Nantim M. Joseph writes that the new NNPC helmsman should build on the achievements recorded by his predecessor, Ibe Kachikwu, and sustain the momentum and dynamism of the past eleven months
On July 4th 2016, the long speculated change in the top management of Nigeria National Petroleum Corporation (NNPC) finally happened. President Muhammadu Buhari appointed Dr. Maikanti Baru Group Managing Director of the Corporation. The immediate consequence of the decision which was predictably highlighted in breathless media reports, was that Dr. Ibe Kachikwu, who had been running the NNPC as well as the Minister of State for Petroleum Resources portfolio for the previous eleven months, was now to squarely face the ministry job. But Kachikwu, respected industry oil industry veteran, manager and thought leader is far from finished with the NNPC. The President also approved the composition of the board of the corporation, to be chaired by the Minister of State for Petroleum.
It is no surprise that the latest development at the NNPC had been the subject of heated speculation within and outside the oil sector. Kachikwu’s eleven months at the helm of the NNPC was rich in important milestones, some of which can actually be described as unprecedented, even revolutionary. In spite of the well-known problems of the Nigerian oil and gas sector, Kachikwu who is fondly known as the Game Changer by admirers, managed to slay a few dragons in the process of carrying out President Buhari’s mandate to achieve a turnaround in both the operations and fortunes of the NNPC. No doubt, the new NNPC boss has very big shoes to fill. Let us consider a few of the key accomplishments of Kachikwu when he held sway at the NNPC.
First, with the political will and support of the President, NNPC under Kachikwu broke the deregulation jinx. He successfully implemented the full deregulation of the downstream oil sector by removing the infamous petroleum subsidy. By doing this, he saved the country N1.4 trillion that the country was spending yearly in funding the wasteful initiative that benefitted a few at the expense of investments in social infrastructure. With subsidy gone, the savings will hopefully be re-directed towards financing more critical development projects like power, roads, rehabilitation of hospitals and other social initiatives that will have more profound and wide ranging impact on the lives of ordinary Nigerians while in the process strengthening the economy. In addition, as a result of this development queues have literally disappeared in the filling stations across the length and breadth of the country. It’s been a sea change from long hours trying to fill up to a drive in, fill up and drive out experience for Nigerian motorists.
Another spin off of deregulation is that it has reduced the cost of running the corporation by 30 percent, taken pressure off the country’s finances while opening the sector to prospective investment – local and foreign.
The second significant achievement of the Kachikwu months is that he successfully turned the corporation from a position of persistent loss and set it on the path of sustained profitability and improved operational efficiency. For instance, a comparison of the April results of the downstream group with May results show a massive turnaround from about N19 billion in loss to some modest level of profitability. In May 2016, for the first time in history, the NNPC made a profit of N270m. This is a significant achievement considering that when he took over eleven months ago, the corporation’s losses were in excess of N150 billion. This is a lot to achieve within eleven months.
Thirdly, under Kachikwu, the NNPC, infamous for its opaqueness of its operations, was opened up. For the first time in decades, a significant level transparency was introduced into the finances of NNPC and the oil and gas sector. In keeping with the promise he made soon after his appointment as GMD, he introduced a new culture of transparency, accountability and public engagement. To underscore that the new culture of transparency was beyond talk, he initiated the practice of publishing full monthly operational accounts of NNPC and giving Nigerians a weekly peep into the inner workings of the corporation through his weekly podcasts. This was an unprecedented act in every respect given the secrecy with which earlier managements ran the corporation. With this act, Kachikwu signaled a new era in which Nigerians could ask questions and get answers about the operations of an industry that is the backbone of the Nigerian economy. Given the well known facts of NNPC’s history, the idea that a Nigerian citizen can have access to the NNPC’s Operational Account is a modern day miracle given the legendary opaqueness of what was generally considered Nigeria’s most corrupt state run agency.
As a result of Kachikwu’s efforts in boosting efficiency, profitability and transparency in NNPC, the corporation has recently being able to contribute 100 per cent cash call contributions to FAAC. This marks a significant improvement from the 60/70 percent that obtained under previous administration.
The fourth legacy that Kachikwu has left at the NNPC is setting up a structured and sustainable financing scheme that will enable the downstream sector to adequately fund itself without putting pressure on the federal purse. Only recently during a roadshow in China, he signed Memorandums of Understanding (MoUs) with several Chinese firms for over $80 billion new investments, spanning five years, in the oil and gas industry covering pipelines, refineries, gas and power, facility refurbishments and upstream financing to bridge the infrastructure funding gaps in the Nigerian oil and gas sector. In addition, Kachikwu also got commitments from Sinopec and China National Offshore Oil Corporation (CNOOC) to commit to further investments in Nigeria’s upstream oil sub-sector to the tune of $20 billion, which would be concluded within the next few months. This would cumulatively bring the total amount of prospective investments by Chinese firms over a five-year period to over $100 billion. This interest also reflects the growing international confidence in Nigeria’s oil and gas sector following major reforms that Kachikwu has implemented under the support and leadership of President Buhari.
Other key achievements of Kachikwu include reducing the upstream contracting period from the average of between two and half years to between six and nine months, rehabilitating the refineries and getting them to work after over ten years, re-structuring the NNPC and breaking it into more efficient profitable units.
For local and foreign stakeholders in the oil and gas industry including the Independent Oil Companies (IOCs), the big question is what happens next. This is because in the oil sector as in other aspects of Nigeria the lack of stability and predictability has been a major challenge for businesses for the simple reason that without stability it is difficult to plan and when planning is done in the breach profitability and other priorities tend to suffer.
The hope is that with the appointment of Dr. Maikanti Baru an experienced industry player who also worked with Kachikwu the stability and dynamism of the past eleven months will be retained in the interest of the Nigerian economy. This is because the oil sector, in spite of current challenges not least of which is the long-standing fall in oil prices remains Nigeria’s goose. And if the initial comments of the new helmsman at the NNPC are anything to go by, there is indeed a basis for that hope.
At the handing over event, Dr. Baru promised to work to deepen the on-going reform in the NNPC that Kachikwu had started. He said he would implement the new business model and follow on with Kachikwu’s plan to grant needed autonomy to the Strategic Business Units (SBUs) with the Autonomous Business Units (ABUs) providing relevant directions and control that would ensure their growth and profitability. It was also assuring to hear the new GMD promise that he would continue to explore ways of relieving government from the burden of cash calls obligations as well as address and defray the agreed cash call arrears to the IOCs.
Kachikwu has in a short time span of eleven months as GMD NNPC undoubtedly made a huge mark on the oil and gas landscape. Now that he is focused on his job as the Minister of State Petroleum Resources and Chairman NNPC Board, he is still in a key position to ensure that the vision of President in the industry is fully implemented and that the promise for the country to stop fuel importation by year 2019 comes to pass. He is currently playing a strategic mediation role in resolving the problem of renewed activities of militants in the Delta. Hopefully, a peace accord will be reached and Nigeria will go pass the incidences of pipeline vandalization by militants which will shore up already challenged national revenues.
However, the big question on the lips of many is: now that Kachikwu is fully ensconced in the ministry as Minister of Petroleum Resources what more can we expect next for the restless high achieving technocrat? While Nigerians wait for the answer to that question, there is no doubt that as a result of all the many important initiatives started by Kachikwu as well as the milestones achieved, the oil industry is in a much better place than it was before the coming of Kachikwu.
– Joseph is a policy analyst based in Abuja, Nigeria