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NNPC cash call arrears hit $8.5bn in 2016

The Nigerian National Petroleum Corporation (NNPC) has stated that it’s cash call arrears now $8.5billion following the Corporation’s budget cut of $2.5billion in 2016.

He said that in 2016 alone, underfunding of NNPC cash calls is estimated to be about $2.5 billion, “this is aside the inherited arrears of over $6billion.” It means total deficit now stands at $8.5billion.

Speaking at the 34th Annual International Conference and Exhibition of Nigerian Association of Petroleum Explorationists (NAPE) in Lagos on Tuesday, the Group Managing Director (GMD), NNPC, Dr. Maikanti Baru, blamed the increasing cash call deficit on declining crude oil price, shortfall in crude oil production and incessant attacks on pipelines.

According to him, “As we very well know, oil prices have dropped by more than 50 per cent from $110/bbl in June 2014 to the current level of slightly over $50/bbl. Similarly, the chronic Joint Venture (JV) funding shortfalls being experienced in the Industry have resulted in declining JV Oil production from about1Million barrels of oil per day 3-5 years ago to about 800,000 barrels of oil per day.

“This is coupled with the vandalization of critical production infrastructure that have to be repaired as emergency cases at exorbitant costs, at most times, which further compounds the utilization of the available funds.

“The truth is that, it is difficult to deliver the volumes without adequate funding. With an average JV cash call requirement of about $600 million a month coupled with flat low budget levels over the past years, this had led to underfunding of the Industry by Government which has stymied production growth. Consequently, managing these funding issues is part of our most immediate challenge.

“The import of the above is that the Joint Ventures will relieve Government of the cashcall burden by sourcing for its funds for its operations (estimated at $7-$9billion annually). In 2016 alone, underfunding of NNPC Cash Calls is estimated to be about $2.5 Billion. This is aside the inherited arrears estimated at over US$6 Billion.”

Furthermore, he said the truth is that, it is difficult to deliver the volumes without adequate funding. “With an average JV cash call requirement of about $600 million a month coupled with flat low budget levels over the past years, this had led to underfunding of the Industry by Government which has stymied production growth. Consequently, managing these funding issues is part of our most immediate challenge.

“In contrast, production from the Production Sharing Contracts (PSCs) Arrangements where NNPC does not provide the funding for the Production has increased almost proportionately to the JV production decline over the same period thereby making the National oil production relatively flat. Unfortunately, unlike the PSC arrangements, the JV system provides more revenue to the Government through equity liftings and higher royalties and taxes due to the higher fiscal take from onshore and shallow waters fiscal terms. The low crude oil price regime further amplifies this anomaly,” he stated.

On how the government intends to address the aforementioned challenges, he stated that “we are exploring alternative funding mechanism that allows the Joint Venture Business finance itself by retaining its Operating Costs and Capital Allowances (Fiscal Costs) in order to sustain and grow the business.

“Where the fiscal costs for any year are not sufficient to fund the budgetary requirements of the Joint Venture, part of the profit margin could be retained to fund the budget and where necessary, external financing could also be sought to finance commercially viable and bankable Capital projects without recourse to Government treasury.”