The Nigeria National Petroleum Corporation (NNPC) is an organization that epitomizes the dysfunction of Nigeria’s energy industry. Nigeria’s inability to produce power is directly related to the inefficiency of NNPC, and their singular mismanagement of Domestic Gas Infrastructure Projects....


The Nigeria National Petroleum Corporation (NNPC) is an organization that epitomizes the dysfunction of Nigeria’s energy industry. Nigeria’s inability to produce power is directly related to the inefficiency of NNPC, and their singular mismanagement of Domestic Gas Infrastructure Projects. NNPC’s subsidiary, the Nigeria Petroleum Development Company more than any other entity, was responsible for the rolling blackouts in April to May 2015 that brought the nations to her knees because it operates more gas field and pipelines than any other entity in Nigeria; so when she sneezes, Nigeria’s power grid catches cold!

When one adds the incredible spectacle of non-functional refineries despite the promises of ghost local contractors doing turn around maintenance, as well as the perpetual breakdown in pipelines controlled by PPMC or NNPC’s Upstream Joint Venture partners, it becomes clear that as NNPC goes- so goes the new energy agenda. As such, reforming the NNPC is an imperative not an option.

With the recent appointment of Dr. Ibe Kachikwu as the Group Managing Director at NNPC, hopes have been rekindled that the glory days of the corporation can be restored. Indeed, the swift action of the new helmsman to retire 38 top management staff: appointing twelve outsiders into top positions to change the “civil service culture” and the reduction of senior level staff from 122 to 83 are all commendable. But NNPC’s problems are beyond personnel issues, they’re structural!

The structure of NNPC gives room for corruption and inefficiency. NNPC senior staffs are at once arrogant, lazy and tone deaf. This is the culture, and even the recent appointees exhibit some of these characteristics. Most of them live on ego trip and squeezing the last dime out of contractors within their division or unit. Stories abound of NNPC staff sent to oversee projects abroad, that basically check into hotels, go see doctors, come into meetings and act incorrigible insisting on unrealistic requirements that tie projects up, and eventually leave very bad taste in the mouth of all stakeholders.

Take the National Petroleum Investment Management Services (NAPIMS) for instance- the subsidiary that is charged with overseeing joint venture and production sharing contract (PSC) arrangements with investors- international oil companies (IOCs) and Independents (Local or Foreign). This arrangement is necessary to keep costs low, as these contracts provide for cost reimbursements before profit oil. Instead of this reality, Nigeria has one of the highest costs of production oil from wells in the region bar none. At every turn, so called “PR” is demanded from contractors at NAPIMS, and this inevitably is paid for by treasury!

Aside from corruption, unnecessary inefficiencies are introduced by NAPIMS by way of multiple contract approval layers, designed to frustrate and extract rent, even as Nigeria spots the highest contracting life cycle in the world and yet with very poor project outcomes – as cost overruns and delays are the norm.

To tackle these problems, two differing reform visions have since emerged for the corporation, aside of course from continuing with business as usual (current structure).

The first vision (lets call it Vision A) was proposed by the current Petroleum Industry Bill (PIB) developed by the Peoples Democratic Party (PDP). The idea was to maintain NNPC’s group holding structure, while incorporating its Joint Ventures & Subsidiaries as Limited Liability Companies, similar to the Nigeria Liquefied Natural Gas.

The advantage of this structure is that the fully commercial entities will be able to function free of excessive political influence much like NLNG, with periodic dividends being the main interface with the NNPC Group while eliminating also the demands of cash calls for projects by unincorporated JVs that often go unmet due to NNPC’s limited access to commercial capital. Under this scenario though, NAPIMS will still be bounded to oversight and some limited contractual interactions. Wholly owned subsidiaries will still invariably continue to run as is, or even worse, as they will retain revenue and engage in the sleaze that went on under previous regimes.

The second vision (lets call is Vision B) was developed by the transitional committee of the current administration led by Pa Ahmed Joda; this vision essentially calls for splitting the NNPC into two: one to oversee investments, the other to operate as a national oil champion like Petrobras, Saudi Aramco or Sonagol as recently suggested by President Buhari during his USA tour.

Under this plan, it was suggested that a part of the NNPC will maintain oversight on investments – NGLNG, Nigeria Gas Company, PSC and JVs, which will all be incorporated similar to their fate in Vision A, but will also see to partial divestment from 55-60% current levels, to 49%. The government will divest primarily through public lottery to Nigerians on the stock exchange. The advantage of this obviously is that some capital can be raised in this tough times, the stock market driven, overall economy can benefit from these activities and NAPIMS still get to be buried! Of course, it helps that the stock market will also instill discipline and transparency. This vehicle will essentially behave like a Public Equity Fund instead of operator.

The second part of NNPC will be the national champion will be operating as an integrated oil and gas company, with Upstream (NPDC), Midstream (Various Pipeline Projects not in NGC & Shipping subsidiaries), and Downstream (PPMC, the four refineries and retail stations) components. The new National Oil Company will be capitalized once, and inherit the assets as well as liabilities related to these components, and process its own crude oil (from NPDC) instead of being allocated, and develop the entire supply chain. This entity will also be partially listed up to 51% on a gradual timeline, even as it deepens its capabilities globally and is eventually freed of direct political interference as government equity winds down.

There is no doubt that Vision B is better thought out than Vision A, which a “fake fix” proposed by the guardians of the status quo i.e. the PDP. NNPC continuing as the current behemoth, with just the mere bandage of incorporated JVs freeing the Federal Government from cash calls but with continued interference of NAPIMS, amounts to revenue with no responsibility- which was one of the reasons the Petroleum Industry Bill (PIB) was rejected by the private sector.

When all is said and done, implementing Vision B as suggested by President Buhari that sees the emergence of two separate entities: the national operating champion and Petroleum Investment Company will not be possible without the enthronement of a strong regulator. As such, the excise of the Department of Petroleum Resources from NNPC structure and mentality is an immediate imperative that must be achieved for lasting change.

This change will not last if it is not fundamental, and if there is no consistent vigilance to watch the goose that lays the national golden egg. 


Culled from saharareporters BUSINESS



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