If Nigeria must survive a looming existential threat in a world buffeted by the impact of the coronavirus pandemic and unstable oil prices, it must mandate its national oil company, the Nigerian National Petroleum Corporation (NNPC) to move beyond maximising fiscal revenues to aggressively investing in energy transition.
Since this government will not treat suggestions to privatise and run public institutions efficiently with the same virulence a fundamentalist addresses heresy, we are calling upon it to get serious about reforming the NNPC. For one thing, it is not even maximising fiscal revenues nor is it achieving commercial effectiveness, which is its traditional remit.
The current reality means that no national oil company possesses the previous capacity to maximize fiscal transfers or commercial effectiveness. These days more ink is devoted to new projects rather than discoveries. Government officials and oil executives now sit across the table to negotiate fiscal and regulatory terms because what matters is no longer who owns the oil but who brings the cash to develop the field. Without a cohesive strategy to deal with energy transition, we are headed for big trouble.
The world is moving away from oil and Nigeria is not prepared for its consequences. Coal remains at Enugu, even in commercial quantities, but that is no longer the world’s priority. Oil will not end simply because the world has run out of it, rather it would just move on. Agitations in the Niger Delta will no longer matter, and we would not need over a dozen government ministries scrambling to regulate the sector. With each new day, our opportunities to use oil income to diversify our revenue base dims to a flicker.
We commend the current leadership of the NNPC over recent efforts to become more transparent including publishing its audited accounts. The most significant disclosure in the financial statement is that the NNPC’s liabilities of N9.68trillion exceeded its assets by N4.4trillion leading the auditors to concluded that it raises ‘material uncertainty’ about its future. If the company that should maximise our income is shrinking, everyone ought to be concerned.
National oil companies that will benefit from energy transition are focusing on research and development and pumping money into renewables, green hydrogen, carbon capture, utilisation and storage technologies while cutting down on their carbon footprint. They are investing in Tesla while working to become its competition.
However, to play a role in the coming future, national oil companies need to be financially robust and operationally sound. But NNPC is neither. The company comprises of many loss-making subsidiaries and a profligate corporate bureaucracy long overdue for serious reforms.
This is why other national oil companies around the world are reporting better financial performance in a period the NNPC declared huge losses. Equinor reported adjusted earnings of $0.78 billion and $0.27 billion after-tax in the third quarter of 2020 while a cash dividend of $0.11 per share is expected to be paid out in the same period. Petronas will pay the government a dividend of $8.2 billion in 2020, despite posting losses in the second quarter of 2020 and In Saudi Arabia, Aramco declared a dividend of $18.75 billion for Q3 2020 despite recording a net profit of $11.8 billion for the third quarter of 2020.
These companies too were impacted by the slump in oil prices and were by impacted COVID-19 as did Nigeria but our country has been thrown into a recession and borrowing is fast becoming unsustainable. Now there are talks by state governments to raid the pension contribution of workers and moves by the Federal Government to hijack unclaimed dividends of Nigerians. These reeks of desperation rather than good intentions. The uncompetitive nature of the NNPC will continue to leave Nigeria more vulnerable to oil shocks.
This why we call on the government to implement deep reforms within the NNPC. It should gut loss-making operations and energise its renewables division. The NNPC is not committing serious funds into renewables in a country where foreign money is driving a revolution in the renewable energy space. It is not doing more to drive the Federal Government’s auto-gas policy. Worse still, it is inhibiting a level-playing field for operators in the downstream sector through its dollar advantage in fuel importation. The NNPC should be an enabler, a catalyst to drive investments, into a low-carbon energy future, and a growth partner for local operators.
