The Nigerian National Petroleum Company Limited (NNPCL) has embarked upon sweeping changes to its management, announcing the retirement of scores of senior management staff within weeks but analysts say this must extend to its operations to achieve maximum effect.
Days after changing three executive vice presidents, the NNPCL reshuffled its management team effective September 19, the company said in a release. “In our bid to pursue effective organisational renewal to support the delivery of our strategic business objectives, it has become imperative to rejuvenate our workforce.”
Analysts say this housecleaning would be incomplete without reforms in how the national oil company conducts business, manage finances and make remittances to the Federation. NNPCL sits upon Africa’s biggest oil and gas reserves, and at a time oil is heading for $100 per barrel, Nigeria’s production has fallen to 20-year lows and investors are fleeing the Niger Delta.
The NNPCL will struggle with the albatross of fuel subsidy because it is saddled with the task of being the supplier of last resort. It assumed the role of sole importer because the retail price capped at the pump does not guarantee commercial returns to marketers who will pay a higher landing cost.
In the Petroleum Industry Act (PIA), lawmakers named the NNPC the supplier of last resort, a description that implies national interests will always override its commercial interests.
In the recent report by the Nigerian Extractive Industries Transparency Initiatives (NEITI), the NNPCL withdrew $6.93 billion due to the Federation to repay its partners for its share of oil production (cash call $3.52 billion) and about $3.031 billion for subsidy payments.
Since the Nigerian government halted the planned sale of its decrepit refineries in 2007 over agitations by labour groups, the NNPCL had found itself in an operational cul-de-sac. It spends billions yearly to pay personnel to keep it barely functional because it can’t pay the billions of dollars required to fix it and labour groups use the poor state of the refineries as an excuse to justify bruising fuel subsidies.
The NEITI report also observed that none of the refineries was operational in 2021 despite spending about N200 billion between 2020 and 2021 on refinery rehabilitation, which was deducted from the Federation sales proceeds. These deductions, the report reiterated, “remains a heavy cost to Federation revenue remittances.”
Now to appease labour unions, the NNPCL is spending over $1 billion it acquired in loans to fix the Port Harcourt refinery, using its crude as collateral. It has also used future crude oil allocations to pledge as collateral for the $3 billion Afreximbank financing to boost dollar liquidity and still plans to feed the Dangote Refinery from its crude production.
Yet, Nigeria’s oil production has never declined this badly in over a decade.
The NNPCL has over the past five years resisted attempts by multinational oil companies to sell down stakes in their onshore and shallow-water assets plagued by vandalism and community issues. Though it denied opposing Eni’s planned sale of Agip assets to Oando, it took ExxonMobil to court to halt the sale of its shares in its local unit to Seplat.
Experts have faulted some divestments as efforts by multinational oil companies to exempt themselves from the 3 percent contribution to the Host Community Development Trust Fund, thereby enjoying further cost advantages. They said the PIA can be amended to correct this without interfering in the business plans of local oil companies keen to expand.
“First, look at reserves, the known quantity of hydrocarbons each national oil company is managing. NNPCL has four times the reserves that Sonangol has, yet NNPCL is delivering less oil production daily. Petrobras, with a third of NNPCL’s reserves, produces nearly three times more oil and gas,” a senior oil executive told BusinessDay.
To be truly commercial, NNPCL must match the enthusiasm to own oil wells with the ability to actually produce oil from them.
Analysts say a truly commercial NNPCL should operate in line with the provisions of the Companies and Allied Matters Act and lessen government interference.
This will allow it to leverage its assets to raise cash, fund its operations and attract investments similar to its Saudi Aramco and Abu Dhabi National Oil Company. Section 53(1) of the PIA mandates the listing of the NNPCL within six months of incorporation.
“We are convinced that by the middle of next year, this company will be IPO-ready, which means that you have the system, processes, and a company that is accountable to its stakeholders and shareholders,” NNPCL boss Mele Kyari said in July last year. But this is yet to happen.
“Today, government has transferred assets to NNPC; so we have ample assets that nobody has in this country and not even in Africa has. Getting an IPO means that people will see this company as a company that will not lose money, a company that will deliver value and deliver energy; so they will put their money into it,” he added.
Raising financing through an initial public offering (IPO), places on the company the responsibility to operate with good governance as it finances upstream investments.
The privatisation of NNPCL is expected to increase the revenue base of government as the PIA has mandated that where the NNPCL has a participating interest or 100 percent interest in a lease or licence, it shall pay its share of all fees, rents, royalties, profit oil shares and taxes and any other required payments to government as a company.
“The NNPC Limited will need to fix the challenges of its subsidiaries, bureaucracy and bloated costs associated with running the country’s refineries which has accounted for major losses in its financial record needs to be resolved,” said energy lawyer Bukola Iji, of S.P.A. Ajibade & Co.
Analysts say NNPCL’s housecleaning must extend to the board, which has to be peopled by those committed to corporate governance, accountability, appropriate risk management and sustainable value in the face of the energy transition.