The recent reorganisation of the Nigerian National Petroleum Corporation (NNPC), erroneously tagged as ‘unbundling’ by the organised labour will no doubt help to achieve some of the objectives set out in the nine-year-old Petroleum Industry Bill (PIB) to make Nigeria realise full benefits from her enormous hydrocarbon resources, Ejiofor Alike reports
A landmark pronouncement by the Minister of State for Petroleum, Dr. Ibe Kachikwu, at the recent 25th Annual Oloibiri Lecture Series and Energy Forum (OLEF) of the Society of Petroleum Engineers, Nigerian Council, was a plan by the Federal Government to overhaul the Nigerian National Petroleum Corporation (NNPC).
Before the then Military Government came up with the idea of setting up a national oil company in 1971, the only benefit derived by Nigeria from crude oil production was through tax collection from Shell, Chevron, Agip, Mobil and other international oil companies (IOCs) as the federal government had no company that was involved in drilling crude oil.
The Petroleum Profits Tax Act 1959 (PPTA), which was one of the pioneer legislations enacted by the government for the oil and gas industry, empowered the government to impose tax on the profits of companies that were involved in petroleum operations.
The promulgation of Decree No 18 of 1971, which established the Nigerian National Oil Corporation (NNOC), was the first bold move by the government to set up a state-run oil company to compete with the IOCs. The new legislation by General Yakubu Gowon’s government empowered the NNOC to engage in oil exploration and “in all other activities associated with the petroleum industry.”
On April 1, 1977, what is regarded today as NNPC was established by the promulgation of Decree No. 33.
This decree merged the Ministry of Petroleum Resources and NNOC to form NNPC, which was charged with the “overall control of the oil industry.” The new decree also saddled NNPC with all the functions that were performed by NNOC including, “exploitation, production, transportation, processing of oil, refining, and marketing of crude oil and its refined derivatives”.
By the establishment of NNPC, the government had wanted it to be a viable oil company operating under commercial terms as a world class national oil firm in the mould of Saudi’s Aramco, Malaysia’s Petronas and Brazil’s Petrobras.
However, over the years, NNPC is believed to have failed to realise its mandate as a national oil company as it lost focus, combining regulatory functions with formulating policies, in addition to its role as an operator in the oil and gas industry.
This largely accounted for the enactment of the Petroleum Industry Bill (PIB), which among other objectives, seeks to break up the state-run company into many companies, which will be incorporated as independent entities.
Former President Olusegun Obasanjo had on April 24, 2000, set up the Oil and Gas Reform Implementation Committee (OGIC), headed by his then Honorary Special Adviser on Energy and Strategic Matters, the late Dr. Rilwanu Lukman, to carry out the first comprehensive reform of the oil and gas industry.
Obasanjo left office before he could implement the National Oil and Gas Policy (NOGP) report that was submitted by the Lukman’s committee.
The late President Umaru Musa Yar’Adua reconstituted a new committee, also headed by Lukman, on September 7, 2007.
Lukman’s new committee, which submitted its report on August 3, 2008, was mandated to “transform the broad provisions in the NOGP into functional institutional structures that are legal and practical for the effective management of the oil and gas sector in Nigeria”.
The PIB, which also seeks to replace about 16 obsolete legislative and administrative instruments in Nigeria’s oil and gas industry and transform them into a single law, emerged from the report of these two committees.
Unfortunately, exactly eight years after the bill was submitted to the National Assembly, the reform bill has not been signed into law because of the politics associated with the fiscal regime and other controversial provisions, which law makers could not resolve.
If PIB had been passed as it was, the federal government would have divested 30 per cent of its shareholding and sell the shares on the Nigerian Stock Exchange (NSE), according to the provision of the reform legislation.
Kachikwu’s new option
In the absence of the passage of the PIB, Kachikwu told oil industry operators at the Oloibiri Lecture Series that the structural overhaul would see NNPC broken into five major operational zones and about 30 independent companies with their chief executive officers given measurable targets to achieve.
“The effect of that would 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,” he said.
“But what is more important is that at the same time, we are also unbundling the subsets of these companies to about 30 independent companies with their own managing directors and so titles like group executive directors which you have been used to in the last 30 years will disappear and in place of that, you are going to have chief executive officers.”
The minister explained that people who would get the job of heading the new companies would have to take responsibilities for the titles they would be assigned.
According to him, “They have to mean something, they are not administrative roles. So, at the end of the day, a CEO of an upstream company must deliver me upstream results and we are very focused on that.
“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 because that is the only way we can guarantee sustainable career paths for those in the industry,” he added.
President Buhari’s approval
Few days after Kachikwu made the pronouncement, President Muhammadu Buhari approved the restructuring of the corporation into seven new divisions, according to a media briefing by the minister. He explained that under the new structure, NNPC will have five core new divisions comprising the upstream, downstream, refining group, gas and power, as well as the ventures’ groups. The other two, he said, are finance and services groups.
He said the restructuring was the only opportunity available to the NNPC to become productive again, adding that employees of the corporation would have to work to earn their wages going forward.
Kachikwu pointed out that nothing much had changed with the unbundling except for the distribution of subsidiary companies of the corporation that would further be restructured into direct management of the new divisions.
He named some of the heads of the new divisions to include Mr. Bello Rabiu, who would take charge as the head of the upstream company; Mr. Henry Ikem-Obi, who would head the downstream company; Mr. Anibor Kragho as the head of refining group; Mr. Saidu Mohammed as head of gas and power market; and Babatunde Adeniran as head of the ventures’ groups.
Isiaka Abdul Rasaq is the chief financial officer, while the deputy managing director of the Nigeria Liquefied Natural Gas (NLNG), Mr. Isa Inuwa, is now to head the corporate services unit of NNPC.
He listed some of the subsidiaries under the divisions to include Upstream: the Nigerian Petroleum Development Company (NPDC) and Integrated Data Services Limited (IDSL); Downstream Retail: Nigerian Product Marketing Company (NPMC), which was formerly PPMC, (NPSC); Gas and Power: Nigerian Gas Pipeline and Transportation Company (NGPTC), Nigerian Gas Marketing Company (NGMC), and gas and power investment; and the Refineries: Warri Refining and Petrochemical Company (WRPC), Kaduna Refining and Petrochemical Company (KRPC), and Port Harcourt Refining and Petrochemical Company (PHRC). The ventures’ company includes medicals, property, pensions, shipping, and wheel insurance.
Kachikwu said: “The president has approved the final phase of the restructuring of the NNPC, under that phase it is not so much different from what we have now but we have restructured ourselves into four key business components: the upstream, which is what you used to call the Exploration and Production (E&P), the downstream, which is what you called the Commercial and Investment (C&I), the gas power market, which is basically a pullout from the E&P, the refinery group, which is basically the three refineries, and of course the ventures, which is every other small company here and there that did not have a sense of direction.
“Underneath these companies, we have a collective of 20 companies on the whole, where we had about 16 before, so only about four are new introductions. So it is not so much the size and we have not split NNPC into 30 companies, but there are four major divisional groups.
“Four or five are business focused, while others provide services. Beneath these five that are business-geared are the companies that are there. For example, with PPMC, we have taken the pipeline and depots unit and put them into a different company so that somebody focuses on that, while PPMC deals with the marketing of products.”
However, unlike what was proposed in the PIB where the entities will be autonomous, Kachikwu stated that all the created units still report to the Group Managing Director of NNPC, adding that the whole idea is to focus everybody that it is no longer an administrative but business role.
“The group is going to become more nimble,” he added.
House, Labour Kick
Responding to the protest by the labour unions and the concern raised by the House of Representatives on the legality of the reform, Kachikwu, in his defence, insisted that NNPC has not been broken up or unbundled as erroneously reported.
He said what the president approved was the restructuring of the corporation, adding that there was nothing wrong with it as long as it was done within the confines of the law.
“NNPC has not been unbundled or broken up. It remains the same entity but with different units internally for enhanced efficiency and profitability. Besides, the NNPC Act allows for the restructuring of NNPC,” he added.
Oil workers under the aegis of the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN) and the Nigerian Union of Petroleum and Natural Gas (NUPENG) workers had embarked on strike action after Kachikwu announced President Buhari’s approval.
But barely 24 hours later, the unions suspended the action after negotiation with the government and resolved to support the restructuring of the state-run oil firm.
If vigorously implemented, it is expected that the restructuring will achieve some of the objectives of the PIB.