The Managing Partner at ENR Advisory, an oil, gas and power investments advisory firm, Mr. Gbite Adeniji, in this interview, provides insights into Nigeria’s national oil company’s transitioning into the Nigerian National Petroleum Company, with suggestions on how the company can attain profitability and professionalism. Peter Uzoho presents the excerpts:
In line with the Petroleum Industry Act, the Nigeria National Petroleum Corporation (NNPC) has finally transitioning into a limited liability company. What is your take on this development?
It’s a welcome development, because what we wanted when we were designing the reform process was a national oil company that is independent and insulated from interference. A significant part of what had affected the performance of the now defunct corporation was its invasion by the many potentates in the land: the big and powerful men, who basically wanted one contract or favour or the other and basically got in the way of the professional work that the people in the corporation had to do. And let me say this, there are some really solid people in that company, who have the national interest at heart. But when you are overbearing on them and you don’t let them get their work done, the company suffers, and then the nation suffers. So, it was important to design something that we hope will be free from that interference.
And I heard the president signal around the issue of independence during the unveiling. So, it starts from the board that is given the power to supervise the management. So, if you look at that board now, you’ve got the Group Chief Executive Officer and the Chief Financial Officer as members. You will probably have in attendance, the other senior members of management. That’s really how companies generally function. So if we can keep to that, it will help.
The background also, is that policy reform was done. That’s the basis for everything, where proper clarification of the respective roles of government as a regulator, government as a policymaker, and government in business are spelt out. So this is now government in business made very clear. That’s what we wanted and we hope that it will be allowed to work the way it is designed to work so that all Nigerians can benefit from it.
With the kind of human capital and management team in NNPC now, do you think they can deliver the efficiency, profitability and professionalism expected of the company as a commercially-oriented entity?
The human capital in NNPC is very strong. In fact, there is continuous training going on in NNPC. Secondly, because they are interfacing on a daily basis with global level partners, there is some level of osmosis that happens. They have some of their staff cross-posted. They do daily negotiations with global level corporations, they see many types of deals and transactions. So, they know what to do.
Again, I emphasise: they should be able to deliver only if they are allowed to do their job. That’s the main thing. If the Nigerian factor is kept away, the company will do very well and succeed. So, basically, it’s either we are going to be victims of ourselves, or otherwise. But the big men have to be kept away from NNPC so that they can do their work. The people are there, the capacity is in the company, they have more than enough human capital.
Are you comfortable with the new structure of the company?
I love the new structure. It’s a more streamlined company with very clear business lines. They’ve clearly gotten pretty good advice. The question now is just making sure that they have the right people in the right place. That’s just the next thing. Structurally, the design looks good. So, it’s now a function of who is to put where and making sure that each person has the competence for the position that they put him in. Again, it’s for the board to make sure that that is done.
To reduce the company’s risks and burden, is there any need for them to consider selling off some of the dormant assets like the refineries?
So, let’s just put the past behind us, because it has not been a glorious past. Let’s be forward-looking. This company wants to do everything: upstream, midstream and downstream. I see the desire to continue owning those four refineries. Nothing is wrong with that, only if they can be managed properly. That’s number one. Only if none of those past malpractices reoccur. Only if the big men are not allowed to invade it, because refineries produce different types of products, and different kinds of things can happen when they sell those products. So, with a commercial orientation, which is statutory duty now, everything produced must be sold commercially without undue preference to anybody. Again, we go back to my first statement: if the company can be allowed to do its work well, then let it continue running those refineries so long as they don’t stop anyone else from running a refinery, because that would create monopoly and discourage competition.
So, it should be happy to do business with others who must be allowed to do their own business in the downstream. What we don’t want is for the state to crowd out private investors, because the downstream is a contestable area of enterprise. The processing and the sale and the distribution of hydrocarbons should be open to everybody. The state must not crowd out those that want to engage in that kind of business.
What is your take on NNPC’s position that it would continue to be the sole importer of petrol and that the subsidy regime would continue, even though it said it would be rendering that service to the government at a cost?
It’s a very simple position. I’m one that is fundamentally opposed to the issue of subsidy of PMS, because I know the damage it does to the treasury and to the macro economy as well. I know that we are also effectively subsidising PMS sales in other countries in the region. And also, you are also enriching the pockets of those, who do business around this subsidy thing. It’s a shame, because the country doesn’t need it. I would rather that the money we are spending on PMS subsidy is re-allocated to get our power sector off the ground. You can achieve a lot more in terms of economic growth if we invest in power sector infrastructure. What PMS subsidy does is, it regresses the economy. Whereas if you invest on the gaps in the power sector, where the gaps are, you can make the power sector more bankable. For instance, take a look at the Bulk Electricity Trader. It needs to be properly funded so that it can viably purchase power and those who are sending gas to the power stations can be paid. Then of course, that should stimulate economic growth. So the policy choice for subsidisation of PMS is wrong. There’s no way we can dress it up. It’s a wrong policy choice that should have been wiped out over the last seven years. But to your original question, until the government policy changes, NNPC has no choice but to follow what its masters have told it to do, which is the government, unfortunately. So, that decision is not NNPC’s decision but the decision of the presidency. That’s where the action is, because the president is the Minister of Petroleum Resources, and he’s also the one that is in charge of the country. He has decided that he’s going to retain subsidy until he goes. But my hope is that whoever comes in as a new president attacks this issue immediately. This is what the incumbent president should have done in his early years as the President, which he has failed to do. The new president must do it.
Oil theft and massive crude losses have become issues of national emergency. Is this not something the government can tackle again?
One would assume so. One would assume that a government that depends so much on revenue from the sector would take this matter as a priority. I’ve taken a view that the matter is so serious that what it needs is a judicial inquiry. It’s not something that you can just wave off as one of those things. This is a big deal! It is a big deal that we are not able to produce beyond half of our capacity of three million barrels a day. So, if those people who we have elected in the National Assembly don’t know their job and wont properly interrogate this issue, the executive should have at least ordered a judicial inquiry to this. So what’s the big deal about finding out what’s going on? If you put some drones up in the air, you will know exactly where these leakages are. That hasn’t happened. You then use the security agencies to shut this whole thing down. So by not doing it, it just doesn’t make the government look good. And for some of us who interface with investors on a regular basis, we can see why they don’t want to come. Just think about it. You put your money in a hole, you can’t get it out, because by the time you start producing, some people will just syphon it and there will be no consequences. So, we are told: “your political risk is too high, and you can’t manage the crisis”. It’s like, if your government is a hostage to people that you people don’t know, why should we be going there? Are you the only oil producer in the world? There are many countries, even in Africa, where oil can be produced.
So basically, this is doing more damage than we appreciate. Damage, first, to the immediate, dependable revenues of the nation, to long term revenues and to the wider investment climate in the country. If you cannot secure your most important revenue base, you’ve got a problem. That’s what they tell us. So, those are the issues. And you can see the implications. Look at the naira today. It’s clear. You’ve got the subsidy issue and you also can’t secure your oil revenues, your country is bound to slide. And God forbid the exchange rate doesn’t get to N1000/$, which is not unlikely. So, if we don’t address these two big issues, it would certainly get worse than what we are seeing it now. These issues have gotten to an industrial scale – crude oil theft, and if you add the subsidy, you are just bleeding.
Is government really seeing these issues the way others are seeing them, because the IOCs have been complaining about it, and this is why they are leaving?
IOCs are not leaving only because of the oil theft. Oil theft has been going on for sometimes. It is just that it has now become almost uncontrollable. The word ‘bunkering’ is not a new word. It has been there decades ago. It’s just that then, people would steal a few barrels, but now it has gone to hundreds of 1000s of barrels on a daily basis. Which is why when you read papers, you see some oil company executives say that it has become an industrial scale activity. But that’s not the only reason the IOCs want to leave.
What are the other reasons?
They are just fed up with the way we are running our system. Everywhere you turn, there is one headache or the other: state government headache, local government headache, federal government headache, National Assembly headache, all sorts of headaches – the totality of what we call ‘above-ground risks’. You get pulled up and down by the National Assembly for one thing or the other. You get shaken down by one government official or the other. The cost of doing business and the process of doing business in Nigeria has become too much of a headache for them. The other issue is their desire to de-risk from Nigeria. it has become too risky to own such level of assets. In a country where it doesn’t appear that the government is able to handle the political risks that we see on a daily basis, so the IOCs say, why should they be here when there are other countries where the cost of doing business and the process of doing business is easier? And oil has been found all along the entire coast of Africa. You know, technology is a wonderful thing. Before, it was all about the Niger Delta province. Now, technology has opened up other basins. So, they are now diversifying their risks. The third reason they are leaving is the energy transition. If you take a closer look, you’ll find that a lot of facilities in Nigeria are aging facilities. A business man doesn’t want that liability. So, it’s better you run as quickly as possible before that problem matures. There are many facilities that need to be repaired and rehabilitated. In this transition, decarbonisation of upstream facilities is a big issue. You can go ahead and do your own industry thing but you have to decarbonise the industry. Very soon, I’m sure you are going to be seeing the upstream petroleum regulator being more aggressive around decarbonisation of the industry.
There’s a lot of issues in the upstream that need to be addressed. So oil theft is just one reason they are leaving. They also have their selfish reasons for doing so. But we have given them the excuse because of the way we have run our country. Because normally, why should you be running from mature assets or from a mature province when you have a complete data set, which means, it’s so easy to find oil here because it’s a province that has been so explored over 60 years. You know where the oil is, you know where the gas is. In fact, over the years, we were just plugging holes and today, the world is now all about gas. See Europe screaming about gas because of what Russia is doing. So, this is not the time to go.
But our problem is too much. But it’s not in the interest of government to lose its partners and I am not surprised they are trying to hold them down and say you are going nowhere. However, it would have been nice, or better, that there is a clear policy statement by the government around these divestments. Remember, when we started the conversation, we said we’ve clarified the role of government as a policymaker, government in business, and government as a regulator. So, what’s the policy of government around divestments? It’s not there. We are seeing some actions but if you want to follow the principles of the so-called reforms, there should have been a clear policy statement by the Minister of Petroleum Resources or the Minister of State around divestments. We’ve not heard anything about that. Why is it important? So that everybody knows whether they should bother talking to the oil companies or not about buying assets from them. Because it costs a lot of money, it costs millions of dollars for you to go through the process of wanting to buy an asset or a group of assets from the IOCs. Should you be wasting your time and your money if at the end of the day, the process is going to become zero?
So, it’s only fair that people know: is it a do or no do? That’s how petroleum provinces are run -with clarity. Don’t leave it to the National Oil Company to be forced to make those statements, because where there is a vacuum, someone will fill it, which is what has happened, where the NNPC now has to step in to make policy statements or take policy positions. Something that should have been the job of the minister to do. So, the state must have a position and the position must be known to everyone, from the proper channels. But in the absence of that, somebody has to help them do their work.