise to close observers of the economy when the Minister for State for Finance, Remi Babalola reported that the NNPC was insolvent. Although the substantive finance Minister, Olusegun Aganga and the Information Minister refuted this allegation the very next day at a Press Conference after the weekly meeting of the Federal Executive, nonetheless, new Group Managing Director of NNPC, Mr. Austin Oniwon, whose letter prompted Babalola’s initial revelation reiterated before the Senate Committee on Petroleum Upstream that “NNPC is insolvent as current liabilities exceeded current assets by N754bn as of December 2008, and so, NNPC is incapable of repaying the N450bn owed to the Federation Account”! Austin Oniwon also narrated how former Nigerian leaders in clear violation of the constitution directed the NNPC to release funds for various uses without recourse to National Assembly over the years, thus accounting for the N1.5 trillion which the government owes the Corporation.
 
It is not clear why the minister and his second in command publicly ridiculed themselves with their contradictory positions within 24 hours on a matter so vital to our economy and welfare! The Senate Committee demanded a breakdown of the subsidies that contributed to its insolvency, and directed the NNPC to submit its past 10 years’ budget and the approving authority of its expenditures within the period under review within 24 hours!!
 
The above reaction by the upper Legislature may suggest that NNPC’s subsidy outlays were fresh revelations which caught the august Assembly totally unaware, but this would be far from the truth. Indeed, close observers of the economy would claim that the Senate’s reaction borders on blatant hypocrisy!
 
In a series of articles MONETARY POLICY & INSINCERITY (1-10) of 8/10/07 – 10/12/07, we cautioned in No. 9 of the series, the “lack of sincerity in the spirit of the 2008 budget” because of the “complete absence of any mention of petrol subsidy” and noted that “in spite of this obviously clear possibility (of subsidy), the 2008 budget is silent on how the government has funded the subsidies so far or now it intends to cover increased subsidies next year (2008)”!
 
Indeed, we had also earlier warned in an article “The MOTHER AND FATHER OF FUEL PRICES” (22/11/04) that NNPC would most certainly go under if it continues to absorb daily subsidies of about N350m. Later in this column, in an article titled “IS THE NNPC BROKE? QUERIES FOR NNPC & CBN”, 13/02/06, readers will observe that the Senate is fully aware of the fiscal rascality of the Executive with regard to subsidies and the blatant violation of “impeachable “constitutional provisions with regard to payments into the consolidated revenue fund and the process for withdrawals therefrom. Indeed, the provisions for withdrawal were similarly violated when former President Obasanjo unilaterally committed almost $6bn to the failed power generation project!   Will President Jonathan also deepen such constitutional violations? As at today, NNPC continues to unilaterally fund subsidies.
 
The text of this article is once again reproduced for the benefit of our readers. Please read on:
 
“On Wednesday last week, the Senate adopted a motion of urgent National importance, moved by Minority Senate Leader Lawan Shuaibu and seconded by Senator Baba Tella (PDP Bauchi) that the NNPC Chief Executive and the key government officials who control and manage our treasury and our economic and monetary fortunes be summoned to explain why the NNPC did not remit N290bn oil sales to the consolidated revenue account for disbursement to the three tiers of government in 10 months last year.
 
“It is not clear why the National Assembly countenanced NNPC’s default for so long and a cynic might have concluded that the National Assembly was OK; thank you, but the default in the payment of an additional N27bn in January 2006 seems to have alerted the honourable Senators to shine their eyes especially when their own quarterly allocations remain unpaid till date! In the words of Senator Shuaibu “the NNPC was supposed to release N67bn but they released only N20bn. Later on, based on the President’s intervention, another N20bn was released in December 2005. Till this moment, the NNPC say they don’t have cash” (Daily Independent 9/2/06 – pg A2). This must be worrisome news for true lovers of this country, as it is difficult to comprehend how NNPC with a 450,000 barrel/day oil allocation can be short of cash, such that it cannot meet its constitutional cash obligations, particularly when the crude oil price remained above $50/barrel for most of last year!
 
“The Senate’s suspicion of foul play is amplified by the Deputy Senate President, Ibrahim Mantu’s refusal to grant more time to allow the invitees to provide useful information. Senator Mantu argued that “…more time would give them room to manipulate the record!” (Guardian 9/2/06 – pg 80). Even the endangered species of Nigerians, who still have faith in our nation, will feel more insecure at the overt expression of distrust by the Senate leadership of the key custodians of our treasury!
 
“In the last 12 months or so, we have on several occasions alerted the nation in this column that NNPC would be bankrupt by the end of the year if it continued to carry a subsidy bill of about N800m a day (N292bn per year i.e. 800 x 365 days) on its sale of both imported and locally refined fuel. It requires very little stretch of the imagination to recognize that this subsidy argument will be the defence of the NNPC Chief Executive to the summons by the Senate.
 
“But one would expect the Senate to be well acquainted with the issue of subsidy; indeed, the Deputy Senate President was head of the Palliatives Committee set up by the government to administer some cushioning to the blows and ravages of inflation brought about by increasing fuel prices! Indeed, Mr. President also reported in his 2006 budget speech to the Senate that the sum of N292bn was appropriated in 2005 for fuel subsidy; according to Mr. President, the payment of this amount was shared between the three tiers of government. Any expectation that the subsidy of N292bn was drawn from funds already lodged in the federal treasury (federation account) will be immediately dispelled, if the NNPC Chief confirms that the funds were not paid into the federatio
n account but were appropriated directly by the NNPC. In this event, the significance of the underlying constitutional implications will depend on the political posturing of the honourable senators.
 
“In reality, if the honourable Senators were truly committed to stable cleansing and accountability, they would agree that the power houses of our economy viz; the NNPC and the Central Bank would require closer scrutiny. It is regrettable that these critical engines of growth have not submitted independently audited accounts for public consumption for as long as one can remember! Nonetheless, it is widely reported that the NNPC is allocated 450,000 barrels of crude oil per day. It is expected that the oil company would refine a portion of the crude locally while the balance would be sold on the international market at current prices. In the event that crude oil prices remained about $50/barrel for most of 2005 NNPC would have earned an average of (365 days x 450,000 barrels x $50) i.e. $8.21bn. In the event that this huge dollar sum is not paid into the federation account in the currency in which the oil was transacted, it means that the NNPC would invariably change its revenue into naira before paying the naira sum into the federation account or before appropriating directly as subsidy as the case may be.
 
“In this event, the honourable members of the Senate must make it their duty to confirm from the NNPC CEO the rate of exchange adopted for converting NNPC dollar revenue into Naira. As it is, simple arithmetical deductions suggest that the nation’s dollar earnings are currently converted to naira at a rate of about N109=$1 before the resultant naira sum is consolidated with receipts from VAT, duties, etc, before sharing to the three tiers of government. The Senate must assure the nation that there is no evidence after thorough investigation that the NNPC changes its dollar revenue at the DAS rate of N128.5=$1 but settles its obligations to the federation account at the lower end of the covertly operated dual exchange rate i.e. at N109 = $1, resulting in an undeclared income of about N20/dollar, which, multiplied by the estimated NNPC revenue of $8.21bn will amount to over N164bn in cash!
 
“By the same token, the honourable Senate should seek an explanation from the CBN Governor on the whereabouts of the profits realized from its Dutch Auction System – DAS foreign exchange operations. In the event that the nation’s distributable dollar revenue is converted at N109=$1 before sharing and then subsequently sold at DAS at the premium price of $128.5 – a profit as in the case of the NNPC of about N20/dollar becomes available. This would translate to a profit of about N260bn, if we assume that about $13bn was appropriated into the federation account in 2005; there is need for the CBN Governor to confirm that this sum of N260bn profit was remitted into the federation account for distribution to the three tiers of government. The apex bank should also be subjected to an independent five years audit to ensure that the loopholes which facilitated the looting of the treasury by past Heads of State are now blocked.
 
“Finally, the honourable Senators will do well to seek explanation from the erudite Governor why the rate of the naira remains resistant around N130=$1 inspite of the quadrupling of our national reserves to over $30bn (with $6.4bn to spare for the Paris Club)! I hope the Senators will not be taken in by the glib talk that the naira appreciated by 3% for the first time in 20 years! This does not explain why our exchange rate was stronger at N80=$1 when our meager reserves of $5bn was only sufficient for about six months imports cover compared to the current super-comfort cover of over 25 months. It also does not explain why the South African rand appreciated from over R14 to its current R6 to the dollar inspite of South Africa ’s conservative reserve base of about $20bn and 5 month imports cover!
 
“Before the CBN Governor takes his leave from the Senate, he should be politely asked to explain what process causes the perennial excess liquidity and confirm what it cost the nation to borrow back its own funds with treasury bills and subsequently sterilizing the same borrowed funds. It should not be too difficult for Professor Soludo to explain the wisdom in borrowing in spite of surplus idle reserves!”
 
 
SAVE THE NAIRA, SAVE NIGERIANS!
Les Leba writes from Lagos

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