Should the Federal Government through the Nigerian National Petroleum Corporation (NNPC) continue to run the refineries and allied critical infrastructure? No, say stakeholders at a symposium titled: Nigeria’s energy revolution-A-glimpse at the future,” held in honour of a former NNPC Group Managing Director Chief Festus Marinho in Lagos. They argued that the infrastructure be handed over to the private sector to manage, reports EMEKA UGWUANYI.
It was a day of frank talks. They said it as it is. It was all about what they saw regarding what the Federal Government through the Nigerian National Petroleum Corporation (NNPC) has reduced the oil company to. They spoke as key stakeholders whose interest is to see the NNPC create optimal value from hydrocarbon exploitation for the country’s good.
The event was a symposium held in honour of Chief Festus Remilekun Ayodele Marinho, the first and only two-time Managing Director of the NNPC (1977-80 and 1984-85) at the Muson Centre last weekend in Lagos. Many of the attendees were former top management of NNPC, former Ministers of Petroleum Resources and a host of industry top shots.
There was a lineup of former Group Managing Directors including Chiefs Jackson Gaius-Obaseki, Chambers Oyibo, Lawrence Amu and Funsho Kupolokun, among others. The chairman on the occasion was a former Minister of Petroleum Resources and now the Amayanabo of Nembe Kingdom, Dr. Edmund Daukoru; the keynote address was delivered by former Minister of Petroleum Mr. Odein Ajumogobia.
The panel of discussants included Babajide Soyode, former General Manager, Warri and Kaduna Refineries, and currently Chairman, Petrodata Management Services, Mr. Ibrahim Waziri, former Group Executive Director, Corporate Services, NNPC and now Chairman, Transmission Company of Nigeria, Prof Pat Utomi, Mr. Babs Omotowa, NLNG Managing Director, Mr. Austin Avuru, Chief Executive Officer of Seplat Petroleum and Bunmi Obembe, Executive Director, Oil and Gas Commercial, Total Exploration and Production, Nigeria.
They asked for substantial or complete handover of the management and control of the petroleum industry to the private sector. They noted that the industry is lagging behind and not meeting expectations of stakeholders and the populace because of the stranglehold of the government.
Ajumogobia set the stone for the day by decrying the dwindling fortunes in the oil and gas industry caused by pipeline vandalism, oil theft militancy, lack of maintenance of critical infrastructure resulting in decay and inoperability of the refineries.Others are inability of the NNPC to meet its cash call obligation and funding of other projects, poor policy formulation and implementation and inability to properly manage the oil revenue to care for the rainy day.
He said:“The dwindling fortunes of the industry have been affected by several unrelated factors. Despite news of continuing pipeline vandalism such as the most recent breach of the important trans Forcados line, the amnesty substantially reduced the disruptions to industry facilities and enabled production to go back to previous peaks of approximately 2.5 million barrels per day.
“Yet in 2013, a new and frightening phenomenon emerged. It was revealed by our Finance Minister that Nigeria was losing up to 400,000 barrels per day to crude oil theft. This damaging phenomenon is completely inexplicable, especially in the light of the vehement denials of collusion and assurances of our security agencies of their resolve to stop oil theft. Though apparently reduced from that incredible level, the current estimates of approximately 150,000 barrels per day are an indication of most disturbing malaise.
“The lack of investment based on the Joint Venture (JV) structure in particular and the inability of NNPC constrained by budget limitations to always meet its financial obligations to the JV, for replacement of ageing and dilapidated assets, especially pipelines and depots many of which have long passed their ‘shelf life’, is another risk factor that will continue to affect the efficiency and well-being of the industry by substantially increasing operating costs, and environmental pollution. Sadly, focus of the regulators of the industry seems focused almost exclusively on the ‘S’ part of HSE (Health, Safety and Environment).
“Thirdly, petroleum policy is not always or entirely coherent due in part to the frequent change of important officials. Since NNPC was created 38 years ago, we have had 16 GMDs (Group Managing Directors). In 30 years from 1977 to 2007, there were nine – an average of one every three years. Thereafter, appointments to that office became even more frequent. As a minister, I encountered four GMDs of NNPC in a space of 32 months between July 2007 and March 2010. There have been three others since 2010. That is seven GMDs of our national oil corporation in as many years, with the incumbent being the fifth since 2010. The Directorate of Petroleum Resources has had a similarly high personnel turnover – six DPR directors (though one was in an acting capacity) in seven years. This certainly is not a recipe for coherent policy making implementation.
“Clearly the already dwindling fortunes of the Nigerian oil and gas industry have been considerably worsened by plummeting oil prices. But the fall in the oil prices is really no surprise. Also the rapid devaluation of the Naira can be attributed to lower oil prices which have wiped out billions of Naira in market capitalisation Nigeria’s fledgling indigenous oil and gas companies and with it probably a good percentage of value of our recently rebased economy. Of course the US dollar has also strengthened against world currencies. What are the prospects for recovery?”
Ibrahim Waziri in his speech regretted not allowing the late President Yar’ Adua to privatise the refineries when he sought his opinion on the issue. He said he believed that NNPC would change and have the capacity to turn around the refineries but he was wrong as the state of the refineries have worsened.
Seplat Petroleum chief, Austin Avuru, said the NNPC and the government have failed in management of oil revenues for the good of the economy and the populace. He was of the view that NNPC should hands off business and focus on policy making and regulation.
He said: “In 1971-72 when Nigeria joined the Organisation of Petroleum Exporting Countries (OPEC) and the Chief Marinho was busy with his colleagues constructing the industry before becoming the NNPC Managing Director in 1977, his colleagues in Kuwait, Norway, Saudi Arabia were also constructing their industries. Indigenous participation was one of what OPEC charter demands, that member countries should develop the industry with indigenous capacity.
“The intention then was that indigenous participation will take over NNPC. Over that period of time, NNPC’s contemporaries like Saudi Aramco and others have developed strong partnership with the international oil companies (IOCs) to run their industry efficiently.
“During same period of time, our refineries showed signs of inefficiency. In June 1992, Prof Aminu was relieved of his duty because queues started occurring in petrol stations. In those 23 years, things have moved only downwards to a point now where we don’t remember if our refineries are working at all.
“In the upstream sector, two critical factors account for soaring cost. Remember that in the 1980s, normal cost for crude was just about $4 per barrel. Today, cost has gone up. If you are efficient, it will cost you about $16 per barrel. Otherwise, it may cost you up to $18-$30 per barrel.
“Critical factors account for this. They are security issues in the Niger Delta and also the bottlenecks in the NNPC: project delay, delay in approval and $5billion of cash calls in arrears that have not been paid to the point now where you ask the question: Is NNPC really adding value to the industry today?
“When you look at the totality of their involvement in the industry today, downstream that has been dead, the mid-stream has been clogged until now that the private sector is trying to revive it and the upstream where cost has spiralled and characterised by project delay, can we say today that the NNPC is a net destroyer of value in the industry.
“All of these have been happening at a time when Chief Marinho’s colleagues were efficient in managing their industries, so today, Norway which has a GDP of $512billion has a Sovereign Wealth Fund (SWF) of $893billion; Qatar with GDP of $203billion has SWF of $256billion and Saudi Arabia with GDP $748billion has SWF of $762billion.
“Why I have given these figures is because these same countries have managed their economies better. They saved for the rainy day and today they can play the game while Nigeria is watching. Which means Kuwait and Saudi Arabia can afford to derive zero revenue from crude oil production over the next three years and survive because of their SWF.
“That’s why they are playing with the US to see who blinks first. We are watching helplessly with the SWF of $500million only (half a billion dollars). So if this oil price subsists for the next nine months, be sure we will go back to 1998 when salary cannot be paid, teachers will be out of school because schools will close.
“So where do we go from here?
“We should try and look inwards and accept the truth. Government and its agencies must withdraw from the industry. They must restrict themselves to proper revenue collection but for management of the revenue for the interest of the current and future generations, they should handover to the private sector including the operation of the industry. Fortunately, the sector is now being led by indigenous players.”
Avuru stated that the prediction to have one million barrels per day refining capacity will be achieved by the indigenous sector, noting that Dangote is starting with 500,000 barrels per day refinery. He said that when the NNPC has the courage to sell the refineries, those that will buy them will expand the capacity and will probably have the one million barrels per day production all led by the private sector by 2020.
“If we are refining half of our production, we are best able to absorb the next shock from low oil prices when the next cycle comes. It’s always in cycle and we will soon get out of this one,” he added.
Prof Utomi stated that he had proposed a special utilisation fund where oil proceeds in excess of $40 per barrel should go. Such fund, according to him, should be accessed in times of recession or slump in crude oil price. He also advocated for NNPC’s focus on policy making as against participating actively oil business. He said that Qatar currently is utilising its gas resource optimally while Nigeria with its abundant gas is not doing anything internally with it. He also drew attention to the frequent change of NNPC’s group managing directors, noting that the trend is not healthy for the growth of the industry. He jokingly begged the NNPC officials at the event that if he hears the appointment of another GMD in the next few months, he would relocate to Equatorial Guinea.
The former Group Managing Directors corroborated what the speakers said, adding that the NNPC chiefs only take directives from the government and don’t take decisions and actions on their own. They also condemned the non-passage of the Petroleum Industry Bill (PIB) after 13 years of being in the National Assembly.
