New NNPC draws mixed bag of reactions

The transition of the Nigerian National Petroleum Corporation, the country’s oil behemoth, into a commercial venture has elicited mixed reactions from stakeholders.

The reform efforts that led to the emergence of the Nigerian National Petroleum Company Limited (NNPC) are expected to strengthen the capacity and market relevance of the country’s oil industry.

With a new motto of ‘Energy for Today, Energy for Tomorrow’ for the company, the transition, which is in line with the Petroleum Industry Act, means the federal government will no longer have control over the staffing of the NNPC.

The company will operate “free from institutional regulations, such as the treasury single account, public procurement, and Fiscal Responsibility Act,” President Muhammadu Buhari said at the unveiling of the company last week.

Despite President Buhari’s assurance, there are still concerns about how the new company would deal with legacy issues, including political interference, religious and ethnic considerations, extant liability, compulsory commitment to frontier exploration, mounting pressure over energy transition, and loss-making subsidiaries.

“The NNPC Limited that we have now is nothing different from what we had one week ago, the only change in NNPC now is the logo,” Kalu Aja, a financial market expert, said during an oil and gas discussion organised by BudgIT, a Nigerian civic organisation.

According to Aja, NNPC should be run like a holding company or sovereign wealth fund that is seeded with revenue from crude oil and making capital investments across the energy value chain on behalf of the government rather than running the investments itself or incurring subsidy investments.

“Currently, there is no clarity on the commercial and strategic framework of how NNPC Limited will handle subsidy, loss-making subsidiaries or king’s ransom to creaking refineries,” Aja said. “We need to have another discussion in the next three months to discover if these gaps are closed.”

Findings by BusinessDay showed that the NNPC spent about 67 percent (N1.27 trillion) on petrol subsidy and 28 percent (N538.5 billion) on joint venture assets in the first half of 2022, out of the N1.89 trillion earned from gross oil revenue.

“It’s the same people with the same culture. Nothing really has changed in terms of operation or asset management,” Aja said.
Mele Kyari, group chief executive officer of NNPC, said in an interview with Arise TV that the company’s upstream assets may be worth $90 billion.

“It means that these assets are on a balance sheet, that you are accountable for it, that you can put it into the market. You can also use it as a basis for securing financing. So that is a very different situation today and not only that. This also excludes the upstream assets,” Kyari said on Wednesday.

Noting that the country is endowed with oil and gas deposits, he said: “We think that when the evaluation is completed, we will probably have access to another $80 to $90 billion worth of upstream assets.”

Henry Adigun, an expert in the oil and gas sector, expressed optimism about the future of the NNPC, saying the road to full privatisation of the company is a gradual process.

“For now, it could negotiate independent businesses and source for deals, and there will be more disclosures on how its operations are run. It will be independently run, and open its book more now to the public, like its peers, Brazil’s Petrobras, Saudi-Aramco and other publicly quoted national oil firms do,” Adigun said.

Read also: Six major changes to expect as NNPC transits to commercial entity

Faith Nwadishi, executive director of the Centre for Transparency Advocacy, a non-government agency exposed to Nigeria’s energy sector, believes that the NNPC would not make any profit in the next three years with the current structure and workforce.

“Despite all the fanfare about NNPC Limited, all the loss-making subsidiaries of NNPC Limited and its leadership remains intact,” Nwadishi said.

Data from Statisense, a data consulting firm, showed that the NNPC has 23 subsidiaries running businesses in both Nigeria and Europe, with several of them founded in island countries.

Among the loss-making subsidiaries of NNPC are the refineries in Port Harcourt, Kaduna and Warri, which spend billions of naira on new salaries, wages, and other benefits to workers despite producing no refined product in recent years.

For instance, the Port Harcourt refinery reported no income in 2020 but incurred administrative expenses of N19.215 billion, paying salaries, wages and other benefits to workers to the tune of N22.55 billion, according to its audited report. The refinery employed 487 new staff members in 2020. Its directors received N99.742 million as emoluments in 2020, a 67 percent increase from N59.650 million in 2019.

“We have changed the title of Mele Kyari, but the board of the subsidiaries appointed by the federal government remains intact,” said Kelvin Atafiri, who runs Cavazanni Human Capital Limited, an investment firm exposed to the oil and gas sector. “There are a lot of deep-rooted challenges with these subsidiaries that can’t be addressed with the current framework.”

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