• Thursday, May 30, 2024
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BusinessDay

How to bring the Nigerian oil industry into the stock market

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Reading a story in the Financial Times recently got me asking myself if we were not missing another opportunity to right the wrongs of the past in our oil industry. The feature was about the new emerging oil oligarchs in the Nigerian oil industry. The story concluded that the oil majors were determined to pull out of all their onshore exploration activities and sell all their onshore assets to new investors.

The oil majors have come to realise they can no longer manage the community problems associated with drilling onshore. Shell, for instance, has had major public relations headaches for years trying to manage their community relations and the constant environmental problems associated with oil leakages which sometimes are not their fault. Those who are busy breaking into pipelines and stealing crude oil don’t care about their communities or the environment; they just want to be rich. Shell’s handling of the related problems in the process helped in creating career activists. These activists have learnt to use Shell as poster child for bad community relations management and have succeeded in portraying Shell as profiteering and environmentally insensitive.

The oil majors have thus resolved to focus attention on the less risky offshore operations, where they have little contact with the local communities. Oil rigs are far away from the coast and there are no communities to deal with.

The emerging opportunities are enormous, but as the story goes, it looks like insiders are grabbing the pole positions. Yes, the barriers are very high, because the sale prices for these assets are in the hundreds of millions of dollars. Only very few can come up with the money required to buy these assets. The current trend mostly is to find a foreign partner purportedly to help finance and sometimes bring in technical knowhow, changing ownership from the international oil company (IOC) to the local company. The problem with this model is that it does not guarantee that the owners are truly local or that they will remain so, as we have seen in some cases with the implementation of the Local Content law. These new investors are usually not in a hurry to do any community development. Their immediate goal is to make money.

How do we know the new owners are not just fronting for the real financiers? If this is the case, we would have lost another golden opportunity to truly and properly indigenise our oil industry more equitably. Unless we quickly review the whole process of the divestment of these IOCs, it may be too late.

My position is that the assets to be sold by all the oil majors should be bunched together and sold to a National Petroleum Development Company (NPDC) as the new acquirer and float it on the stock market as a fully independent company from NNPC. A listed NPDC on the Nigerian Stock Exchange will have good governance and will be accountable to shareholders. We sometimes forget that the First Bank, UBA, Union Bank of today actually came into their present position like that. Exiting British banks sold their residual interest to the Ministry of Finance Incorporated (MOFI), the investment arm of our finance ministry, and was eventually sold to the public in a privatisation scheme that has enabled our banking industry to not only become indigenous but to also rapidly develop.

With assets from all the major oil companies, the NPDC will be a major company with producing assets that will attract investors. This will allow every Nigerian to have an opportunity to share in our oil wealth directly. It will also be the place to find the money to finance the acquisition and running of the company. There are other benefits to this, apart from the equitable ownership that the stock market brings. It will also ensure sustainability and broad ownership and will continue to be a good source of finance for all times. We have seen OANDO come to the stock market to raise about $400 million to buy some of the assets. Putting all the wells together, especially as they are proven to be producing, will enhance the cash flows quickly and will provide cash to pay dividends to investors.

A well-structured NPDC will have more credibility to raise money from the public markets and attract the right technical partners if they are needed. Everything will be done in a transparent and market-oriented manner. Those who are lucky to be able to get these deals already are free to keep them; I have nothing against them. My recommendation is for future transactions. I think we owe it to ourselves to try and correct some of the mistakes of the past. An indigenous company like NPDC will be more sensitive to the environmental issues that the IOCs could not effectively deal with.

My suggestion in this regard is for there to be just one development agency, like NNDC, and given a private sector orientation, management, and given specific Key Performance Indicators (KPIs), the combined resources will be enhanced by the compulsory contribution of 10 percent of the net profit of NPDC yearly, which will be written into its policies as their budget commitment for the communities. NPDC should be made to work like MUBADALA, UAE’s development company. NNDC should be properly established as the development agency of this region, and charged with the responsibility of running the various community institutions in the Niger Delta. If this is well run, it should have no need for government allocation to it. The new NDDC will have the ability to plan and take a long-term view. The current resources being wasted with multiplicity of agencies will be greatly reduced. Government involvement is a major drawback. A one-time take-off grant and the support from the new NPDC will be sufficient to get the agency going and very real progress can be made. The involvement of government is currently creating avenues for patronage and corruption. The new NPDC will also be good competition for a privatised NNPC of the future. We will also have a chance to see what a privatised NNPC will look like in the new NPDC.

Allowing these assets to be bought in fragments will not be in the interest of the larger population. Even if these companies come to list their shares later, it will not have the comparative advantage and the impact that a bigger NPDC will have when structured as one large entity that can be floated on the stock market and will always be able to raise whatever money it wants as well as enrich the stock market. It is a pity that the oil industry in Nigeria, which is the major economic activity of the country, is poorly represented in our stock market. Other benefits include massive job creation and a very major boost to our quest to be the oil industry hub for West Africa.

It is time for us to do the right thing with this opportunity. This is a low hanging fruit that we can implement immediately. My proposal is to use the NPDC to acquire all the leftover onshore assets of the major oil companies (IOCs), restructure NPDC into one large company listed on the Nigeria Stock Exchange able to attract investors from across the country, and use it to solve the community/environment issues and problems that have been poorly handled by the oil majors. There is no getting away from it, only a more equitable Nigeria will give us peace and progress.

 

VICTOR OGIEMWONYI

Ogiemwonyi is CEO, Partnership Investment Company plc, Ikoyi, Lagos.