By Sunny Chuba Nwachukwu, PhD
Charity organisations and profit-oriented companies are two distinct systems that clearly differ from each other in their operational modes and the ways their respective financial transactions are run. The former (as a non profit organisation), operating with the sole aim of giving out financial benefits and support (generously) to certain beneficiaries, through donations and/or as grants; while the latter class of bodies are business enterprises purely set up as “business concerns” that are meant to genuinely engage and undertake tasks and assignments for attraction of financial gains, within the legal frameworks and the nation’s business governance laws; and to solely make profit in all their business pursuits, engagements and transactions.
These classifications, as illustrated clearly put the outgoing NNPC and the incoming NNPC Limited into either of the two molds. Where each fitly and rightly belongs, your guess on this is as good as mine. It is not a laughing matter, and ought to be taken very seriously because, this oil industry is the major, if not only recognised heartbeat of the Nigerian economy; for consistently and single handedly contributing about 95 percent of the nation’s foreign exchange earnings for decades.
The Organisation of Petroleum Exporting Countries (OPEC) has recently revealed that Nigeria has consistently performed woefully in her upstream and downstream hydrocarbon operations on petroleum exports and imports from 2016 to 2020, consecutively (considering the analysis of the business performance records OPEC presented). This is shameful and a very embarrassing business report ascribed to the national oil company (NOC), the outgoing Nigerian National Petroleum Corporation (NNPC). It is, indeed, a pitiable situation for any imaginable business entity, to run such poor, unimpressive, highly unsustainable financial transactions, consistently posting huge deficit records, year after year. And without making efforts to improve on overall financial performance and its net income for five straight years (still counting, if the past three quarters of the current year is included)!
From the OPEC data, Nigeria’s petroleum exports and imports, respectively, were as stated in the following years – 2016: $27.29 billion and $46.55 billion; 2017: $37.98 billion and $49.51 billion; 2018: $54.51 billion and $73.85 billion; 2019: $45.11 billion and $93.97 billion; and finally, 2020: $27.73 billion and $71.28 billion. The excess deficit balance of petroleum trade in 2020 was $43.46 billion. What a business performance record, indeed? Yet, we expect the economy to perform magic and grow miraculously, in the light of these mindless huge losses from the nation’s “cash-cow” in the oil industry (the old NNPC).
We need to bear in mind that, an African adage says, “prosperity is never actualised where wealth is acquired and thrown away at the same time.” So, for NNPC Limited, be cautioned against such business failures because, “he who has ears, let him hear.” We will all stand by and watch the performance, as we continue to wish the newly created business outfit well in her future business pursuits and undertakings. For the NNPC Limited, opportunities abound for exploits within the economy; and there are new frontiers with openings to be covered in the present dispensation, especially in the downstream oil subsector.
The presently rising price of crude in the international oil market, coinciding with the kick-off of the newly created hydrocarbon business entity, is a great advantage! It is indeed, a great opportunity to be capitalised on, and strategically make a drastic and radical paradigm shift from the status quo on the pump pricing of refined products. This is especially, if the big Dangote Refinery is operational (as projected). One suggests as follows: Let Dangote Refinery and all the existing, functional private modular refining plants that are operational, enjoy great and very stable special prices, paid in naira with rebate, on crude oil (their raw material).
This price, though, should not be lower than the budget benchmark (so that we don’t box our economy to a tight corner), but should be different from the prevailing price of crude in the international market. This will be with an understanding that the local demands will firstly receive service or supply attention, at a rate that would never drift upwards from the current selling price (no matter how bullish it becomes in the oil market). The local refiners are already enjoying the protective cover compared with non local refiners operating outside the shores of Nigeria.
This strategy has lots of attractive advantages to the ailing economy. It will boost attraction of foreign direct investment, and also arouse interests of the local and indigenous investors. The productivity, GDP growth rate will be astronomical with regards to shrinking imports of refined petroleum products; the backward integration in economic and commercial activities shall boost tax recovery and all other related internally generated revenues. It will in the near future, completely avert the already forecasted landing cost of N287/liter of imported PMS.
The in-country refiners should be compelled to operate and keep one condition – that they will never increase the pump price of the products from the present PMS rate at N162.5/litre, so long as they keep benefitting from the exclusive price differential on the prevailing crude price in the oil market; rather it can only be reviewed downwards, as situation improves, with the growing healthy competitions amongst local refiners. This condition actually doesn’t mean any harm or impede the interpretation of “total deregulation”, that fosters healthy competition amongst investors operating on the basis of open market forces. The condition is rather, more of a catalyst to facilitate full deregulation that favours all stakeholders within the economy.
Out of the crude oil total daily output, the international trade partners can still be satisfactorily serviced on their ongoing crude oil exports in the upstream sector, while our local refiners should duly be provided enough quantities of their matching daily offtake (their respective nameplate capacity). This is going to be a win – win arrangement; while we rake in our excessive crude oil proceeds from the upstream activities, the local refiners will be smiling to the banks with their supposedly abnormal profits, yet the productivity profile of the economy shall be greatly revived and be on the path of healthy GDP growth (as mentioned earlier).
NNPC Limited is, therefore, urged to rise to the occasion, and leverage the available opportunities.
Sunny Nwachukwu, PhD, a pure and applied chemist with an MBA in management, is an Onitsha based industrialist, a fellow of ICCON, and vice president, finance, Onitsha Chamber of Commerce. He can be reached on +234 803 318 2105 (text only) or firstname.lastname@example.org