ABUJA (Sundiata Post) – The Nigerian National Petroleum Corporation (NNPC), was created to be a cash cow for the country but the reverse is the case, as the state oil company of Africa’s biggest producer bleeds money because it has questionably established subsidiaries that continue to wallow in inefficiency and waste.
NNPC has five oil trading subsidiaries; Duke oil company Inc, Duke oil Services Ltd, Calson Ltd, Hyson Ltd, and Napoil Company Ltd, which were primarily set up to market crude products, engage in direct oil trading activities, and make additional profit from oil operations for NNPC.
However, years after they were established, these five oil trading subsidiaries still do not have independent trading capacity to operate optimally rather they act as passive middlemen, flipping the crude allocated by the corporation to experienced trading houses like Vitol and Glencore.
At first glance, Duke Oil Company Inc., a company owned 100 percent by NNPC to engage in crude oil and petroleum products trading across the full stretch of oil trading and price risk management instruments in the international market seems to be good idea.
“The Company was formed by NNPC as part of a comprehensive review of its structural and business requirements necessary to achieve the corporation’s desire for a financially strong and independent integrated international oil and gas Company,” NNPC states on its official website.
Wumi Iledare, a professor of Petroleum Economics and Policy Research at the Centre for Petroleum Energy Economics and Law, University of Ibadan said NNPC subsidiaries acting as middle men will increase transaction cost which will always have a negative effect on the Federations account.
“Although sometimes NNPC do not have a choice as some oil traders will rather deal with middlemen than deal with NNPC due to some legal implication it might have for the oil traders,” Professor Iledare told BusinessDay by phone.
However, BusinessDay discovered that despite doing business in Nigeria, the company was registered in faraway Panama in 1989 while its head office was registered in the UK in 1992 as a service company. It was moved to Paris for a short period in 1997 but returned back to the UK in 1998.
“It is not an uncommon to have companies registered offshore in Nigeria alone. It is because Panama has attractive tax rates as most businesses always map out plans to avoid tax but not necessarily to evade tax,” Professor Iledare said.
However, an oil industry analyst who does want to be named disaagreed with Professor Iledare and asked angrily, “Why would NNPC register a company it owned 100 percent in faraway Panama? “These are the things the National Assembly should be questioning and be worried about,” the oil Industry analyst told BusinessDay.
Also, the composition of Duke oil company’s board of directors is unknown to anybody in the sector as there are also no records of Duke’s oil payment of taxes to the federal government neither has it published its audited account since inception.
“These are basically the medium which lots of funds are stolen as they are basically used by government to do political patronage,” an industry analyst told BusinessDay.
Last year, The House of Representatives Ad hoc Committee Investigating Revenue Leakages in the Department of Petroleum Resources (DPR) and NNPC beamed its searchlight on Duke Oil over alleged non remittance of over N6 trillion revenue.
“While other companies take 32,000 barrels of crude per day, Duke Oil alone takes 90,000 barrels per day and uses other oil firms as third-party traders who pay into offshore accounts belonging to Duke Oil, whereas there is no evidence of them remitting the said funds back to government coffers,” Chairman of the committee Jarigbe Jarigbe (PDP, Cross River) said.
Another of NNPC’s subsidiary is Hyson Ltd, which runs a joint venture between NNPC and Vitol S.A., a Swiss International crude oil and products trading company.
“As a subsidiary of NNPC, there is no qualification they need that NNPC does not already have. So there is no logical explanation why they are using a third party in 2018,” an oil and energy expert told BusinessDay.
NNPC owns 60 percent stake in Hyston Ltd, which is in business to market Nigeria’s excess petroleum products in the West and Central African sub regions and other parts of the world. Hyson Ltd also imports various petroleum products (in collaboration with its sister company Calson Bermuda Ltd) in order to augment shortfalls from domestic refineries production like PMS, DPK, AGO, LPFO. However, like Duke Oil Limited, it has no independent trading capacity to operate optimally.
“Rather than get registered in tax havens; Duke Oil, Hyson Ltd and Calson Ltd should all pay taxes to the Nigerian government,” an Industry analyst said.
But leading professional auditing firm, KPMG says many of the world’s major oil and gas companies must have an established international trading structure to gain competitive advantage.
“Commodity prices will dictate the future of international trading companies as long as commodity prices remain high, the trend toward centralization in favourable trading locations will continue,” KPMG said in its report.
With oil accounting for more than half of government revenue and 90 per cent of export income, Nigeria’s NNPC has over the years remained vulnerable to political interference and also still a primary target for most states seeking to pay workers salary.
President Muhammad Buhari is seeking to run for another four-year term in office having campaigned in 2015 that all forms of subsidy payments on petroleum products were fraudulent.
However, the Buhari-led government has been secretly doling out billions annually as subsidy under the disguise of “under recovery” on petrol to oil contractors and its cronies in the NNPC.
BusinessDay analysis of the latest financial records of NNPC showed that from January 2018 to March 2018, the government has paid N139.334 billion for under recovery alone which is far higher than the capital allocation to some key ministries and parastatals in the 2018 budget.
For example, the amount spent from January till March of N 139 .334 billion is 43.5 times more than the total 2018 combined capital allocation of the country’s top 10 universities of N3.2 billion which include University of Ibadan N79million;University of Lagos N49 Million, University of Nigeria N1.3 billion; Ahmadu Bello University N439 million; Obafemi Awolowo University N44million; University of Benin N69Million; University of Jos N250million; University of Calabar N74 million; University of Ilorin of N6.7 million; University of Abuja of N952 million.
NNPC also makes deductions for crude oil losses, petroleum product losses, pipeline repairs and management cost, and Joint Venture Cost Recovery. Specifically, the report disclosed that between January and March 2018, the NNPC allocated N1.243 billion, N2.394 billion, N26.844 billion and N138.426 billion for crude oil losses, petroleum product losses, pipeline repairs & management cost, and Joint Venture Cost Recovery respectively.
The pain for NNPC, which produces oil and natural gas in partnership with International oil companies (IOC) such as Royal Dutch Shell Plc, Exxon Mobil Corp. and Chevron Corp, comes even as state owned oil firms of other countries such as Equinor and Saudi Arabia continues to make profit.
“We hope the Petroleum Industry Bill (PIB) will reduce or better still eliminate some of the huge transactions costs the NNPC currently bear,” Professor Iledare said.
*Source: Businessday
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