The Nigerian National Petroleum Company Limited (NNPCL) recorded a project funding underperformance of $1.216 billion between January and June this year, THISDAY analysis of recent data from the national oil firm has revealed.
While the monthly forecast for cost recovery and funding of government priority projects was $536 million, the total projected spending for the purpose for the whole of 2022 was pegged at $3.21 billion.
However, the NNPCL data showed that in the first six months of this year, the company defaulted in its projection for the period by $1.216 billion.
It indicated that for the period, whereas over $500 million was budgeted for each month as the sum to be spent, $333.4 million was expended in January, but it fell drastically to $18.1 million in February.
The funding for priority projects rose again in March, hitting $294.3 million and $150.5 million in April. The funding was $113.3 million in May and $249.8 million in June.
The default is coming amid increasing cash crunch and the inability of the organisation to meet its monthly financial obligation to the federation, comprising the federal, state and local governments which operate a joint account.
THISDAY recalls that in 2021, the company posted a deficit of over $2.6 billion for cost recovery and priority projects, although it budgeted about $5.8 billion for the purpose.
While through cost recovery, a party is able to recoup its capital and operating costs out of a specified percentage of production, the NNPC also has major oil and gas projects meant to boost the country’s production.
Some of the projects, which have been on for years include domestic gas development initiatives, frontier exploration, renewable energy and the Nigeria/Morocco pipeline.
They also include the Gbaramatu IPP/Excravos power plant, upgrade and rehabilitation of Delta IV, upgrade of Oben metering, Sapele metering station, Ajaokuta metering station as well as construction of Egbin 500mmscfd gas facility.
In addition, the NNPCL had previously listed the construction of the West Niger Delta project, Asa north Ohaji project, Excravos/Lagos pipeline expansion, OB3 supply lines as well as the Ajaokuta-Kaduna-Kano (AKK) project as some of its priority projects. Also listed was the Brass LNG, although funding has since dried up for the project.
In all, a shortfall of $94.7 million was recorded in January, $398.7 million in February, $213 million in March and $214.3 million in April.
In addition, in May, the NNPCL defaulted to the tune of $171.4 million while in June, it was $124 million.
Also, the NNPCL has slashed its cash call arrears since 2016 from the initial $4.689 billion to $873.3 million as of July.
The huge sums owed five international oil companies has now slumped after the company fully paid off Mobil Producing Nigeria Limited and Chevron Nigeria Limited. The two IOCs were initially owed $833.7 million and $1.097 billion respectively.
While both oil firms have now been fully cleared, however, Shell Petroleum Development Company (SPDC), Total and Agip are still being indebted to the tune of $595.1 million, $65.1 million and $213.1 million respectively. But all the IOCs have now been paid $3.816 billion cumulatively since 2016, the data showed.
The national oil company had signed the cash call repayment agreements with the five IOCs to defray the cash-call arrears within a period of five years after many years. However, the repayment period has now exceeded six years.
Cash Call obligations arise when non-operating JV partners like the NNPCL are called upon to provide funding for operations usually based on each partner’s equity in the project.
At the time, the Ministry of Petroleum Resources had negotiated a discount with the IOCs, comprising SPDC, Total, Mobil, Chevron and Agip from about $5.1 billion down to $4.68 billion and had since then continued to reduce the debt payments in installments.
The cash call arrangements, under which NNPCL pays for its 55 per cent to 60 per cent share of investment in the upstream joint ventures, had been in place for over 40 years before it was restructured.
Although the international price of crude oil has been mostly above $100, spurred by the Covid-19 recovery by most economies and the Russia-Ukraine war, the NNPCL has not benefitted fully from the rise, since it cannot meet its Organisation of Petroleum Exporting Countries (OPEC) quota.
The government blames massive oil theft, sabotage and lack of investment in the upstream sector as some of the challenges faced in ramping up production, which almost hit a deficit of 800,000 bpd in July.
In addition, the little realised from the sale of Nigeria’s crude oil is used in the importation of petrol, which is highly subsidised. This year alone, it is expected to gulp at least N4 trillion.
The Minister of Finance, Dr Zainab Ahmed, recently pegged the daily spending on petrol subsidy at N18 billion.
