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The NNPC as a National Oil Company: A Critical Evaluation of Nigeria’s Oil and Gas Unicorn

Mele Kyari, Group Managing Director, NNPC

Mele Kyari, Group Managing Director, NNPC

Continued from last week…

NNPC and Nigeria’s Oil and Gas Industry

To understand the present and prepare for the future, it is important that we critically look at the past. Our last week’s narrative helps foreground the role of the NNPC in the Nigerian economy and its relationship with International Oil and Gas Companies (IOCs) through Joint Venture Agreements (JV). We’ve seen how the corporation evolved from just overseeing oil operations while playing merchant and sector regulator to actually participating as a real oil company. 

This week, we will look at how it manages the industry’s resources as it delivers what it says in its mission statement which is about “adding value to the nation’s hydrocarbon resources for the benefit of all Nigerians and other stakeholders.” 

A Tortuous Past?

It’s easy to point out the shortcomings of the Nigerian oil-rich economy and lay blames on its custodian, the NNPC. The NNPC remains nothing but a government-owned oil company. Hence, it is important that we examine the relationship between the NNPC and the government that holds it accountable. Notably, the NNPC plays the gatekeeper of Nigeria’s major economic resource on behalf of the federation. 

Consequently, it’s crucial that we do a little background check. Inefficiencies, mismanagement crises, and military leadership have plagued the NNPC right from its ancestry. Its predecessors, the Ministry of Mines and Power, and the Nigerian National Oil Company (NNOC) have also made some management decisions that would have karmic tendencies on today’s NNPC. it should be remembered that the Ministry of Mines and Power, and the Nigerian National Oil Company (NNOC) were the entities that merged to form what is now known as the NNPC. 

From the 50s to the 60s, the Nigerian oil industry through the NNOC was not making significant domestic input because it was still lorded over by IOCs like Shell. Its operations were run by a permanent Secretary of the Ministry of Mines and Power, the influential Philip Asiodu, whose credentials had no petroleum background. Asiodu was handpicked by the Yakubu Gowon military dictatorship (1966-1975).

According to observers, the autocratic style in which Asiodu and his boss ran the oil industry didn’t position it for much growth. Despite the nation being an OPEC member, the Ministry of Power and Mines had an overwhelming influence on the oil industry, including the outcome of crude oil prices.

Hereafter, we see that in a more different, although previous timeline that the Nigerian oil industry under the defunct NNOC still suffered from a persisting ailment of same mismanagement and system deficiencies. Another military leadership led by the late Gen. Muritala Muhammed would sack Gowon’s regime, and set up a panel to review the cataclysmic situation of the oil and gas sector, and then create a Ministry of Petroleum. According to the panel, the Nigerian petroleum resource was a  wasteful mess. Political interference from the ministry and the civil service undermined the performance of the NNOC.  The panel would recommend structural reviews suggesting the NNOC functioned without a board member from the ministry. 

The Birth

Upon the assassination of Muritala Muhammed,  General  Olusegun Obasanjo succeeded him and create the Nigerian National Petroleum Corporation (NNPC) from the Ministry of Petroleum Resources, the Department of Petroleum Resources (DPR) and the NNOC in 1977. For the first time, the NNPC had the opportunity to transform the Nigerian economy with all the powers it had absorbed from ministry, regulator, and company. Nothing was stopping it this time. The current president of Nigeria, Muhammad Buhari was its first chairman.

Unfortunately, heavy allegations of fraud and mismanagement threatened its existence up to the civilian rule of Shehu Shagari (1979=83). Over $4 billion was unaccounted for. The Shagari administration set up a tribunal to investigate the scandal. Shehu Shagari was more than motivated to dissolve the then corporate leadership of the NNPC. The corporation’s jurisdiction suffered heavily from the repercussions of mismanagement, impunity, and negligence.

Standing agreements with IOCs were left unattended as no systems were put in place to check their operations. They in turn acted out their excesses in all manners that also questioned their corporate status in host oil communities, raising serious questions on their corporate social responsibilities and environmental obligations. This would escalate into severe conflict in the Niger Delta region, a constant nightmare, the Nigerian oil industry still confronts, to date.

As of 1980, the NNPC still had accountability allegations which were of apocalyptic proportions. As Shagari’s tribunal and later findings would discover, there were no accounting systems in place to reconcile oil sales and production records. Yet, the civilian government made no further attempts to demand accountability from the forces that governed the NNPC, custodian of the oil and gas sector at that time.

In a dramatic turn of events, General Muhammad Buhari (1983-1985) would sack the Shehu Shagari government and launch an aggressive national campaign for discipline and order. He pulled out the Ministry of Petroleum Resources from the NNPC. But the NNPC still retained its indefinite jurisdiction, playing the same merchant and regulator. In the coup of 1985, Babaginda’s military regime sacked Buhari and a full restructuring of the NNPC began. 

Restructuring the NNPC

The regime created five sectors from the NNPC, the Oil and Gas, Pipelines and Products Marketing, Refineries and Petrochemicals, and the Petroleum Inspectorate. The corporation’s infamy for wastage and mismanagement motivated the regime’s attempt to commercialize it in 1988. It inspired the NNPC’s major stakeholding in the Nigerian Liquefied Natural Gas Company (NLNG). The corporation also became a holding company, with twelve subsidiaries handling its several affairs. 

This same regime saw that the corporation was managed by an individual who wasn’t in the ministry. The privatization and indigenization campaigns of the Babaginda regime helped the upstream sector flourish. However, corruption was still the menacing evil the regime left unchecked. Several petroleum scandals were pulling the sector meters deep into regression.

In attempts to fulfill his promise of handing over to a civilian government, the Babaginda regime set up an interim government in 1993 led by Ernest Shonekan to aid the power transfer. Although, he launched his own anti-corruption campaign and began uncovering several shady deals that will prompt his Petroleum Minister, Don Etiebet to sack the entire leadership and management team of the then NNPC.

Ultimately, the General Sani Abacha regime’s intrusion came in 1993-98 and disrupted the planned transition to civilian rule. His regime restored the old system similar to Philip Asiodu’s template, where the ministry interfered in the affairs of the corporation. But Abacha’s team excelled in creating the Petroleum Trust Fund (PTF). It was an intervention fund derived from the gains of refined petroleum product prices. The fund went to infrastructural development and rehabilitation. 

The Abdulsalami Abubakar regime (1998-1999) would remove the Department of Petroleum Resources and replace it with the Office of the Special Adviser of Petroleum Resources.

In 1999, Olusegun Obasanjo’s election as civilian president ushered in new reforms to whatever was left of the military-ridden systems. Its joint participation as a partner with the IOCs is best underscored by the reforming energy sector programmes of the Olusegun Obasanjo administration (1999-2007). 

In the administration’s agenda, the focus was to reposition the oil and gas sector to be an active driver of economic progress and development. In this suggested role, the corporation would be more than just a foreign exchange earner of oil-centric exports. The corporation would actively involve itself in actual oil production, exploration, and other revenue-yielding operations as a Joint Operator with the IOCs. However, this vision didn’t seem to have materialized. The NNPC still largely remains a foreign exchange earner. 

The Obasanjo reforms sought to rebrand and prepare the oil and gas sector, through the NNPC, for actual economic performance and public accountability. The corporation would adopt a robust corporate culture and a responsibly transparent leadership structure that published its operational and transactional data as and when due. For example, the Ministers of Petroleum and Energy oversee the board of the NNPC and the affairs of the industry. On the other hand, the NNPC maintains a deep corporate structure with a Board of directors, General Managing Directors, and Group Executive Directors.

All structural units in the above examples were created to manage the Federation’s interest in all sectors of Nigeria’s petroleum and energy industries. The sole aim was to drive economic progress by properly managing her oil-rich sector.

NNPC, other NOCs and the rest of the World

Interestingly, the performance of NOCs in other oil-producing countries like Brazil, Malaysia, and Venezuela easily outshine whatever the NNPC has on its emblem. It should be noted that these nations benefited from the OPEC move to make the oil industries of its oil-producing members independent of IOC control. For instance, one of them, the Brazillian NOC Petrobras, which is listed on the New York Stock Exchange, was recently among the Fortune 500 companies with over $70 billion revenue as of 2019. 

Unfortunately, this same performance remains imaginary for the NNPC in Africa, despite being the official national oil company of Nigeria, Africa’s largest oil producer. Angola’s NOC Sonangol founded in 1976, a year before the NNPC, reports $17 billion as its revenue for 2018. These examples betray the NNPC’s competence and its management of Nigeria’s oil and gas industry, a sector with a domino effect on Nigeria’s oil-dependent economy. In the wake of eco-criticism of fossil fuels, most of these NOCs have boldly stepped out of their petroleum boundaries to take on projects in biofuel, and futuristic energy forms.

Conclusively, one can see the many flaws that mar Nigeria’s oil and gas industry, and the integrity of her manager, the NNPC. There is the debilitating effect of corruption, the political instability that stall policies, and the strong disregard for law and its retribution, which has created a big hole in the nation’s oil industry. These deficiencies have limited the impact of the enormous oil wealth on her population. 

Now, the talks for a Petroleum Industry Governance Bill cast the industry in a new light. Hopefully, if passed, the bill will bring respite to the Nigerian oil and gas industry where it intends to trigger growth, sectoral transformation, and prosperity. It hopes to internationalize the Nigerian oil and gas industry and bring it on a competitive par with other top oil industries.

To be Continued…

Oti Francis

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