The National Petroleum Corporation of Namibia (Namcor) has developed a three-phase turnaround strategy to ensure its future sustainability.
Although the finer details of the strategy have not been divulged, it was noted at a media briefing yesterday that it does entail short-term financial stabilisation, as well as a request to government for a significant capital injection. The primary aim of the strategy is to address Namcor’s current working capital deficit.
As of 31 March 2023, Namcor faced a severe working capital deficit, with a creditor’s book of N$2.5 billion. By September this year, the corporation had managed to reduce this to N$1.9 billion through robust margin and profitability analysis, and strategic debt restructuring.
Addressing the media, acting Namcor managing director Shiwana Ndeunyema provided insight into Namcor operations, which consist of both upstream and downstream subsidiaries. The upstream sector involves exploration and extraction, while the downstream sector entails the retail side of the business. Downstream is the part of the oil and natural gas industry responsible for the refining, distributing and retailing of petroleum products.
He highlighted that Namcor’s upstream entity is actually flourishing and has a positive bottom line, but admitted that the downstream side is facing a myriad of challenges. Amongst these challenges are a volatile international oil market, as well as a constantly fluctuating currency.
“Namcor acknowledges the challenges it has faced in the past, particularly in 2010, which led to significant losses following exposure to fluctuating oil prices and a flawed agreement between Namcor and a third-party supplier, with ensuing financial implications which prompted a government bailout,” read the Namcor statement issued yesterday.
As at 31 March 2023, Namcor’s unaudited financial statements confirm the entity made an unprecedented net loss of N$700 million. This, Ndeunyema explained, was coupled with a significant working capital deficit, which created severe cash flow challenges for Namcor.
In May 2023, the corporation’s board and management embarked on an extensive analysis to determine factors which contributed to the precarious financial position.
“This exercise culminated in the development of a Recovery Plan, in which 10 factors were considered as the root causes. Chief amongst these are issues relating to market volatility, and a significant breach of internal controls and governance systems. The Recovery Plan was meant to close the gaps identified in the 10 factors to avoid further leakage,” the statement continued.
Meanwhile, the first phase of the turnaround focuses on short-term survival and stabilisation, coupled with decisive shareholder capital intervention. The second phase entails medium-term strategies, centred on implementing a new operating model to reduce exposure and ensure sustained success.
The third and last phase of the turnaround relies on the development of a 15-year strategic masterplan which seeks to position Namcor for long-term sustainability, with specific efforts towards unlocking opportunities presented by recent oil discoveries and embracing the energy transition.
“While the company currently enjoys a positive gross profit position, associated defaults in supplier payments necessitate timely shareholder intervention to avoid further interest on debt. The Turnaround Strategy is poised to restore financial health and secure a sustainable future for Namcor,” the corporation stated.
In the coming weeks, the company will seek expressions of interest from consultants for the development of a 15-year Strategic Master Plan. As such, the current Turnaround Strategy is expected to serve as a building block of the masterplan.
“Namcor wishes to assure its stakeholders that the Turnaround Strategy’s first phase has successfully averted this scenario (liquidation) through a strategic deal structuring with a key supplier. The corporation is cognisant of the need for a capital injection, and has submitted a request to the shareholder. As indicated, phases two and three of the Turnaround Strategy aim to position Namcor for long-term sustainability, including the establishment of a logistics base to unlock value across the oil and gas value chain,” the corporation added.
- ebrandt@nepc.com.na