NNPCL Finance and Accounts_Surplus funds mgt. PDF

NNPC Limited Finance and Accounts Process and Procedures 11.0 Surplus Funds and Investment Management 11.1 Objectives This policy provides guidance on the management and investment of cash surplus by NNPC Limited and its Subsidiaries. The objective is to ensure that:  Excess cash is invested in...

NNPC Limited Finance and Accounts Process and Procedures 11.0 Surplus Funds and Investment Management 11.1 Objectives This policy provides guidance on the management and investment of cash surplus by NNPC Limited and its Subsidiaries. The objective is to ensure that:  Excess cash is invested in accordance with an approved fund investment strategy.  Fund investment activities are correctly accounted for and conducted within the guidelines approved by Management and the Board of Directors.  Yield on surplus cash balances is competitive and within the agreed risk profile. 11.2 Scope/Applicability This Policy covers the following:  Onshore investment of funds  Offshore investment of funds  Permitted investments  Investment risk management  Performance management This policy shall apply to all fund investment activities in NNPC Limited and its wholly owned Subsidiaries. 11.3 Surplus Funds and Investment Management Policy Statements  NNPC Limited and its Subsidiaries shall invest surplus funds only with Board approved onshore and offshore banks and money market institutions, in full compliance with the Board approved 100 NNPC Limited Finance and Accounts Process and Procedures Banking Counterparty Selection and Credit Acceptance Policy. Funds must not be invested with an unapproved counterparty under any circumstance.  Interest rate on Nigerian Naira credit balances shall be benchmarked to the minimum interest rate on savings as advised by the Central Bank of Nigeria from time to time, while interest rate on US Dollar credit balances shall be benchmarked to overnight SOFR.  NNPC Limited and its Subsidiaries shall not invest funds for purely speculative reasons. Funds investment decisions shall be made with due consideration for Security, Liquidity and Yield, in this specific order of priority.  Surplus funds shall be invested in permitted financial instruments and portfolio that meet the minimum credit quality set by the Company.  NNPC Limited and its Subsidiaries shall maintain a list of permitted onshore and offshore investments. This list shall be reviewed and updated periodically and presented to the Board of Directors for approval, upon the recommendation of the Treasurer, supported by the CFO and endorsed by the CEO.  The permitted investments portfolio shall be distributed amongst various instruments, to improve security and allow for choice, without compromising the conservative investment strategy. The list of permitted onshore and offshore investments shall be maintained as an annexure to this Policy.  NNPC Limited and its Subsidiaries shall constantly review its investment portfolio and report performance to the relevant Board Committee(s) on a quarterly basis, and the Board of Directors on a bi-annual basis. 101 NNPC Limited Finance and Accounts Process and Procedures  The Board of Directors of NNPC limited and the Boards of the respective Subsidiaries shall have overall responsibility for providing oversight on surplus funds and investment management for each entity. The Board of Directors may delegate this function to a Board Committee. 11.4 Procedural Guidelines 11.4.1 Managing Surplus Funds The primary trading currencies of NNPC Limited and its Subsidiaries is Nigerian Naira and US Dollars, while the functional currency is Nigerian Naira. Any other currency that arises in the course of commercial transactions shall be treated as a third currency. NNPC Limited and its Subsidiaries shall convert surplus funds in third currencies, where applicable, into USD in line with the provisions of the Foreign Exchange Management Policy. The following guidelines shall be followed in the management of surplus funds:  The conversion of USD funds to meet payment obligations in Nigerian Naira or other third currencies shall be done in line with relevant regulations and company procedures.  NNPC Limited and its Subsidiaries shall meet its short-term cash requirements in third currencies through the conversion of USD with its bankers at the time of payment.  Funds in non-Naira denominated currencies shall be held and managed in offshore bank accounts. Where required for a special purpose, funds can be held in approved onshore domiciliary accounts to meet short-term obligations, within approved exposure threshold. 11.4.2 Guidelines for Investment of Funds The following guidelines shall be followed in the investment of surplus funds by NNPC Limited and its Subsidiaries: 102 NNPC Limited Finance and Accounts Process and Procedures  Short-term surplus funds shall be invested according to the key considerations of Security, Liquidity, and Yield, in this specific order of priority. Where financing agreements lay down guidelines (e.g., rating, quality, tenor, etc.) regarding the specific funds or securities in which NNPC Limited or its Subsidiary may invest in, such principles shall be followed.  To mitigate market risk, NNPC Limited shall not invest surplus funds in any instrument with maturity date exceeding 91 days.  It is the responsibility of the Treasury Division to ensure an appropriate mix of instruments and portfolio of investments that align with the risk appetite, liquidity, and yield expectations of NNPC Limited and its Subsidiaries. 11.4.3 Permitted Investments The following guidelines shall be followed in the implementation of the approved list of permitted onshore and offshore investments:  NNPC Limited and its Subsidiaries shall invest in any combination of the Board approved permitted investments without the need for further approval by the Board of Directors.  NNPC Limited and its Subsidiaries shall develop an annual investment plan to guide the investment of funds. At the minimum investment plans must cover the following:  Permitted investments  Performance objectives  Portfolio diversification plan  Local and global benchmarking  Liquidity and maturity considerations 11.4.4 Offshore Investment Options 103 NNPC Limited Finance and Accounts Process and Procedures Offshore investment options available to NNPC Limited and its Subsidiaries include:  Bank Deposits - Bank deposits shall be placed with approved house banks only, based on competitive quotes, while ensuring diversification and rolling maturity that aligns with forecast payment obligations and shareholder distribution timelines.  Money Market Funds – Investments in money market funds must be liquid i.e., can be terminated and cash received within one (T+1) working day of request. Proposals for investment in money market funds with a settlement period of T+2 and above shall be presented by the Treasurer to the CFO for review and support, and to the CEO for endorsement.  Individual Papers – These would typically be Certificates of Deposit or Commercial Papers issued by first class borrowers with credit worthiness consistent with the provisions of this Policy Manual. The options above are not mutually exclusive but the choice of one or more options should align with the timing of cash surpluses and any constraints imposed by financing covenants. 11.4.5 Onshore Investment Options The following guidelines shall apply in Naira funds investment by NNPC Limited and its Subsidiaries:  Credit balances on all current accounts maintained in Nigerian Naira shall be interest bearing, at the benchmark rate prescribed in this Policy.  There shall be no term deposits for tenors exceeding thirty (30) days at any one time.  Funds investment decisions shall comply with the Procedural Guide on Banking Counterparty Selection and Credit Acceptance Policy, that the total exposure to a single financial institution shall not 104 NNPC Limited Finance and Accounts Process and Procedures exceed 30% of the aggregate cash balance of all NNPC entities at any point in time.  In no event shall there be cash balance in any house bank above the Board approved limits set in the Procedural Guide on Banking Counterparty Selection and Credit Acceptance Policy. 11.4.6 Competitive Selection of Investments Upon determination of the preferred investment option based on the risk assessment, maturity date, cash flow needs and prevailing market conditions, a Request for Quotation (RFQ) shall be issued to all approved financial institutions that meet the established criteria as contained in the Banking Counterparty Selection and Credit Acceptance Policy. A bid evaluation exercise shall thereafter be conducted based on the submissions received, to select the best investment option for the company. The Treasurer shall refer to current market price trends when determining the expected returns on investments. 11.4.7 Approval of Fund Investment The following guidelines shall apply to the initiation and authorization of proposals for funds investment: Proposals for investment in term deposits with house banks and subsequent liquidation by NNPC Limited shall be initiated by the Head Banking Operations and approved by the Treasurer, while proposals for investment in money market instruments and liquidations therefrom shall be initiated by the Treasurer and approved by the CFO. Similarly, for Subsidiaries, investment in term deposits shall be initiated by the Head, Treasury and approved by the Head, Finance and Accounts of the Subsidiary, while investment in money market instruments and liquidations therefrom shall be initiated by the Head, Finance and Accounts of the Subsidiary and forwarded to the Treasurer of NNPC Limited for support and approval of the CFO. Funds transfer instructions to execute an investment proposal shall be in line the approved Delegated Financial Authorities (DFA) of each NNPC entity. 11.4.8 Investment Risk Management 105 NNPC Limited Finance and Accounts Process and Procedures NNPC Limited and its Subsidiaries regard the successful identification, monitoring, and control of risk to be a key criterion by which the effectiveness of its investment management activities will be measured. The central philosophy of investment risk management shall include the following:  To protect NNPC Limited and its Subsidiaries from financial losses when investing surplus funds.  Always maintain sufficient liquidity.  Ensure acceptable returns on investment, and secure adequate sources of funding.  Comply with all regulations. Investments held shall be diversified in terms maturity, issuer, instruments, dealer, house bank, etc. to mitigate concentration risk. The Treasurer shall recommend appropriate diversification strategies within these established guidelines to the CFO for approval. 11.4.9 Performance Management and Reporting Monthly Reporting - The Treasury Division shall provide a monthly investment report covering NNPC Limited and its Subsidiaries to the CFO and the CEO, showing the following among others:  The portfolio mix  Accrued income for the month  The yield trend (preferably one-year)  Weighted average maturity  Summary of transactions for the month Quarterly/Bi-Annual Performance Reporting - NNPC Limited and its Subsidiaries shall constantly review its investment portfolio and report performance to the relevant Board Committee(s) on a quarterly basis, and the Board of Directors on a bi-annual basis. The performance report shall highlight the investment’s yield trends that reflects the true earnings and incorporates cash flows, changes in 106 NNPC Limited Finance and Accounts Process and Procedures market value and income earned. The report shall also capture the projections for the next quarter in line with current business realities. The report shall also provide a highlight of compliance with the Board approved counterparty exposure thresholds as contained in the Procedural Guide on Banking Counterparty Selection and Credit Acceptance Policy. The Head of Finance and Accounts shall ensure that all investments are accounted for in the books of NNPC Limited and its Subsidiaries in line with the applicable IFRS (refer to the Group Accounting Policy for details). 11.5 Compliance Each entity shall comply with all regulatory requirements, including classification of investments in line with the requirements of International Financial Reporting Standards (IFRS). The Board of Directors of NNPC limited and the Boards of the respective Subsidiaries shall have overall responsibility for providing oversight on investment management for each entity. The Board of Directors may delegate this function to a Board Committee. In the event of a breach of established regulatory requirements and/or limits, the Treasurer of NNPC Limited and Heads of Finance of the respective Subsidiaries shall:  Prepare a comprehensive report to the CFO and CEO stating the breach, the financial implications, and proposed remedial action(s) to minimize the impact on the specific entity, and on NNPC Limited and its Subsidiaries as a whole.  Where deemed necessary by the CFO and CEO, such incident shall be reported to the relevant Board Committee and the Board of Directors. The Governance, Risk and Compliance (GRC) team shall perform a biennial review of the execution of this Policy for compliance and report any infringement to the Board of Directors. Where the need arises, the GCEO is authorized to grant exceptions to the application of this policy, and thereafter seek ratification from the NNPC Limited Board. 107 NNPC Limited Finance and Accounts Process and Procedures 11.6 References The provisions of the Banking Counterparty Selection and Credit Acceptance Policy shall be applicable to this policy. 108