A tale of two companies: How NLNG can point a way forward for NNPC
After over Ten years, the case of Nigeria National Petroleum Corporation (NNPC) and Nigeria Liquefied Natural Gas (NLNG) is like the case of a big brother who now relies on the junior brother for life.
Unlike NNPC which is a cash cow to the government, NLNG has raised funds for its projects, from a combination of shareholders loans, internally generated revenue and third-party loans as the company has grown from one to a six-train operation with capacity of 22 million tons per annum and is on the verge of achieving two more trains for its operation.
Not only has the NLNG fully paid without default the $5.45 billion taken from its shareholders to build its six existing LNG trains, the company now has an asset base of over $11 billion dollars and generated over $90 billion in revenues.
“The junior brother (NLNG) has responsible friends that keep him on track. Left to their father, he will be as irresponsible as his big brother,” Abba Klago an oil industry stakeholder tweeted.
READ ALSO: NLNG paid FG $18.3bn as dividends in 20 years
Analysts have attributed the success story of the NLNG project to the shareholding and governance structure of the company that made it an independent incorporated joint venture, guaranteeing an independent board of directors, effective decision making as well as funding for its projects.
“The answer is in the ownership structure; NLNG is run like a serious business where there is minimum government interference unlike NNPC,” Adeola Adenikinju, gas policy analyst for the World Bank and professor of Economics at University of Ibadan told BusinessDay.
Unlike 100 percent government owned NNPC; NLNG is an incorporated company which is owned by the Federal Government, represented by NNPC (49 percent), Shell (25.6 percent), Total Gaz Electricite Holdings France (15 percent) and Eni (10.4 percent).
Adenikinju noted that the Petroleum Industry Governance Bill (PIGB) would have helped to restructure the industry but it has not been passed yet; so NNPC will continually be at the mercy of its principal.
“NLNG will continue to remain competitive to a large extent although they would face challenges for push of domestic utilization of gas to power household to drive our local economy,” Adenikinju told BusinessDay.
Emmanuel Afimia energy analyst at Afimia Consulting Limited said NLNG’s operations are similar to the operations of IOCs while on the other hand, NNPC is wholly owned by the Nigerian Government.
“Absence of government’s bureaucracy in NLNG could be the reason for the difference between the two companies,” Afimia told BusinessDay.
According to NLNG, the company has converted about 119 Bcm (Billion Standard Cubic Metres) or 4.2 Tcf (Trillion Cubic Feet) of Associated Gas (AG) to exports as LNG and Natural Gas Liquids (NGLs), thus helping to reduce gas ﬂaring by Upstream Companies from over 60 percent to less than 25 percent.
“Gas can lift Nigeria, which is where NLNG comes in. NLNG is producing 22 Million Metric Tonnes Per Annum (MMTPA) but we are not resting on our oars. We want to construct a Train 7 that will increase our capacity to 30 MTPA. It is time for gas. It is time to unleash Nigeria’s potentials. That is how we can survive the future with increasing appetite for renewable energy,” NLNG CEO, Tony Attah said at the 2nd West Africa International Petroleum Exhibition and Conference (WAIPEC).
NLNG was once touted as the fastest growing LNG Company globally, with the development of new trains which occurred between 2000 and 2007. The 6 trains have a total production capacity of 22mn tones/annum of LNG and 5mn tones/annum natural gas liquids (NGL) from 3.5bn cubic feet of natural gas reserves.
In October 2017, approval for the Final Investment Decision for the production of the Bonny Train 7 was given by NLNG Ltd. The project is advantageous for both Nigeria and NLNG Ltd. The expected increase in production capacity would increase Nigeria’s gas export, enabling the country regain its place as one of the top three gas exporters globally, and encourage diversification of energy resources.
The project is expected to cut down poverty through the creation of massive job opportunities. Consecutively, this will increase fiscal and FOREX revenue thereby boosting industrialization which will drive economic activity and growth.
While NLNG seems to be performing relatively well, same cannot be said of NNPC which is still plagued with age long problems such as subsidy now called Under-Recovery, increasing pipeline maintenance cost and obsolete refineries.
In August, NNPC recorded a trading deficit of N3.90 billion.
The combined value of output by the three refineries (at import parity price) for the month of August 2018 amounted to N8.67 billion while the associated Crude plus freight costs and operational expenses were N9.78billion and N9.68billion respectively which resulted to an operating deficit of N10.79 billion by the refineries.