The Federal Government will next week announce a major overhaul of the Nigerian National Petroleum Corporation as well as the firm’s unbundling into 30 different companies, the Minister of State for Petroleum Resources and Group Managing Director of the NNPC, Dr. Ibe Kachikwu, has said.
According to him, the government has started resolving the governance issues in the oil and gas sector, adding that an overhaul had not happened at the corporation in the past 20 years.
Kachikwu, who disclosed this at the Society of Petroleum Engineers’ Oloibiri Lecture Series in Abuja on Thursday, also stated that the latest financial report of the NNPC for the month of January showed that the corporation’s losses had reduced from the over N160bn of some six months ago to about N3bn.
Explaining the restructuring by the Federal Government in the oil sector, the minister said, “We are starting first with simple governance issues; those that are not contentious, that are very rapid and that deal a lot with the transformation of the national oil company.
“For the national oil company, a lot of work is going on; I am sure some of you have seen the effects; but within the next one week, we are going to be announcing some real major overhaul of the system, one that hasn’t been done in over 20 years.”
Kachikwu added, “The effect of that will be to quite frankly unbundle the huge company into four to five main operational zones – the upstream, downstream, midstream, refining, and of course, every other company that is trending to the venture group.”
“But what is more important is that at the same time, we are also unbundling the subsets of these companies to close to about 30 independent companies with their own managing directors; and so, titles like the group executive directors, which you have been used to in the last 30 years, will disappear; and in place of those, you are going to have chief executive officers.”
This, he said, would make people take responsibility for their titles, as the positions must mean something and not administrative roles.
The minister said, “So, at the end of the day, a CEO of an upstream company must deliver upstream results, and we are very focused on that and along those chains. We are doing very dramatic things within the sector to bring the change and I am happy that we are gaining the cooperation of people within the industry; that is the only way we can guarantee sustainable career path for those in the industry.
“We are potentially moving in a direction where quite frankly for the first time in about 15 years, this company will be profitable; but that is a tip of the iceberg, because by the time these 30 companies are unbundled with their managing directors setting programmes, you are going to meet us in the active work space, we are going to be competing and we are going to make these things work.”
On the slump in global crude oil prices, Kachikwu said the government had been meeting with other oil exporting countries, and expressed the hope that the price of the commodity would soon rise to around $50 per barrel.
He said, “I don’t need to tell you about the price of oil, despite the shuttle diplomacy here and there. It is still very challenging but at least we are inching up, and for the first time, we are beginning to have both the Saudis and the Russians come back on the table.
“Hopefully, if the meeting that we are scheduling to happen in Russia between the OPEC and non-OPEC members happen around the 20th of March, we should see some dramatic movements. We are not likely going to see the prices of many years ago, but I think we are very humble today to accept that if we hit the price of $50, we will be celebrating and that is the target that we have.”
The minister further stated that focusing on gas policies was a key element for him, adding, “The target that I am setting for myself is a 12-month type agenda to try and arrive at some of these conclusions: some working with the (National) Assembly, and some working with policymakers and the industry.”
Kachikwu said he had been involved in so many conversations with oil companies and that the essence was to define stipulated contractual terms in the industry.
He noted that production sharing contract terms had not been revised for quite a while, adding that the government was focusing more on how it could bring PSC-type contracts into joint venture structures.
The minister stated, “The target I have set within our system is to see whether we can get to a point where at the end of this year, we will be able to transmit completely away from cash-call type environment. And that way, the oil companies are going to be freed up and be able to go out there to begin to look for the kind of funding they require.
“For the first time I think we are getting quite faster than the oil companies and we are going to continue to push them. It is so critical for me that by June this year, some agreements are concluded and some levels of financing are coming in to the sector in such a way that I can get them, at least for 2016, to 100 per cent activity-type of environment.”
Kachikwu, however, denied reports that expatriates would take over key functions of the NNPC, but noted that experienced hands would be needed at the Nigerian Petroleum Development Company, a subsidiary of the national oil firm.
He said, “I did not say that we will engage foreigners to come and work at the NNPC. We were dealing with a specified branch of NNPC, which is the NPDC. This is because if the NPDC is going to compete, it will do that on a universal level. It can’t play as a local Nigerian company and want to take part in mainstream oil exploration and production.
“And so far, we haven’t done it right. So, what I felt was that we are going to bring in experienced hands. Experienced hands could be Nigerians and not that expatriates necessarily bring more value to the table than Nigerians do. But we are looking at being able to get outside the NNPC box and bring in people, they may be Nigerians or foreigners. This is because collaboration with technical foreign organisations is essential to drive the process.”
Reacting to the announcement by the minister, the Head of Energy Research, Ecobank Capital, Mr. Dolapo Oni, said the overhaul of the corporation was very critical at this time of low global oil prices.
He said, “We have always said the NNPC is too large and that it will be better if it was split down along its functions. I like the idea of upstream, downstream and midstream. It will make the NNPC more efficient; each of those units will have to generate its own revenue and run its own expenses. So, accounting will be a lot easier, and the corporation will be more efficient operationally.
“But, maybe, we should try not to do too much too fast. I hope there is a plan to achieve this over a period of time, not just immediately, because then, it will create some bottlenecks. Some functions that were subsumed within the entire NNPC body before, now have to be delegated to specific subsidiaries. And that has to be done very well to ensure there is no overlapping of functions.”
An energy expert and Technical Director, Drilling Services, Template Design Limited, Mr. Bala Zakka, stressed the need to address the opaque nature of the NNPC and improve its transparency.
Zakka said, “The reason why that is necessary is that up till this moment, the NNPC is still looking choked with very few people carrying out complex and tasking responsibilities.
“There is this thinking that probably the inefficiencies and lack of performances are due to that complexity of the NNPC with just very few people.”
According to him, the corporation is not too complicated because it is so big or bigger than companies like Saudi Aramco or Petrobras of Brazil or Petronas of Malaysia, but it is looking complex in its workability.
“So, if breaking it down and having heads of different divisions will help open it up and bring about transparency, then it is a welcome idea,” he added.
The Director, Emerald Energy Institute, University of Port Harcourt, Prof. Wumi Iledare, who commended the minister’s efforts in overhauling the corporation, said, “He has big ideas to move the corporation forward, and it is a welcome idea to break the NNPC into independent companies. But the governance structure of the oil and gas industry is a very important aspect to critically look into.”