Fuel Subsidy, Pipeline Repairs Hinder NNPC’s Profitability

The Nigerian National Petroleum Corporation (NNPC) is currently unable to make profits from its operations because it is subsidising consumption of petrol by Nigerians and also paying heavily to repair and maintain its networks of pipeline that run across the country, its monthly financial and operations reports have revealed.

According to the first five operations reports the NNPC has released so far in 2017, it has raked up as much as N67, 718,819,452 on under recovery for importation and sale of petrol in the country.

The NNPC also recorded a trading deficit of N3.55 billion in May; N5.27 billion in April; N5.62 billion in March, as well as N14.12 billion and N14.26 billion respectively in February and January 2017.

The reports, which were obtained by THISDAY yesterday in Abuja, explained the operations of the corporation in Nigeria’s downstream sector from January to May. They also suggested this was impacting heavily on the NNPC’s books.

In the downstream petroleum sector, under recovery happens when the expected open market price of petrol (pump price per litre), which comprises the cost of importation and distribution of petrol like marketers’ margins; landing cost; freight cost; administrative charges; and lightering or ship-to-ship charges, is below the federal government’s approved official retail price at the service stations.

The corporation at the moment has become the sole importer of petrol in Nigeria, doing close to 100 per cent of importation, and as such bearing the burden of keeping up the country’s petrol supplies.

Its monthly financial reports for January, February, March, April and May, however indicated that it had been doing this at the expense of its corporate profitability.

The reports quoted NNPC’s under recovery from its supplies and distribution of petrol in January to be N37,263,846,591; that of February was N6,297,594,169; while for March, it recorded a N8,206,727,836 under recovery. For April, it was N8,206,727,836; and N7,743,923,020 in May, to bring the corporation’s total under recovery on petrol supplies for these months to N67,718,819,452.

THISDAY also learnt from sources in the NNPC and ministry of petroleum resources that subsidy on petrol was back but that the government was quiet about it.

These sources explained to THISDAY that since subsidy payments was not provided for in the 2017 budget, the NNPC was asked by the government to ensure that it keeps up petrol supplies in the country.

The corporation though has a products supplies framework –Direct Sales – Direct Purchase (DSDP)- in which it commits parts of its 445,000 barrels a day (bd) daily domestic allocation to third parties or refiners in return for equivalent worth of products.

Similarly, in May, 2017, the Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, confirmed in a podcast message that the NNPC was recording under recoveries in its petrol importation and supplies.

Kachikwu explained that the operational environment had changed since May 2016, when the government opted for a price modulation mechanism in the downstream petroleum sector, as against full deregulation of the sector, hence the under recoveries.

He stated then: “When we did all these, pricing for crude oil was more in the $25 to $30 per barrel; today, it is in excess of $54, which is fantastic because it means that our revenue stream is improving.

“But, it is a twin window, whenever the price of crude oil goes up, obviously the price of refined petrol goes up and we begin to have systemic challenge in terms of the pricing on the local base.”

“So, that gap has begun to return and today, what you find is that the NNPC continues to import massively on behalf of the federal government. It has gone back to about 90 to 95 per cent for the whole country; therefore, its books are absorbing some of the cost implications of this,” he added.

The minister also confirmed that independent marketers were no longer importing petrol into the country. According to him, “The second is that once this happens the marketers begin to shift backwards. Participation by individual marketers to help us continue the normal business and marketing cycle that should be what you expect does no longer exist. Most of them are not importing.”

But it was not only subsidy for petrol that has kept NNPC on a deficit trend in its operations, as its reports indicated that crude oil and products losses, as well as expenditure on repairs of its pipelines had equally contributed in great measures.

For crude oil losses within the periods, the report noted that in January, the corporation recorded a loss of N1,117,572,295; February - N1,569,328,834; March - N2,024,222,976; April - N2,388,208,668; and May - N4,121,733,826, to bring the total to N18,168,376,586.

On product losses, NNPC in March lost N680,504,246; in April, it was N1,245,703,210; and May - N1,328,119,100, to sum it up to N5,845,008,232. No product losses in January and February, 2017 were recorded.

Similarly, expenditure on pipeline repairs and management for January was N11,223,583,353; February - N15,803,186,300; March - N11,530,599,643; April - N8,571,810,550; and May -N7,786,598,978.