The performance of NNPCL will be determined not only by the performance of the executive management but also by the quality and qualification of the board members, writes Godswill Ihetu
The Board of NNPC Limited (NNPCL) recently approved its 2021 audited financial statement declaring a profit after tax of N674.1 billion for the fiscal year ended 2021, which represents an increase of 134.8% year- on – year above the N287 billion recorded in 2020. Although still wholly government owned, NNPCL became a company registered and regulated by the Companies and Allied Matters Act, operating as a fully commercial venture in 2021 following the implementation of the PIA. On July 19, 2022 the federal government announced the complete transformation of the Corporation into the Company as a result of the passing of the Petroleum Industry Bill (PIB) into the Petroleum Industry Act (PIA) in August 2021, a process that has been in the works since 2003. This protracted process has meant that Nigeria has lost substantial foreign investment into the petroleum sector, including divestments plans by International Oil Companies (IOCs) which may not be unconnected with uncertainty in the fiscal regime among other issues. At the same time this process has delayed the restructuring of the public sector of the industry with lost opportunities which are difficult to quantify.
The massive increase in Profit After Tax (PAT) is not surprising, given the fact that in 2020, crude oil prices crashed to levels as low as $30 per barrel, and recovered substantially in 2021. This has been reflected in a substantial increase in oil revenues, which have contributed significantly to this impressive financial performance. Total revenue is reported to have increased by as much as 72.6%.
This news comes on the heels of NNPCL’s first acquisition, buying OVH Energy Marketing (OVHEM) Limited, a major downstream petroleum operator. This includes its jetties and over 380 petrol stations and jetties in Nigeria and Togo. OVH is the owner-operator of the Oando-branded retail service stations across the country. Full integration into NNPC Retail Limited’s branded service stations is planned for 2023.
All this is a good start for NNPCL as the board settles down to its enormous responsibilities as stated in the PIA. Out of the numerous responsibilities listed in the PIA, I have chosen to highlight the following: Develop formal and transparent process for creation of its committees and specifying their mandates, composition and procedures of each committee, which includes ensuring the integrity of financial and non-financial reporting; members of the Board “shall discharge their responsibilities in accordance with the highest standards, practices and principles of corporate governance.”
In addition to its responsibilities under CAMA, the Board shall be responsible for the strategic guidance and determining the business structure of NNPC Limited; “Make decisions guided by commercial and technical considerations that represent good international petroleum industry practices”; set performance objectives for NNPC Limited; monitor NNPC Limited’s corporate performance; “oversee major capital expenditures, acquisitions and divestitures”; determine the dividend policy of NNPC Limited and ensure sustained growth and a sound financial base for NNPC Limited.
With the above responsibilities, the performance of NNPCL will be determined not only by the performance of the executive management but also by the quality and qualification of the board members.
The objectives of NNPC Limited include responsibilities vested in it as concessionaire of all production sharing contracts. It also includes those for managing joint venture petroleum operating agreements to which it is a party. In addition to these, there is a long list of objectives out of which I have chosen to highlight the following: “carry out petroleum operations on a commercial basis, comparable to private companies in Nigeria carrying out similar activities”; engage in the business of renewable and other energy investments; “carry out tasks requested by the Commission and Authority on a fee basis and generally engage in activities that ensure national energy security”; make NNPC Limited supplier of last resort for security reasons.
From the foregoing, it is apparent that NNPC Limited has additional responsibilities over and above those of other private oil companies carrying out similar activities in Nigeria. This therefore requires that NNPC Limited personnel be topnotch in quality and qualification. NNPCL has to pay great attention to training of its personnel, the need for which cannot be overemphasized. Since its inception as the Nigerian National Oil Corporation (NNOC) in 1972, the government-owned oil company has benefited greatly from training provided by its joint venture IOC partners. It is important that the quality of personnel in NNPC Limited be comparable to those of the IOCs and other National Oil Companies (NOCs). Its personnel should also be able to perform to the level of “international petroleum industry practices.” With divestments by the IOCs, their training activities and budgets have been considerably reduced, and NNPCL must step into the void. Up-skilling of personnel is urgent, especially in the refineries where personnel have been virtually idle and only moth-balling the assets for many years.
The NNPC Board now has complete control of its funding and budget based on its projected revenues like any other limited liability company and those of its peers, the major IOCs and its NOCs peers, such as ADNOC of the United Arab Emirates, Petronas of Malaysia, and Petrobras of Brazil. Some functions that were previously performed by default through NNPC are now firmly entrenched with industry regulators, the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) and the Nigerian Midstream and Downstream Regulatory Authority (NMDPRA). Finally, the ‘unbundling’ of NNPC, previously erroneously seen as being regulator and operator, has been achieved by the PIA, with NNPCL freed from of any ‘regulatory functions’.
Although one is not yet quite clear which of NNPC assets would remain with the government, it is almost certain that NNPC Limited will inherit several major projects which have been delayed owing to budgetary constraints as a result of NNPC being part of the federal government’s budgeting system of allocation. Up until now, its budget had to be approved annually by the National Assembly (NASS). Even at the project and budgetary implementation stage, the federal government and NASS intervene, with erratic and epileptic release of funds. The hope is that the management of NNPC Limited is now free from the frequent invitation to “brief” the NASS.
So what signs do we need to see to convince us that NNPC Limited is commercial and independent and under the control of its board of directors? The expectations are many and varied. NNPC Limited is inheriting partly completed projects such as some major pipeline projects and the rehabilitation of the moribund refineries. Hopefully, the board and management of NNPC Limited will no longer be lumbered with projects imposed on NNPC by the government, which in some cases are for social services rather than projects that are commercially viable.
As the world demands for clean energy continues to grow, NNPCL has to pay urgent attention to investments in renewable energy projects as clearly stated in its objectives. Like its peers, NNPCL is now an energy company and not just an oil and gas company. Much of the world is moving towards a carbon neutral environment, targeting the year 2050. Although Nigeria’s target for achieving net zero emissions is 2060, there is no time for delay in pursuing renewables. NNPCL also needs to pay attention to research. As the IOCs depart, NNPCL must build up a formidable research institute like CENPES, the Research Center of Petrobras which is responsible for research and development and basic engineering aspects of the company. CENPES was already thriving in 1986 when I visited with my team in the run up to establishing the National Engineering and Technical Company (NETCO), a subsidiary of NNPC. In many international oil companies, research, engineering and technical training are often housed and integrated in the same division. For cost-saving purposes and optimal employment of limited professional human resource, NNPCL might wish to borrow from these companies.
Finally, NNPCL must recover its crude oil and petroleum product pipeline right of ways totaling about 5000 kilometers across the entire country, which it has lost to forests, bushes and encroachment by individuals who have built houses on them. This situation has facilitated petroleum product theft from those pipelines across the country. Although these pipelines are mostly out of use, having been installed about 40 years ago and breached by oil thieves, the right of ways would be needed for whatever model NNPCL decides to use in reviving its crude oil and product pipeline system.
What is now being revealed in crude oil theft in the swamps of the Niger Delta, especially around Escravos and Forcados terminals in Delta State, is evidence of what can be lost without regular pipeline surveillance. Allied to the rehabilitation of the pipelines would be the need to upgrade and put to use more than 21 crude oil and petroleum storage depots around Nigeria, which also belong to NNPCL. The current replacement cost of these pipelines and depot assets would run into hundreds of billions in Naira, if not trillions.
There is a lot for NNPC Limited to do in the short term and we expect that the financial performance continues to remain positive.
· Dr. Ihetu, former CEO Nigeria LNG, former Group Executive Director NNPC, is the author of “From Oloibiri to Bonny”
