Nigeria and the New NNPC

July 19, 2022 Mary

By Reuben Abati

This day, July 19 should go down as a special moment in the economic history of Nigeria – the day when the country’s main vehicle for economic survival, the Nigerian National Petroleum Corporation (NNPC) is officially unveiled by the incumbent President as a commercial venture. The transition took effect on July 1, in line with the provisions of the Petroleum Industry Act (PIA), 2021. But by noon today, NNPC would have formally made that transition from being a corporation to become a limited liability company, a company limited by shares, to be known hereafter as NNPC Limited, that is a commercial venture. In some of our media platforms in the last few days, the NNPC hierarchy has been staging a song and a dance over the fact that the NNPC was indeed about to become a new entity. What does this mean in real terms for Nigerians? While we are all obsessed with politics, the Osun Gubernatorial election being the latest menu on the plate of the commentariat and the political elite, it seems to me that the transition that is to be unveiled today at the NNPC deserves some interest. Established in 1977, 45 years ago, the NNPC manages Nigeria’s crude oil, gas and petrochemical resources, the joint venture between Nigeria and oil multinationals, and also engages in petroleum exploration and production through the country’s four refineries.

Also Read: Crude Oil Price Hits Over $100/barrel

Crude oil accounts for more than 80 per cent of the country’s foreign exchange earnings. With Nigeria identified as the sixth largest oil producer in the world, and with the country blessed with the sweet, low-sulphur, top grade Brent Crude variety, crude oil was effectively Nigeria’s equivalent of manna from Heaven. In due course, we were told that Nigeria is even more of a gas producing country than an oil dependent country. Milk and honey practically flow under Nigeria’s soil. It has been NNPC’s business to manage all of that, and bring profit to the country. Nigeria is not the only country that has been so privileged. They have oil and gas in Saudi Arabia, Russia, Qatar, UAE, Venezuela (bad reference in the circumstance), Libya, Kuwait, the United States, Norway and quite a number of other countries. Whereas oil and gas resources have brought some countries power and glory, Nigeria’s experience has been mixed and problematic. From being a resource-rich country in the 70s and 80s, crude oil in particular has turned out to be a source of agony and pain for Nigeria. We squandered the riches. A terrible economy developed over the years around oil and gas. Politics, ethnicity, greed, corruption and all the other ailments that assail the country found a home in the oil and gas sector. This should not be surprising. The easiest way to make money in Nigeria is to get into the oily business. It was a matter of time before the people would begin to agitate for reforms and a change of regime. And it happened. Oil resource became the target of seething anger within the system. Those who believe that the oil and gas that come from their soil in the Niger Delta is theirs see no reason why anyone, any group or any region that does not produce oil and gas should benefit from other people’s endowments in a supposedly federal system. Oil became political. Politics became oily and gassy. Right at the centre of this conundrum was the NNPC, and the country’s Ministry of Petroleum Resources and everything attached thereto.

To address both the sentiments and the substance around this issue, there have been calls for resource control. From Adaka Boro to Ken Saro-Wiwa and beyond, there have been calls for true federalism, secession, respect for the rights of ethnic minorities, and counter arguments along geographical lines with the North pitched against the South on the question of who owns what, who should get what, and what share – Nigeria’s main revenue being oil and gas. In due course, the Petroleum Industry Bill was introduced to address many of the issues: governance, regulatory frameworks, community relations and management. When President Muhammadu Buhari unveils a new NNPC this morning, with a new brand, logo and identity, NNPC Limited emerging in place of the Nigerian National Petroleum Corporation, he would be giving effect to a major plank of the Petroleum Industry Act (PIA). President Buhari can comfortably claim the PIA as one of the achievements of his administration. For decades, Nigerians complained about the need for reform in the oil and gas sector. They asked for a review of joint venture frameworks. They wanted a new NNPC that would be organized for productivity and efficiency and not a mere government parastatal bogged down by politics and graft. Oil bearing communities also had their demands relating to justice, equity and fairness and how these have been treated shabbily within the larger Nigerian equation.

For decades, the Nigerian legislature toyed with the law. Under Buhari, the law was passed. It seeks to provide a new governance framework in the oil and gas sector. The law removes the subsidy in the downstream sector especially with regard to petrol. It decrees a transformation of the NNPC into a profit making, independent, commercial venture. Before now, the NNPC has been run as a cash cow for the Nigerian Government, as a dependent public sector agency. It manages the oil and gas resources of the country, makes money, transmits same to the Treasury. Every month, state governments carry bowls in hands, rush to Abuja and at what is called the Federation Accounts Allocation Committee meeting (FAAC), collect their own share of the national cake. Everyone got so greedy, everything got so mismanaged, NNPC got to a point it started protesting that there was very little to share or add again. For months, the NPPC using the excuse of under-recovery and subsidy has not been able to contribute as much as it should to the national purse. This is one reason why its reform is imperative. The PIA has offered a window but how open is that window?

The unveiling of a new NNPC should be seen correctly by industry watchers as a positive development. The need for the transition as proposed is justified by how Nigeria’s national oil company performs badly against its peers. In the wake of the Russia-Ukraine war, Russia has been using its energy resources as a weapon against Europe which depended on Russia for about 40 per cent of its energy needs. Russia simply turned off the Nord Stream 1 pipeline for routine maintenance, and asked for payments in rouble, to push Europe into confusion, and energy prices to the roof. Countries with high demand for energy are groaning. Countries that are rich in oil and gas are smiling: Saudi Arabia and other countries of the Middle East are being wooed as the West looks for alternative sources of energy. The United States is wooing Saudi Arabia afresh. It has tried to soften a bit on Venezuela. Sri Lanka in the Indian sub-ocean is in trouble in part because it cannot provide fuel, food and medicines for the people. Pakistan is hanging on to the IMF to bail it out. Cost of living crisis is a major issue in Great Britain. While Europe is looking towards Algeria, Tunisia, and Angola for solutions and alternatives, Nigeria has been caught flat-footed. Rather than turn the current global crisis into an advantage, we are busy here lamenting that rising oil prices amount to a curse for Nigeria. We are not befitting because we are not ready. In today’s global energy mix, Nigeria pays a huge price for its own failures in managing its main resource and the plain view reason is this: the failure of leadership.

NNPC wears a new toga today. We have made that point. Restructuring of the public sector has been a recurring decimal in Nigeria’s economic history. The question has always been: how can public enterprises be made more profitable: commercialisation, privatisation or liberalisation? Liberalisation as in the telecommunication sector has resulted in growth and innovation and the end of the inefficiency of the old, state-owned NITEL. That is one good example. In a deregulated regime, the state has no control over price. It can only regulate quality. Under a privatisation regime, the state can regulate, but the entity is controlled by its shareholders. The fundamental thing is: a private entity is after the maximisation of profit and minimal cost. What has happened to the NNPC is commercialisation, not privatisation. But don’t get it twisted: NNPC still remains in the public sector. That is why it is still called Nigerian National… The only difference is that as a commercial entity, it will now have to pay more attention to its profit and cost centres. While there is a limit to which it can dictate price and profit, it must be noted that it can no longer do business as usual.

What is also new is that while the NNPC may still have a relationship with government, the same government can no longer have control over the staffing of the NNPC. The control of the Minister of Petroleum will be limited. As a commercial entity, the NNPC is beholden to its shareholders. Competence, quality will determine recruitment. The old practice of anyone in government sending notes for NNPC allocation or positions would be untenable under the new arrangement. Nobody can send in a note anyhow. The influence of rent collectors would be watered down, if not completely eliminated. It also means that the country can no longer depend mainly on NNPC for Federation Accounts returns (FAAC). The Federal Government would be entitled strictly to returns on its shares. In all of these regards, today’s development, NNPC’s transition into a commercial entity is a laudable development. The Group CEO of the new company, the erstwhile Group GMD of the NNPC whose title has thus changed, has alluded much to this when he made it clear in the past few days that (i) NNPC going forward is responsible to its shareholders as a limited liability company, (2) whatever service it provides for the Federal Government would be for a fee, (3) subsidy is not the responsibility of the NNPC, but that of the Federal Government and (iv) NNPC is committed to transparency and accountability, and accounting rules.

At the unveiling today, the Buhari government can commend itself for seeing through the PIA. But the skeptics are unrelenting and they have raised issues that we need to worry about. They argue for example that it is indeed a good and proper thing to seek to make the NNPC as efficient and as profitable as Saudi Arabia’s ARAMCO and other peers elsewhere but the problem is that NNPC is still tied to the apron strings of government. Most of the workers are still workers of the Nigerian government. As a commercial entity, it should be possible for the company to source its own expertise, consultants and staff from anywhere without the Nigerian government imposing the constraints of ethnicity and federal character. The NNPC of old ran a Nigerian-factor regime where some characters thought access to political power and influence granted them automatic control over the resource management company. Such a system would not be acceptable under the new mode of doing business. That has to change forthwith, to send the strong signal that it is indeed no longer business as usual. Second, the much-talked about NNPC shareholders are the Ministry of Finance Incorporated (MoFI) and the Nigerian Treasury, which are both government entities. NNPC says it will send debit and credit notes for services rendered to demonstrate its own accountability and commitment to EITI principles. MoFI can claim that it represents the Nigerian people. What will NNPC Ltd do if government fails to pay – this same government that does not pay electricity bills or ASUU salaries? And as things stand, it looks like NNPC truly can no longer be held responsible for monthly contributions to the Federation Account.

Nonetheless, the NNPC as a commercial entity can only succeed as much as the Federal Government wants it to. As long as the NNPC is government-linked, there will be issues. For the NNPC to succeed, it needs to function under a government that understands the meaning and implications of profit and loss. There is a need for deep reform, for the people’s overall benefit. The meaning of the new dispensation is that NNPC would have no option but to send debit notes to the Federal Government, because the company won’t be able to hide the gaps in its balance sheet. The Buhari government does not have this profit and loss orientation mindset that is required to birth a new NNPC. The responsibility for that would have to be taken up perhaps by a new government. We can only hope that the would-be next president of Nigeria, whoever he turns out to be, is thinking of this, from both an economic and national security perspective. A food for thought is the position that in the long run, the NNPC must be privatised. Its board must not be a political Board, it must be a commerce-oriented Board. The experts must be allowed to do their job, not politicians, seeking rent. NNPC shares must be sold directly to the public as a company under the Companies and Allied Matters Act (CAMA).

There is the unresolved issue of refineries. There is nothing wrong in Nigeria having a national oil company, but to save the NNPC, it is important to keep the fundamentals in mind. NNPC’s transformation comes at a time when the world faces an energy crisis, and a cost-of-living dilemma. It makes no sense that the country’s four refineries are grounded, or running at a loss. It is shameful that Nigeria cannot meet its OPEC quota. It is scandalous that it is only just now that we are beginning to talk more seriously about transparency and accountability in the management of the country’s most strategic resource. The emergence of a new NNPC is a good idea, but it seems to me that the best that the Mele Kyari-team can do, for now, is to lay the foundation for a more far-reaching process. Under Mele Kyari’s watch, the NNPC published its first audited accounts in 43 years in 2020! The new NNPC is expected to do things differently to attract investment, promote innovation, eliminate corruption and inefficiency, and ensure clarity. It must measure up like Saudi Arabia’s Aramco, and Brazil’s Petrobras. Its business model must work for the country’s benefit. The new NPPC must represent a transition in real terms into a new style and philosophy.

Reuben Abati, a former presidential spokesperson, writes from Lagos.