Wednesday, July 14, 2010

Nigeria News Update: National Petroleum Corporation Insolvent, Says Finance Minister

N450bn debt : NNPC says it’s insolvent, says Babalola

Jul 14, 2010 Share | By Oscarline Onwuemenyi
Nigeria Vanguard

LAGOS —THE Nigeria National Petroleum Corporation, NNPC, said, yesterday, it was unable to pay the N450 billion it owed the Federation Account, stating insolvency as reason.

The Corporation stated its position in a letter to the Federation Account Allocation Commission, FAAC, which was read by Chairman of the Commission and Minister of State for Finance, Mr. Remi Babalola, at the FAAC meeting.

The minister said NNPC also requested for a reimbursement of N1.156 trillion from the Federal Ministry of Finance in order to repay its debt of N450 billion to the Federation Account.

FAAC had at the end of its meeting last month directed that a letter be written to the Corporation to come up with a concrete repayment plan.

Babalola said: “At the close of business, yesterday, my office received a letter signed by the Group Managing Director of NNPC wherein it stated that the Corporation was facing financial difficulties evidenced by, amongst others, the inability to pay for the domestic crude as at when due and delays in settling bills for fuel imports.”

He said the NNPC explained that the financial difficulties arose from disequilibrium between costs and cash inflow streams, adding that it was owed substantial amounts as un_reimbursed subsidy on petroleum products.

The minister said the Corporation claimed that it was insolvent, with current liabilities exceeding current assets by N754 billion as of December 31, 2008.

He said: “NNPC spends increasing sums of money in repairing/replacing vandalized assets and it is suffering from products losses arising from there from.

Also, the cost of holding strategic reserves of petroleum products on behalf of the Federal Government including demurrage on this reserves.”

Babalola added that the corporation said it was incapable of repaying the N450 billion owed to the Federation unless it was reimbursed N1.56 trillion owed it by the Federal Ministry of Finance, noting: “It was finally resolved that we should write to the Presidency to find a final solution to the lingering debt.

What is important is that we resolve this matter, and the Corporation has accepted that it owes this said sum.

“As for the claim by the NNPC that it is owed about N1.156 billion by the Ministry of Finance, we don’t know whether we owe them any money, because we have not audited the Corporation and, therefore, we have not verified the veracity of this claim.

“When NNPC came out and said that we owe them N1.156 billion, we now decided to appoint auditors to go and audit their accounts; and President Goodluck Jonathan has recently ordered the audit of the oil and gas behemoth, and when the audit is completed we would be able to verify exactly how much the corporation is owed and then find ways of resolving that.”

The minister added: “The true position of the matter is that NNPC is bleeding. There was a particular month that the NNPC could not pay the money it was supposed to pay into the Federation Account. I mean how can you produce something for N60, for instance, and sell that thing for N40? How can any company survive on that?

“The issue is not about whether they will pay or not, but about whether they are able to pay. This further buttresses the need for full implementation of deregulation as a veritable economic imperative. What is important to FAAC is for NNPC to pay whatever it owes to the Federation Account.”

Meanwhile, at the FAAC meeting, revenue amounting to N413.277 billion was distributed among the federal, state and local governments, out of a total revenue collection of N607.386 billion in June 2010.

Giving the breakdown, Babalola said that statutory allocation accounted for N361.25 billion of the total revenue distributed as against the N340 billion shared last month, while the Value Added Tax, VAT, was N52.027 billion compared to the previous figure of N40.543 billion.

There was no augmentation from the domestic excess crude account.
The minister said: “The distributable Statutory Revenue for the month is N361.25 billion which shows an increase of N21.119 billion or 6.21 per cent compared to that of May 2010.

The increase was attributable to improved production as a result of re_opening of Trans Forcados, EA Terminals and Nembe Creek trunks line as well as Force Majeure lifted in Brass Terminal.

“In addition, improved tax drive and increase in the volume of import had positive impact. There was no exchange gain and augmentation because the prevailing exchange rate of N147 per US dollar is lower than the N150 benchmark; and the revenue inflow for the month is higher than the monthly approved figure.”

Out of the Statutory Allocation of N361.250 billion, the Federal Government received N171.679 billion, about 52.68 per cent; States, N87.078 billion, about 26.72 per cent; and Local Government Councils, N67.133 billion, about 20.60 per cent.

The 13 per cent derivation accounted for the balance of the statutory allocation of N35.361 billion.

The States got the lion’s share of the VAT distribution of N26.014 billion (50 per cent); closely followed by the Local Government Councils, which received N18.209 billion (35 per cent).

The Federal Government received 15 per cent of the distributable VAT, amounting to N7.804 billion.

Babalola has canvassed the institutionalization of fiscal prudence at all tiers of governance in line with the provisions of the Fiscal Responsibility Act (FRA) 2007.

He disclosed that the fiscal prudence would assist in maintaining macroeconomic stability and also position the economy on a sustainable growth trajectory.

The minister called for the harmonisation of the various economic policies of the tiers of government in order to achieve medium term credibility.

“A significant challenge we face is the harmonisation of the various economic policies of the tiers of government. Clearly, the short_term effectiveness of these policies will depend on their medium_term credibility.

“To retain their credibility, exit strategies will be needed to convert fiscal and monetary policies from extraordinary short_term support to sustainable medium_term frameworks,” he said.

He told the FAAC members that President Goodluck Jonathan had directed the Department of Petroleum Resources (DPR) to henceforth generate monthly oil production statistics for reconciliation in the second month after the month of data gathering.

This directive, Babalola explained, had become necessary to address the problem of recoveries for overpayment and underpayment to State from the 13 per cent derivation computation due to the lateness in the release of derivation indices.

“Furthermore, Mr. President has also directed that the Revenue Mobilisation, Allocation and Fiscal Commission (RMAFC) should ensure that the figures so generated are used for the computation and sent to the Federal Ministry of Finance for revenue allocation by the third month following the initial month of data generation,” he revealed.

The monthly Federation Account Allocation Committee (FAAC) meeting, which was attended by Accountant General of the Federation, Alhaji Ibrahim Dankwambo; Director of Home Finance in the Federal Ministry of Finance, Alhaji Gidado Mohammed; and commissioners for finance and accountants_general from the 36 States.

N1.15tr Debt Crippling NNPC, Says GMD

But we’re not insolvent’, FG, states, LGs share N413bn

From James Emejo in Abuja, 07.14.2010
Nigeria ThisDay

Group Managing Director of the Nigeria National Petroleum Corporation (NNPC), Mr Austin Oniwon, has said that the corporation is unable to pay the N450 billion debt it owes the federation account partly because its current liabilities surpass its assets by N754 billion as at December 31, 2008.

But the corporation quickly moved yesterday to quell suggestions by the Minister of State for Finance, Mr. Remi Babalola, that it was insolvent, maintaining that it is being owed fuel subsidy arrears of N1.156 trillion by the Federal Government.

If reimbursed, the NNPC said it would enable the corporation offset the N450 billion debt being owed the Federation Account Allocation Committee (FAAC).

But revenue amounting to N413.277 billion was yesterday distributed among the federal, state and local governments for the month of June in spite of NNPC’s indebtedness to FAAC.

NNPC’s financial position was contained in a letter signed by Oniwon and addressed to the Chairman of FAAC last Monday, in response to a letter from the committee demanding that the corporation provide a repayment plan for the debt at FAAC’s monthly meeting held yesterday.

Speaking at the meeting, Babalola said: “The distributable Statutory Revenue for the month is N361.25 billion, which shows an increase of N21.119 billion or 6.21 per cent compared to that of May 2010. The increase was attributable to improved production as a result of re-opening of Trans Forcados, EA Terminals and Nembe Creek trunks line as well as Force Majeure lifted in Brass Terminal.”

The minister said President Goodluck Jonathan had directed the Department of Petroleum Resources (DPR) to, henceforth, generate monthly oil production statistics for reconciliation in the second month after the month of data gathering.

This directive, he explained, had become necessary to address the problem of recoveries for overpayment and underpayment to state from the 13 per cent derivation computation due to the lateness in the release of derivation indices.

“Furthermore, Mr. President has also directed that the Revenue Mobilisation, Allocation and Fiscal Commission (RMAFC) should ensure that the figures so generated are used for the computation and sent to the Federal Ministry of Finance for revenue allocation by the third month following the initial month of data generation,” he said.

According to the minister, other reasons given by NNPC for defaulting in payment of debts include the fact that it is facing financial difficulties evidenced by, among other things, the inability to pay for domestic crude as and when due, and delays in settling bills for fuel import.

He also said that NNPC’s financial difficulties stemmed from disequilibrium between cost and cash inflow streams and that the corporation is owed substantial amounts as un-reimbursed subsidy on petroleum products.

Additional reasons provided for its failure to meet its obligation was that the corporation is spending increasing sums of money in repairing/replacing vandalised assets and is suffering from products loss arising therefrom.

On what action the committee has decided to take against NNPC and the claim that the corporation is being owed by the Federal Government, Babalola said: “It was resolved that we should write to the presidency to find a solution to how NNPC will pay the federation account - that was the position of FAAC for that matter: we don’t even know we owe them any money, so I can’t talk of how... the job of the ministry of finance is to find finance, so there shouldn’t be any problem if we owe them: but the one that is important is for NNPC to actually pay the money that they’ve agreed they owe the federation account because we have not audited it - we have not verified it. Until when that is done, that is when we can say that we owe them.”

NNPC yesterday said contrary to the statement credited to Babalola that the NNPC is insolvent, the management of the corporation was canvassing strong arguments to the contrary.

Group General Manager Group Public Affairs of the corporation, Dr. Levi Ajuonuma, stated that NNPC was not incapable of meeting its financial obligations to its partners and stakeholders.

“We cannot be classified as insolvent when we have a healthy cash flow and we can pay for our crude and product importation obligations. While it is true that the national indebtedness to the NNPC is putting pressure on our operations, nonetheless we are able to meet all our obligations. We therefore cannot be said to be insolvent,’’ Ajuonuma stated.

He said that the NNPC would continue to play its central role of ensuring steady and efficient supply of petroleum products throughout the country and urged Nigerians and its Joint Venture Partners to remain calm.

Meanwhile, the Accountant-General of the Federation, Alhaji Ibrahim Dankwambo, said yesterday that the Excess Crude Account (foreign) stood at $3.54 billion while the Excess Crude Account (domestic) is valued at N50.9 billion.

“And in addition to that, the sum of N75 billion went into the excess revenue account. What resulted to the increase in the amount we are sharing is that while we maintain the N365 billion shared to the federation account, there was an increase in VAT. The Value Added Tax increased from what we shared last month and that is the increase,” he said.

NNPC is insolvent - Babalola

Wednesday, 14 July 2010 01:21 Reuters
Nigeria Next

Current liabilities now exceed assets

The Nigerian National Petroleum Corporation (NNPC) does not have enough money to fund its operations and is technically insolvent because of unpaid subsidies it is demanding from government, Remi Babalola, minister of state for finance said on Tuesday. The state owned oil behemoth, which oversees Nigeria’s vast oil industry, is locked in a standoff with the Federal Government, saying it is owed more than N1 trillion in subsidies.

The Federation Accounts Allocation Committee (FAAC), which manages the distribution of Nigeria’s oil revenues to the three tiers of government, says however that NNPC owes it a shortfall of N450 billion in unremitted crude oil receipts. “NNPC is insolvent as current liabilities exceed current assets,” Babalola told a FAAC meeting in Abuja.

“NNPC is incapable of repaying the N450 billion owed to the Federation Account unless it is reimbursed the N1.156 trillion (in subsidies) it has requested from the federal ministry of finance,” he said.

Despite being Africa’s biggest oil and gas producer, Nigeria is reliant on imports to meet its energy needs. Its four refineries are in disrepair, but even at full capacity they would only meet around a quarter of domestic energy demand.

Most people in Africa’s most populous nation see subsidised fuel as the only tangible benefit of their nation being a major world oil producer. The government has said it wants to remove the subsidies, which cost upwards of $4 billion a year, but such a move is likely to meet with popular resistance.

NNPC buys crude oil at the prevailing international market rate but sells petroleum products to local marketers at a discount in order to keep pump prices artificially low. The government is supposed to subsidise the difference.

NNPC’s financial woes highlight the need for urgent reforms to Nigeria’s mainstay oil industry, where the state-run firm’s funding shortfalls have been an ongoing hindrance to the OPEC member country meeting its full production potential. Foreign oil firms including Royal Dutch Shell, Exxon Mobil, Chevron, Total and Agip, operate onshore in Nigeria through joint ventures in which NNPC holds significant stakes.

NNPC has consistently struggled to meet its share of cash calls to fund the joint ventures, leaving some struggling to maintain existing operations or invest in future projects.

Parliament is currently considering wide-ranging legislation to reform the industry, part of which aims to solve the funding problems by splitting NNPC up and making the joint ventures independent, allowing them to tap capital markets. Nigeria has struggled to pump much above two million barrels of oil per day (bpd), just two thirds of its installed capacity, partly because of insecurity in its restive Niger Delta oil heartland, but also because of the funding problems.

Babalola said NNPC was spending increasing amounts of money repairing vandalised infrastructure in the Niger Delta, where an amnesty last year has brought a period of stability, and was also suffering. President Goodluck Jonathan has ordered the finance ministry to audit the accounts of NNPC, which has been plagued by mismanagement and corruption over a number of years.

Petroleum Corporation is broke, says minister

By Bassey Udo
July 14, 2010 06:53AM

For the umpteenth time, Remi Babalola, the Minister of State for Finance, yesterday restated that the Nigerian National Petroleum Corporation (NNPC) is incapable of meeting its financial obligations.

Mr. Babalola, early this year, disclosed that the company was broke, as the poor state of its finances could not allow for the payment of the outstanding N450billion debt to the Federation Account. Despite several ultimatums to its management since last year demanding the debt repayment schedule, the Federation Accounts Allocation Committee (FAAC), at its meeting last month, resolved to send a reminder, after the minister warned journalists that a positive response should not be expected, because of the corporation’s dismal cash flow situation. Briefing the committee yesterday during its meeting for July, Mr. Babalola said the NNPC’s group managing director, in his response to the FAAC, on Monday, reported that it is facing serious financial difficulties that has incapacitated its ability to regularly pay for its daily domestic allocations as well as settle its fuel import bills.

He added that the NNPC boss claimed that “the corporation is insolvent, as its current liabilities exceeded its current assets by N754billion as at December 31, 2008,” adding that it would not be able to pay the N450billion owed the Federation Account, unless Federal Government reimburses the N1.156trillion it spent on subsidy expenses incurred for petroleum products supplies and distribution since 2003.

Mr. Babalola said the NNPC has submitted claims, including expenditures on repairing/replacement of vandalized oil industry assets and attendant petroleum products losses; demurrage and cost of holding strategic reserves for petroleum products on behalf of the government, and financial difficulties as a result of disequilibrium between operational costs and actual cash-flow streams.

Though the minister said NPPC’s total debt profile would not be ascertained until the completion of a comprehensive audit of its operations and activities ordered by the Federal Government, he added that FAAC resolved to take the matter before the Presidency to find a way of getting the payment of the debt.

Unverified debt

“The Ministry of Finance does not know whether it even owes NNPC the N1.154 trillion claimed until that amount is verified and audited,” he said. “The job of the ministry is to find finance wherever it is. What is important is for the NNPC to pay what it has agreed it is owing to the Federation Account before reconciliation is carried out and the difference (if any) paid to them.”

Rebo Usman, the chairman of the Finance Commissioners’ Forum, who is also the Taraba state finance commissioner, has already said that the states do not agree that NNPC is being owed the N1.154trillion it is claiming, warning that any decision to write-off the debt would not be accepted, as all accruals to the Federation Account should paid in first before reconciliation and claims.

Presenting the update on the Excess crude account balance, Accountant General of the Federation (AGF), Ibrahim Dankwambo, said an additional $179million this month has brought the current balance in the dollar-denominated account as at July to $3.54billion, while another N20billion to the domestic ECA has improved the balance N53.9billion.

He said the sum of N75billion was paid into the newly created excess revenue account for the month. Meanwhile, the meeting agreed to share a total sum of N413.277billion for the month, including the sum of N52.027billion for value added tax (VAT), an increase of about N9.863billion, or 2.45 percent compared to the figure for May.

Nigeria state oil firm insolvent, says minister

Tuesday, 13 July 2010 23:47 UK

Nigeria is a crude oil producer and exporter, but must import refined fuel Nigeria's state oil firm is insolvent, unable to pay debts of $5bn (£3.3bn), a government minister has said.

Junior Finance Minister Remi Babalola said the Nigerian National Petroleum Corporation had asked for help to cover its debts and fund its operations.

But the NNPC denied the claim and said the government was not paying its own debts to the firm.

Nigeria is a major crude oil producer and exporter but must import refined oil to meet its domestic needs.

"NNPC is insolvent as current liabilities exceeded current assets by 754bn naira ($5bn)," Mr Babalola said at a government finance meeting.

He said the NNPC owed about $3bn to Nigeria's Federation Account, which distributes oil money to varying levels of the country's government.


The NNPC rejected Mr Babalola's claim and said it was able to meet its financial obligations.

"We cannot be classified as insolvent when we have healthy cash flow and we can pay for our crude and product import obligations," said NNPC spokesman Levi Ajuonuma.

He said the Nigerian government owed the company more than $7bn in subsidies "which if reimbursed would enable the NNPC to offset the... debt being owed the Federation Account Allocation Committee".

The NNPC is plagued by mismanagement and corruption, says the BBC's Caroline Duffield in Lagos.

Despite Nigeria being a major crude oil producer, it must buy almost all the oil it uses on the international market because its own refineries are insufficient and dilapidated.

The NNPC buys oil at international prices and sells it on to local marketeers at a big discount because Nigerians see cheap petrol as their birthright, says our correspondent.

President Goodluck Jonathan has promised to tackle corruption in the oil industry. He has sacked some officials from the NNPC and ordered an audit of the firm's accounts.

There is also legislation currently before the parliament which would bring sweeping reforms to Nigeria's oil and gas industry.

CBN and the health of the banks

Wednesday, 14 July 2010 00:00
Editor Opinion
Nigeria Business Day

TOP officials of the Central Bank of Nigeria (CBN) have recently been quoted as saying that the sale of the banks that received special cash injection from the CBN should be concluded by August 2010, just as sweeping comments recently attributed to Standard and Poor’s (S & P) Managing Director for Financial Institutions suggested that Nigerian banks are still considered in international circles to be highly risky in spite of interventions by the CBN.

The comments by the S & P staff were not directed at any specific bank, but generally towards the Nigerian banking system, and so may not offer a picture of specific performance, but there is no doubt that claims of return to profitability in the industry are suspect, and that there are still serious issues of capitalization, liquidity, risk management and corporate governance.

The attempt by the CBN to refute the S & P views has been offered no more than weak claims unsupported by verifiable facts of figures. Beyond the unpublished and selective audit report that the CBN relied on for interventions commenced in August 14 last year, there does not seem to be any recent official attempt to get and provide a uniform picture on the health of Nigerian banks.

Indeed, it is the failure of the Nigerian bank regulators to periodically provide up-to-date reports on the situation of the banks under their watch that makes it easy for anyone to say anything on the situation of the banks, and it will be difficult to tell who is right or who is wrong.

Rather than provide transparent arms-length regulatory oversight that will encourage bank boards to improve their performance, the CBN had replaced the executive boards of about 10 of the 24 banks with its own appointees without the consent of their shareholders. While top officials of the CBN do make verbal claims that the intervention banks are fast returning to profitability, there is no formal regulatory report to support such claims.

It is unclear if the CBN that has managed the banks by proxy since last August and is now trying to get buyers for them can easily be expected to publicly admit that the banks are not improving, even if that were truly the case, without indicting itself. It had taken a change of leadership within the CBN in 2009 for the agency to admit that some of the banks under its watch required urgent bailout at the time.

For the five “rescued banks” that the CBN is trying to sell, it is not clear who the sellers will be out of the CBN and the shareholders of the banks, a number of who are actually in court to challenge the action of the CBN in replacing their executive boards without any reference to them.

Elsewhere the recent practice has been to give the shareholders a choice in accepting bailout funds from government and choosing the mode and speed with which they will repay the government funds. The risks that prospective buyers of the five banks must face are therefore not limited to opacity about their true performance since the CBN’s intervention, but must also include the risks that any of the CBN actions are subject to judicial reversals on the conclusion of the cases pending in Nigerian courts.

The foregoing raise questions about what body of rules guides the CBN in its regulatory interventions in the banking system, and who drew them up. Only a public knowledge of these two pieces of information can reduce the current regulatory uncertainty beclouding the outlook of the Nigerian banking system.

Germany to execute 19 power projects in Nigeria .

Wednesday, 14 July 20
From Emeka Anuforo, Abuja
Nigeria Guardian

GERMANY has concluded plans to intervene in the lingering power supply crisis in Nigeria, through direct participation in 19 electricity projects in the country.

The initiative is being planked on a Memorandum of Understanding (MoU) signed between the two countries in 2007.

The sites of the projects were not immediately disclosed, but sources at the Ministry of Power told The Guardian that they would have national spread.

Under the MoU, Nigeria would supply gas to Germany, in return for the European country’s investment in the country’s energy sector, which also includes technical support for development of local capacity for the industry.

Vice President, Alhaji Namadi Sambo, said at a joint partnership meeting in Abuja that the projects under the pact were selected to increase the energy mix; provide generation assets in areas without power generation assets; as well as utilise available feedstock such as coal, wind, solar and hydro to produce power.

Represented by the Minister of State for Power, Nuhu Wya, Sambo said “the partnership’s power projects are diverse and focus on a balanced mix of power generation. The projects are sited in areas closest to where the power is to be consumed, thus helping to stabilise the grid and reduce technical losses.

“When you think that the National Integrated Power Projects (NIPP) and the PHCH alone have increased installed capacity by 3,000MW in the last five years, and we require over 2,000MW installed capacity per year to achieve 20,000MW by year 2020, then you can begin to see the immense technical capacity we require.”

Head of Division, International Energy Policy of the German Foreign Office and Head of the German delegation, Dr. Robert Klinke said at the fifth yearly conference of the Nigerian-German Energy Partnership, in Abuja, that about 19 projects that had been identified on both sides would be of mutual benefits to both countries.

Klinke explained that Germany is offering to help rehabilitate the Nigerian power infrastructure and hopes to have access to natural gas from Nigeria, to diversify its energy base, as well as ensure energy security for Germany.

“It is a win-win situation. We have many German companies coming into Nigeria with state of the art technology and we have also developed a comprehensive approach to rehabilitate the Nigerian power sector, which is the added value we are bringing”, he said.

This, he stressed, would include elements of power infrastructure rehabilitation, renewable energy and energy efficiency.

“It is a complete package we are offering, and I am confident that our Nigerian partners would embrace the spirit of the partnership and do their part in bringing about the full benefits for both countries. I am sure that Nigeria would benefit tremendously from this partnership.

“This partnership is one of the cornerstones of our bilateral economic relations. We are all in some form of crises, and it is during times of crises that major decisions are taken.

That is why we are looking at which projects we can begin immediately “We have done enough talking over the past three years. What remains now is to begin implementation. We hope our Nigerian partners would come in because we are really ready to begin implementation.”

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