• Sunday, March 03, 2024
businessday logo


Nigeria oil industry awaits Buhari plan

When Nigeria’s president Muhammadu Buhari last week named a Harvard-trained lawyer as head of a state-run oil company notorious for its mismanagement, industry observers saw the move as a sign of his commitment to reform a sector where crude theft and government corruption has been rampant.

The day after he was appointed, Emmanuel Ibe Kachikwu, previously an executive at Exxon, sacked eight senior managers at the Nigerian National Petroleum Corp, signalling an overhaul at the top of an institution that manages a sector responsible for 70 per cent of state revenues.

But despite the upheaval at the top ranks of NNPC, local oil companies, investors, analysts and diplomats say it is unclear what the president’s vision is for the sector and who is advising him on possible reforms.

Government finances are severely strained with oil prices below $50 per barrel, adding an extra urgency to calls for the president to develop a game plan for the sector.

“It is a priority for him [Mr Buhari] to clean things up,” says Helima Croft, RBC Capital Market’s global head of commodity strategy. A web of patronage and allegations of criminality that costs Nigeria tens of millions of dollars a day have created “huge, glaring, systemic problems”, she says.

Those in the Nigerian industry say Mr Kachikwu’s private sector background is a reason for optimism.

“Clearly, he comes with pretty good credentials as the head of the legal counsel for ExxonMobil for 14 years,” said a former colleague. “Some of the structural reforms the NNPC requires could use a good legal mind.”

An austere former military ruler and petroleum minister, Mr Buhari once ruled Nigeria with an iron grip. Whether he will delegate authority when it comes to the country’s most strategic and lucrative sector is an open question in Abuja, the seat of government.

He has neither appointed an oil minister nor the rest of his cabinet, prompting critics to accuse the 72-year-old of moving slowly . Others say Mr Buhari is setting the tone of his presidency and is not looking for a quick fix for Nigeria’s deeply entrenched troubles.

“Those who are getting impatient after six to eight weeks should realise that they gave him a mandate for 48 months and he’s going to deliver,” says presidency spokesman Femi Adesina.

Mr Buhari, who was elected on an anti-corruption ticket, has spoken loudly of his priority of recouping the billions of dollars in oil revenues that went missing from government coffers under his predecessor’s watch.

Widespread financial mismanagement and political interference at NNPC manifested itself in a multibillion-dollar racket in the allocation of fuel subsidies and the alleged unconstitutional transfer of state oil assets into private hands.

But the president has given few hints on how he intends to tackle these problems. He has said he will investigate contracts signed by his predecessor with local operators. Some now fear they may face penalties or increased regulatory scrutiny.

Oil traders have speculated about Mr Buhari’s motivation for banning almost 100 oil tankers from entering the country’s waters. Analysts have circulated reports about a presidential order to kick-start the country’s refineries and a possible split of NNPC into two — a regulatory body and a national oil company.

Garba Shehu, another spokesman for the presidency, said that structure “is being contemplated” but “no decision on whether it will be split has been taken”.

This chatter has only added to uncertainty. “There doesn’t seem to be a clear consensus of where things are going to go,” says Phillip Ihenacho, chief executive of Seven Energy, a local oil and gas producer.

Mr Ihenacho says he believes Mr Buhari’s tough talk so far is “extremely important” but “there are a lot of big issues that the petroleum sector is facing that go beyond just ethical behaviour”.

The Natural Resource Governance Institute, an international watchdog, last week noted in a report that previous administrations have “neither developed [NNPC’s] own commercial or operational capacities, nor facilitated the growth of the sector through external investment”.

Export sales and NNPC oil-for-fuel swap agreements have provided ample room for shadowy private parties such as traders and other middlemen to profit and are in need of urgent change, the institute said. But the new government is looking to sign more oil-for-product swap deals, said Aaron Sayne, co-author of the report.

“Leadership changes, while welcome, are just a start. Most immediately, the presidency needs to ensure that NNPC stops signing opaque deals that reward private parties at the nation’s expense,” Mr Sayne says. A NNPC spokesman declined to comment for this article.

Reform is needed, said Kola Karim, chief executive of domestic producer Shoreline Energy, whose business expanded under the previous government. But change takes time and requires extra funds.

“The president needs to take stock of where the country is. How can there be reforms if they are not aware of the full extent of the problem? All of this costs money, all the while our foreign reserves are depleted,” he says.

Anjli Raval in London & Maggie Fick in Abuja, FT