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All the rage over selling the NNPC

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The Nigerian National Petroleum Corporation (NNPC) is adjudged to have the poorest transparency record out of 44 national and international energy companies, according to Transparency International and Revenue Watch Institute.

Former Central Bank of Nigeria (CBN) Governor Sanusi Lamido Sanusi in 2014 alleged that up to $20 billion in oil revenues were ‘missing’, from the NNPC.

A 146 – page report by Nuhu Ribadu the former head of the Economic and Financial Crimes Commission (EFCC) covering the year 2002 to 2012, released in 2013 concluded that oil majors Shell, Total and Eni made bumper profits from undercutting Nigeria on gas prices, under the nose of NNPC to the tune of approximately $29 billion.

Various reports and audits also show NNPC has short-changed the Nigerian treasury of billions dollars over the last 20 years by selling crude oil and gas to itself below market rates.

The Nigerian Extractive Industry Transparency Initiative (NEITI) in its audit of the petroleum industry from 2009 – 2011 found that the NNPC failed to remit  $4.84 billion dividend payments over a two year period from the Nigeria Liquefied Natural Gas NLNG to the Federation Account.

Allegations first surfaced in 1980 of N2.8 billion missing from NNPC (equivalent to roughly $3.1 billion then or $8.5 billion in today’s dollars).

In more recent times, in a one year period between February 2017 and February 2018 NNPC spent over N746.79billion on fuel subsidies or what it euphemistically calls under- recovery (because it cannot get its 4 refineries to work after billions of dollars on turn-around maintenance) , and in the process short-changed the Nigerian Treasury including the Federal, States and Local Governments.

Nigeria’s oil sector is largely in recession, because NNPC as a regulator and operator has often been late in meeting cash call obligations to Joint Venture (JV) partners.

Meanwhile, Nigeria’s oil and gas reserves are stagnant or dwindling, while oil production is on a decline.

Huge gas reserves estimated at 182 trillion cubic feet (TCF) that could help feed power generation for energy starved Nigeria, largely remain undeveloped 20 plus years after being discovered due to NNPCs inability to either fund the capex needed to develop the fields or let go of the fields for private oil firms to develop.

It is clear from the above that the NNPC has failed the country, but how do you solve a problem like the NNPC which still has formidable vested interests willing to sink all reform efforts directed at its path?

Perhaps a look at some global state owned oil companies that have managed to operate more like private for profit companies, with more openness and less opacity, and in the process separated their operations from the balance sheet of their host countries, could provide a template for Nigeria.

Brazilian State oil company Petrobras was created in 1953, however it first sold shares to the public in December 1957 and is listed on the Ibovespa or Brazilian stock market.

The Brazilian government directly owns 54 percent of Petrobras’ common shares with voting rights, while the Brazilian Development Bank and Brazil’s Sovereign Wealth Fund each control 5 percent, bringing the State’s direct and indirect ownership to 64 percent. The non state controlled shares are traded on BM&F Bovespa, where they are part of the Ibovespa index.

In September 2010, the company raised as much as $70 billion in the world’s largest share sale to help finance its $224 billion investment plan to develop newly discovered oil fields.

Petrobras produced 2.63 MM boed in 2018.

In Malaysia Petronas is the state oil and gas company that was founded in 1974, and initially wholly owned by the Government of Malaysia.

Petronas has since listed at least 3 of its subsidiaries in the Bursa Malaysia or Kuala Lumpur Stock exchange.

Total production volume for Petronas was 2.32 million barrels of oil equivalent per day in 2018, while sales of liquefied natural gas (LNG) was 30.7 million tonnes.

Full year profits for 2017 was $11 billion or 45.5 billion ringgit, and Petronas paid $4.35 billion (17.4 billion ringgit) in taxes and $4 billion (16 billion ringgit) in dividends to the government in 2017, which is expected to more than double to 54 billion ringgit ($13 billion) in 2019.

Other oil companies closely identified with the State but now listed on stock exchanges include Statoil of Norway, and Gazprom of Russia.

Saudi Arabia also plans a mother of all IPOs for its state oil Company Aramco. Saudi officials hope they will raise $100 billion by selling about 5 percent in the company, valuing Aramco at $2 trillion.

The IPO is the cornerstone of Prince Mohammed bin Salman’s economic program to transform Saudi Arabia, dubbed Vision 2030.

One thing clear from the above narrative is that serious countries are looking hard at an industry (oil and gas) that is in terminal decline as we near peak oil and rolling out major reforms to wring as much from the sector before its eventual demise.

Nigeria, when compared with all the countries mentioned, has the lowest oil production per capita, but seems the least prepared or concerned about reforming its oil sector.

In that sense the recent controversy coming out of the 2019 elections about selling the NNPC is largely unnecessary and political.

It would do the country a lot of good to have a very transparent privately run and listed NNPC with the government still having controlling shares.

 

PATRICK ATUANYA

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