A new plan by the Nigerian National Petroleum Corporation to seek funding from the capital market is a re-affirmation of the government’s stranglehold on the oil and gas sector. As part of its alternative financing plan, the loss-making energy firm said it had inked financing contracts with foreign banks for oil and gas projects and intended to access the capital market too. While it is normal for corporate entities to access finance to run their businesses as they deem fit, the NNPC is not “normal,” but has become an albatross to the Nigerian taxpayer: this government’s mandate is to radically reform or disband it, not to give free rein to the firm.
As hinted by Maikanti Baru, the Group Managing Director of the NNPC, and Ibe Kachikwu, Minister of State for Petroleum Resources, at the 2018 Nigeria Oil and Gas Conference held in Abuja, the national oil company will head for the capital market to fill the funding gap for its growth plans. Such funds, Baru explained, would be invested to meet its oil and gas production targets set by the government. Already, he said, the company had signed “third party” financing agreements to the tune of $2.5 billion for “different projects.” One justification for these funding options, according to Kachikwu, is that crude oil would remain important for a long time to come, “irrespective of the presence of electric cars in some parts of the world.”
The quest for funding from multiple sources may sound good in the ears of those unfamiliar with the grimy, labyrinthine ways of the corporation. After all, it aims to add one billion barrels annually to crude reserves; from 37 billion barrels presently to 40 billion by 2020 and daily production industry wide from the present 2.4 million barrels (assumed) to three million barrels per day, apart from investment funding obligations in joint venture operations.
But the fatal flaw in these grand plans is the dubious track record of the NNPC. Alone among the world’s biggest NOCs – apart from tumultuous Venezuela’s PDVSA – it continues to make losses despite its overwhelming dominance of Nigeria’s oil and gas sector. It lost N547 billion in the three years to 2017, according to a summation from its annual reports by Business Confidential. It has a monopoly in domestic refining but exceeded its own operating loss projection in its refining subsidiary, Pipelines and Product Marketing Company, for 2017 thrice-fold; operating losses in the PPMC’s refineries hit N102.52 billion by December of that year, not the N30.14 billion expected. Despite having a combined processing capacity of 445,000 barrels per day, it barely achieves 10 per cent utilisation, forcing the country to depend almost 100 per cent on import of refined petroleum products. This absurdity cost the country N1.24 trillion importing petrol in 2015 and N2.07 trillion in the first nine months of 2017, according to the National Bureau of Statistics. The state’s heavy involvement in the sector drives away private investment, especially in the mainstream and downstream.
Opacity and scandals are the defining stories emanating from this NOC, its latest quirk being the so-called “under-recoveries” in its new-found monopoly on refined products import and subsequent shortfalls in its expected remittances to the Federation Account, thereby hurting federal, states and local government finances.
President Muhammadu Buhari bears the blame for the NNPC’s continued sway over the economy. It is a public entity that should deliver value to Nigerians. Buhari has reneged on his promise to break up this scandal-ridden behemoth. Elsewhere, Equinor, the Norwegian NOC with 67 per cent state ownership, is listed No. 91 in Forbes magazine’s ranking of the world’s largest companies in 2018, with market capitalisation of $90.2 billion. Nigeria’s government may claim that it cannot match Abu Dhabi National Oil Company, the United Arab Emirates NOC, the world’s 12th largest oil company by production with revenues of $50 billion in 2014, which has enabled its rulers to keep Emiratis in luxury, but it has no excuse, save impunity, for the wayward ways of the NNPC.
Buhari should drop this arrogance: the NNPC has failed woefully to manage its resources, run profitably or fulfil its obligations to the treasury faithfully. Nasir el-Rufai, the Governor of Kaduna State, once put it bluntly: the government should dismantle the NNPC or “it will kill us (Nigeria),” urging Buhari to end its reign as a “parallel government” and pave the way for a new wholly commercial company. That the NNPC is irredeemable as presently structured is incontestable. Here is a company that runs refining monopoly in an oil producing country with 193 million people, daily demand of at least 25 million litres of petrol and yet cannot break even!
Instead of grandiose plans to raise funds that, by past experience, it may mismanage, leaving the taxpayer to pick up the bill, the NNPC should be radically overhauled and wound down to be replaced by a single holding company to hold the country’s interest in the production operations and an investment vehicle to take minority stakes in privately-run oil and gas investments.
It should quit the downstream sector completely for the private sector. National interest is preserved by strong, investor-friendly regulation, not by state entrenchment in commerce that has succeeded in driving investments away from refining and products import save for the brave effort of Dangote Group. The United States contests the world’s biggest producer status with Saudi Arabia, but its government does not own any oil company.
The reform process should start with disposing of the refineries and incentives for investors to compete and make the country a major exporter of refined products.
For now, the NNPC should abandon its frenzied search for funds for everything from crude and gas projects to pipelines and refineries. It must be reformed and its subsidiaries privatised to save money, create jobs and end its use as conduit for plunder by successive administrations.