Mele Kyari’s Transformative Efforts at NNPC

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Mele Kyari

PERSPECTIVE

Peter Uzoho writes on efforts by the Group Managing Director, Nigerian National Petroleum Corporation (NNPC) Mr. Mele Kyari, to transform the corporation

Since Mele Kolo Kyari assumed office as the Group Managing Director of the Nigerian National Petroleum Corporation(NNPC) a little over a year ago, he has not hidden his desire to bequeath to Nigerians a corporation that not only serve the purpose it was founded, but one that aligns with international best practice.

That was why few days after his inauguration, the oil and gas technocrat unfolded his Transparency, Accountability and Performance Excellence (TAPE) agenda, a five-step strategic roadmap for NNPC’s attainment of efficiency and global excellence.

Kyari, during the inauguration, said pursuing TAPE was the only way to turn around the corporation and make it competitive. And true to his words, the NNPC GMD has remained focused on his target, despite efforts by some of his detractors to derail his transformative agenda as was seen in the recent allegation that 48 million barrels of the country’s crude oil was diverted and stolen.

Despite the disruptive impact of the coronavirus pandemic, the NNPC under the leadership of Kyari, rather than resorting to moaning and lamentation, has taken a number of measures to strengthen its revenue base and be in a better position to provide sufficient buffers to the government for the good of the Nigerian people.

As if he foresaw the pandemic when he was inaugurated as the 19th GMD, the TAPE focused majorly on diversifying the operations of the corporation and its subsidiaries.

Fuel Subsidy Removal

One of the thorny issues the NNPC under Kyari has effectively collaborated with the federal government in achieving is the removal of fuel subsidy. By this act, the federal government has been able to save over $400 million in 2020.

The NNPC boss, who said this in a recent interview with THISDAY, said he does not expect that the policy which had over the years drained the country’s scarce resources would be returned even when crude oil price rebounds.

According to Kyari, the federal government would deploy the amount saved to the development of critical infrastructure in the country.

Kyari explained thus: “As you aware, the Minister of State for Petroleum resources has made policy statement based on presidential directives on the issue of fuel subsidy. Also, the Petroleum Products Pricing Regulatory Agency (PPPRA) has issued guidelines on the process for monitoring the pricing of petroleum products in the domestic market going forward.

“My personal view is that subsidy should be removed, and the funds deployed to areas of the economy particularly road infrastructure and education that need funds. Fuel subsidy is a misallocation of resources and it benefits mainly people who don’t need it; the rich.

“What we need is investment that upgrades the general good of the society and provides access and opportunity for social mobility for the poor. I do not foresee the return of subsidy when oil price rebounds. Just by removing subsidy in the 2020 budget, the nation is able to save over $400 million. The savings would be better deployed to education or upgrade of the critical infrastructure in the country.”

According to Kyari, ensuring energy security is one of the cardinal agenda of the President Muhammadu Buhari administration.

Furthermore, he said closely related to energy security was the rehabilitation and expansion of the local refining capacity.

He said the NNPC has continued to support initiatives towards the actualisation of zero import of refined products by 2024, adding that the corporation has adopted a three-pronged strategy. This includes – revamp, restructure and encourage.

Resolving OML Dispute

Also, the NNPC recently reached an agreement with its partners, China National Offshore Oil Company (CNOOC) and South Atlantic Petroleum (SAPETROL), to settle all outstanding issues surrounding the development of Oil Mining Lease (OML) 130. The corporation stated that the move was part of efforts to meet the target of three million barrels of crude oil output per day and unlock gas revenues to the tune of about $225 million in the short term, and $510 million in the long run.

Kyari said the deal was in line with the corporation’s PSC Dispute Resolution and Renewal Strategy of 2017. Kyari said with the arrangement, an out-of-court settlement of all disputes around the 1993 Production Sharing Contracts (PSC) and agreement on terms for their renewal had now been sealed.

He explained further, “With the resolution and signing of the Head of Terms (HoT) document, which sets out the terms agreed in principle between parties in the course of negotiations, apart from unlocking over $225 million of gas revenues, it will also enable settlement of renewal fees and create an environment conducive to further development of OML 130 with associated benefits to the federation.

“We are doing this with every other partner in the PSC dispute, we believe that we can close this engagement and conversation with all of you. The HoT will clearly enable us to proceed and have a full settlement, and this will benefit all of us.”

He commended CNOOC and SAPETROL for their understanding, while expressing delight that the HoT would facilitate the conclusion of all renewal issues.

In his response, Managing Director of CNOOC, Mr. Xie Vincent Wensheng said the agreement had opened a new chapter in his company’s relationship with NNPC. He said the deal was a win-win situation for all parties.

On his part, Managing Director of SAPETROL, Mr. Toyin Adenuga, said the resolution of the dispute was an important step towards further development of OML 130 and other new fields, as the terms were now clearly spelt out.

The NNPC statement said the execution of the HoT signalled the resolution of a tax dispute that arose from the $2.3 billion acquisition of 45 per cent stake in OML 130 by CNNOC from SAPETRO in 2006.

The OML 130 consists of the Akpo and Egina Fields, which have been producing since 2009 and 2018, respectively. It is operated by Total Upstream Nigeria Limited, which holds 24 per cent stake, while Petrobras Oil and Gas BV and SAPETRO hold 16 per cent and 15 per cent stakes, respectively.

The AKK Gas Pipeline

Similarly, last month, the flag-off of the construction of the $2.8billion 614 kilometers Ajaokuta-Kaduna-Kano (AKK) Gas Pipeline, a major infrastructure project critical to Nigeria’s economic development, was done virtually by President Muhammadu Buhari.

In carrying out the ceremony, President Buhari had directed the Minister of State for Petroleum Resources and Group Managing Director (GMD) of NNPC to authorise the Engineering, Procurement and Construction (EPC) consortiums to commence construction operations at the project camp sites without further delay.

According to the president, when completed, the AKK Gas Pipeline Project would provide gas for generation of power and for gas-based industries which would facilitate the development of new industries and also the revival of moribund industries along transit towns in Kogi State, Abuja (FCT), Niger, Kaduna and Kano states.

“This will ultimately create numerous direct and indirect employment opportunities while fostering the development and utilisation of local skills and manpower, technology transfer and promotion of local manufacturing.

“The project is therefore part of the delivery of our Next-Level Agenda for sustainable development and enhancement of the economic prosperity of our country,” Buhari added.

The AKK Gas Pipeline which was conceived as part of the Nigerian Gas Master Plan (NGMP) by previous administrations has remained in the policy shelf for nearly a decade. Its implementation by the present administration is a progression from the delivery of the Obiafu-Obrikom-Oben (OB3) gas grid development.

The AKK project was designed to enlarge the domestic gas market by using the energy demand from the northern parts of the country to enhance the commerciality of domestic market play and confer viability on investments in government’s gas commercialisation agenda. According to the Nigerian National Petroleum Corporation (NNPC), the gas commercialisation programme was meant to leverage on the nation’s huge natural gas reserve base to stimulate growth and enable Nigeria’s migration from the current mono-economy into a diversified economy.

The AKK project would enable the injection of 2.2 billion standard cubic feet of gas per day (bscf/d) into the domestic market upon completion, and facilitate additional power generation capacity of 3,600 megawatts (MW), the corporation said.

The 614 kilometers pipeline is expected to trigger economic activities that would ultimately deliver on national economic aspirations in the petroleum industry through which the government intends to position the country’s abundant natural gas reserves as the key enabler for economic diversification.

According to the project profile from the NNPC, the $2.592 billion AKK pipeline project would provide channel for the upstream and midstream petroleum industry operators to deliver their natural gas output into the grid and spur industrial revolution along the new pipeline corridors in northern Nigeria.

Revamping Subsidiaries

Also, one of the ways the NNPC is pursuing its goal of achieving profitability is through the steps being taken to revive some of its strategic business units so that they can be able to generate more money to support the corporation. Some of its subsidiaries which were previously not financially independent and incapable of even meeting their financial obligations have received major turnarounds and are making returns to the corporation.

For instance, NNPC’s seismic company, the Integrated Data Services Limited (IDSL), located in Benin, and its engineering company, National Engineering and Technical Company (NETCO) situated in Lagos have all been revamped and are now recording significant progress in terms of profitability and sustainability.

However, in its effort to expand its revenue streams in order to be able to cushion the effect of volatility associated with the oil market, NNPC has also made entry into other business areas. From renewables to health, to real estate to logistics, among other business sectors, the corporation is signing off partnership deals with private operators in these areas of business to activate the initiatives.

Production Cost Reduction

Realising that it would be unrealistic for the corporation to attain its profitability goal when it continues suffering losses as a result of high cost of crude oil production, the NNPC GMD had expressed his resolve to end the regime of high oil production cost. Kyari said the situation at the moment demands change of strategy, explaining that it would be profitable to produce at oil assets with cheaper cost of production.

The NNPC henchman had also set the second quarter of 2021 as the deadline for the attainment of $10 per barrel production cost benchmark. He said the corporation would rally its partners to follow suit as it is no longer bearable to see companies producing at very high cost of production.

“Nigeria will cut production costs to $10 per barrel by the end of 2021.Costs have been too high for too long, the official said, pledging that costs would fall or production stop.

“There are no subsidies for the upstream, if it is not economic, it must shut down,” Kyari said.He emphasised the need for industry operators to focus on projects that generate more cash, produce more resources – and at cheaper costs, citing the adoption of new technologies as one way of doing things cheaper.

Kyari added that the impact of coronavirus was a “blessing in disguise” for Nigeria, noting that while prices had suffered, they will come back but the pandemic has offered a chance for a reset

He said talks with contractors had been fruitful and that they had been given the option of agreeing to cuts of 20-30 per cent on prices and that most had accepted the reset.

Conclusion

Above all his achievements, the coronavirus pandemic was also another opportunity for Kyari to display his leadership potential as he has been able to effectively drive the oil and gas operators to support the federal government’s Covid-19 response as well as in delivering palliatives to states in the country.

With all these, Kyari no doubt needs the support of all Nigerians in order to ensure that his transformative vision for the corporation is realised.

For the first time in many years, NNPC seems to finally gotten a leader with vision and dream, someone who speaks honestly and bluntly about the challenges in his sector and takes bull by the horn to solving those challenges.