The National Petroleum Corporation of Namibia (NAMCOR) has reported an unprecedented net loss of N$700 million, according to unaudited financial statements as of 31 March 2023.
NAMCOR’s Acting Managing Director Shiwana Ndeunyema noted that this substantial loss has raised concerns and shed light on the challenges faced by the state-owned entity, particularly in the downstream sector.
He noted that the corporation had been successfully implementing a strategy to use working capital for construction and capital expenditure related to retail expansion.
Further adding that this approach had proven fruitful for the past few years until a significant setback occurred.
“The retail service stations were churning out profits until last year when we bought expensive products, resulting in losses,” Ndeunyema stated.
This comes as the corporation faced a significant working capital deficit, with
a creditor’s book of N$2.5 billion.
“Through meticulous sales planning, robust margin and profitability analysis, and strategic debt restructuring, NAMCOR successfully reduced this amount to N$1.9 billion by September 2023,” said the acting MD.
He noted that this unexpected turn of events compounded the existing working capital deficit, making it challenging for NAMCOR to meet its financial obligations.
The MD noted that one of the contributing factors was NAMCOR’s strategy to capture market share by offering discounts to customers.
While this approach led to rapid revenue growth, “it also exposed the corporation to the high-risk and low-margin nature of the trading business”.
Further, He said the decision to enter the retail space with 33 service stations was part of a broader strategy, however the company only has 16 operation stations with three under development and construction.
“NAMCOR aimed to achieve better profit margins compared to other segments, ultimately allowing it to compete more effectively with the private sector. However, the challenges in the trading company and issues with supply agreements, particularly with Glencore, further complicated the financial landscape,” he said.
Ndeunyema acknowledged the impact of the decision made in 2002 when NAMCOR received a 50% import mandate, leading to supply agreements with external suppliers.
“The agreement with Glencore resulted in significant losses, necessitating a government bailout. The subsequent decision to revoke the import mandate created difficulties as NAMCOR’s operating model and cost structure were built upon the assumption of a 50% market share,” he said.
He emphasised the need for NAMCOR to diversify its revenue streams, citing the acquisition of oil-producing assets in Angola as one strategy.
However, the profitability of the downstream business remains crucial to ensure competitive pricing in the international market and compliance with the regulated baseline selling price set by the Ministry of Mines and Energy.
Consequently, NAMCOR has development of a Recovery Plan, focusing on governance and control initiatives that sets the stage for the three-phase Turnaround Strategy.
The first phase emphasises short-term survival and stabilisation. Ndeunyema says “coupled with decisive shareholder capital intervention, this phase addresses the immediate measures required to tackle the working capital deficit”.
The second phase involves medium-term strategies, centred on implementing a new operating model to ensure sustained success and reduce exposure.
The third and final phase revolves around the development of a 15-year strategic master-plan.
“This strategic masterplan seeks to position the company for long-term sustainability, embracing the energy transition and capitalising on recent oil discoveries,” Ndeunyema highlights.
In the coming weeks, he noted that NAMCOR will seek expressions of interest for the development of this 15-year strategic master-plan, further demonstrating its commitment to a resilient future.
