Kyari: Nigeria Needs Framework on Energy Security

NNPC sets five years to recoup planned investment in Dangote Refinery

Emma Okonji and Nosa Alekhuogie in Lagos and Emma Addeh in Abuja

The Group Managing Director, Nigerian National Petroleum Corporation (NNPC), Malam Mele Kyari, has stressed the need for Nigeria to develop a framework on energy security in order to have diversified sources of petroleum products supply and to secure all the sources.

According to him, the massive population of Nigeria, where 70 per cent of the people is predominantly youths, poses a challenge to the energy security of the nation.

Kyari, while fielding questions on The Morning Show, the flagship breakfast programme on ARISE NEWS Channel, the broadcast arm of THISDAY Newspapers, also defended the federal government’s interest in acquiring a 20 per cent stake in Dangote Refinery, worth about $3.8 billion.

He stated that if the deal is consummated, NNPC could recoup its investment in five years.

He said: “For example, when there is a minor scarcity of petrol, it affects several things and several people because of our large population size and shortage in the supply chain of petroleum products. So there is a need to secure our sources of petrol supply at all times, which calls for the need to develop a framework where energy security is guaranteed.

“Three years ago, NNPC decided that it needed to expand its portfolio as a company, and spread its risks since it can’t depend on the refineries owned solely by NNPC. There was a need to spread the location of the refineries, the ownership of the refineries in such a way that at any point in time, the government can guarantee energy security for our country, and have multiple sources of supply. We decided that we are taking equity in many other assets. Today, NNPC has equity in ammonia plants, methanol plants and fertiliser plants so that we can spread our risks and portfolio and particularly in terms of petroleum. NNPC believes that taking equity in any refinery that is producing more than 100,000 barrels of petrol per day is the right thing to do.”

Kyari stated that although government refineries have not been properly managed in the past years, the government now has a different perspective in managing them now.

He added that the federal government had to change the old model to a new one, such that the best practice is for government to get an Operation and Maintenance (O&M) contract to run refineries, and not for NNPC to run them.

He said the government would consider a situation where NNPC must hand over the operations of refineries to an O&M contract.

“We know that having that type of structure will work and that type of structure is seen in Dangote Refinery and other private enterprises.

“We followed the process that will enable us to award NNPC contract, and we are also following through a process to award contracts for Kaduna and Warri(refineries). In the same manner, for a reputable international company, the process of doing this turnaround is to ensure it is efficient, transparent, and we are going to end up with the best contractors to deliver on this. Overall, the Warri and Kaduna (refineries) will catch up with the Port Harcourt process because they have learnt from the Port Harcourt mistakes we made,” he added.

Kyari also gave reasons why NNPC had to acquire equity in Dangote Refinery.

He said: “We have to invest in Dangote Refinery in order to expand our portfolio in the oil industry. When you acquire equity in other people’s business, it helps you to diversify and spread risk as an investor. So I feel NNPC should not be confined to Nigeria’s national petroleum products only but should diversify and spread its investment portfolio in private businesses.

“What business diversification means is that if one arm of the business is not doing well, the other arms could be doing well to sustain the company.”

He attributed another reason for the planned investment in Dangote Refinery to the need to ensure that government, which depends largely on revenue and resources from petroleum for its wellbeing does not allow the private sector only to have that control.

He added: “No country does it; others have tried it, but failed and they have paid the price for it. We have seen this coming so we decided to acquire equity in Dangote Refinery. Aliko Dangote did not ask for it, it was our decision that we needed to take equity and this decision was made three years ago. I can confirm to you that it’s not what they want to do but we made a request and with the policy of the government, we took interest in it.”

Speaking about the board control, Kyari said NNPC would have a seat on the board of the refinery since 20 per cent equity could guarantee a seat on the board of any company.

He, however, said talks were ongoing for NNPC to take a 30 per cent stake in Dangote but that the deal had not been closed since conversations to clear issues around governance and terms of conditions, were ongoing.

“What they want is for us to take less, but because we are very experienced in the NNPC about what refineries do and what returns come from refinery operations, we have seen that this refinery, whenever we invest, we are very sure we can cash out on our investments in five years, maximum. So, it’s a very valuable investment that we have seen.

“Therefore, we insisted that it has to be 20 per cent of the equity. Obviously, that’s not what they want. Negotiations are on and in any case, you can’t force yourself into a private business, but they asked for something less. We didn’t start negotiations today. We started around December last year,” he stated.

Giving insight on how to raise the money for the investment, Kyari said NNPC would borrow $1 billion from a syndicate being coordinated by African Export-Import Bank (Afrexim), adding that no group would want to give out that amount of money if they don’t see a pathway to recovery.

He assured Nigerians that NNPC was not going to use any government money to pay back the loan and that NNPC would pay back the loan from the cash flow of the refinery, as it will make money and also pay dividends to enable NNPC to pay back the loan.

“The goal of all this is to be a net exporter of petroleum products in a very short time, probably less than two years. If that happens, then you have to look for the market, which means that you have to see how the flow of products works within West Africa. This is an obvious advantage and something we should have done about 20 years ago,” Kyari said.

On the state of the oil market, Kyari stated that getting back to pre-COVID-19 level will be achieved by 2022 at the earliest, adding that the oil industry is not comfortable with high oil prices because customers will look for alternatives.

He added that the only way to pull down prices of oil in the international market is to increase supply.

Kyari expressed optimism that the Organisation of Petroleum Exporting Countries, (OPEC) may intervene on production level at its meeting today.

According to him, part of the problems with shutting down oil wells due to the OPEC cut is that it may be challenging getting them back to produce.

On the cost of production of oil, Kyari explained that the corporation has engaged with its contractors and asked for discounts in excess of 30 per cent, adding that it is possible to bring costs per unit to $10 per barrel.

He said the industry had been embarking on sharing of costs, including making use of, for instance, one aircraft, whereas in the past each company could deploy individual planes.

He stated that the NNPC was working to optimise production, stressing that the corporation is always comfortable when oil sells for between $50 to $60 per barrel, in contrast to the current $75.

Kyari said that in the past, all the focus was on oil, adding that with renewed attention to gas as a transition fuel and plenty need for the product to power the country, gas will become the new oil in the nearest future.

He assured the country that the Ajaokuta-Kaduna-Kano (AKK) pipeline, OB3 and others will give more access to an excess of two billion cubit feet of gas in the country.

On the recent Shell’s objection to portions of the Petroleum Industry Bill (PIB), he stated that over 100 amendments had been made, stressing that the oil giant may not be aware of the changes.

He said that although vandalism has not fully stopped, it has reduced considerably because of more intense engagement with host communities as well as firmer actions by the security forces.

On the global transition to renewables, Kyari stated that Nigeria was watching the trends in the global space, explaining that the world isn’t moving away from fossil fuels immediately, but could deploy them for safer uses.