Outlining his vision as he assumed the office of Group Managing Director of the Nigerian National Petroleum Corporation, Mele Kyari made bullish promises of change that however fall short of the sorely needed radical overhaul of the lumbering, opaque ways of Nigeria’s premier state-owned enterprise. His resolve to entrench transparency and accountability, raise gas reserves and combat corruption resonates; but his accompanying plan to continue holding on to the four loss-making refineries dampened hopes of sweeping reforms on his watch.
Kyari comes to office with impressive credentials and some optimism of a better-run SOE that would provide greater benefits to the taxpayer. He would be doing Nigeria an invaluable service if, within the powers allowed him by law, he can cure the NNPC of its chronic ailments of opacity, inefficiency and corruption, as well as get it out of the downstream sub-sector.
He struck the right chord with his vow to fight corruption, a by-word for the corporation. “We will automate our systems and processes so that discretion is reduced to the barest minimum.” This is the right way to go that, together with his novel move to work with the anti-graft agencies, should help remove the stench of corruption oozing from the company. Raising reserves from the present level of 37 billion barrels to 40 billion barrels and production to 3 billion barrels per day will require greater leeway for the private sector and a slackening of the NNPC’s stranglehold on the oil and gas sector that Forbes magazine says fosters a “system of corruption that has starved the Nigerian oil industry of international investment.” Repeated promises by past CEOs to hit the 40 billion barrels mark by 2020 proved hollow. He should deploy technology to reduce graft and instil efficiency. Meeting targets requires correct diagnosis, practical plans and dogged implementation.
The NNPC is in a mess. It lost N228.1 billion between April and November 2018, when revenue plunged from N520 billion to N292.3 billion, according to its own data. The target to raise oil reserves (the 11th largest globally) has failed with less than six months to the target date. Its operations, from the upstream to midstream and downstream sub-sectors, are mired in corruption as revealed in audit reports by the Nigerian Extractive Industries Transparency Initiative, parliamentary probes and global agencies.
It is notoriously opaque, indeed, running one of the most blurry accounts in the world, according to The Economist of London. Apart from allegations of “secret” accounts, the NNPC has routinely refused to provide full financial details, allege the National Assembly and the Office of the Auditor-General of the Federation. It hardly provides full details either of how it utilises the 445,000 barrels of crude it appropriates each day to refine or trade for refined products to meet national demand for refined petroleum products. This process is also corrupted as revealed by a Swiss NGO that alleged that shell companies were used to defraud Nigeria. The NNPC is regularly accused of withholding remittances to the Federation Account. For a country that gets 56 per cent of state revenues and 85 per cent of its export earnings from oil and gas, the magnitude of its roguish ways is plainly inimical to the economy.
There are also serious problems in the upstream sector, notably in funding its joint ventures, gas gathering and meeting production targets, but it is in the downstream sector that Nigeria is so sorely ill-served. Its four refineries have become an albatross: they produce very little but at great cost; they drop losses, compelling the country to depend largely on imported refined petroleum products despite our 2.5 million daily crude production figure. For most of 2018, the Kaduna refinery operated at zero per cent, while Warri fluctuated between 2.4 per cent and 27 per cent and Port Harcourt’s two combined refineries dropped to zero production from 27.7 per cent in February.
Combined, the refineries posted N114.3 billion losses between January and November 2018. Expert opinion is that that the refineries are practically obsolete and need total rebuilding at sums enough to build new ones. After drawing billions of dollars and naira over the past 30 years, ostensibly for maintenance, immediate past GMD, Maikanti Baru, released the bombshell in January that the refineries had not undergone Turnaround Maintenance “for an aggregate 42 years.” Nigerians have not been told what happened to all the money voted for it over the years.
Yet, Kyari has followed the familiar refrain of successive NNPC GMDs who come into office, promising to overhaul the refineries. Only the last but one, Ibe Kachikwu, came clean to declare that they were irredeemable and should be sold. He later publicly confessed that he had been overruled in the privatisation plan by President Muhammadu Buhari, who insists on keeping them in state hands. By vowing to “rehabilitate the refineries and transform Nigeria into a net exporter of (refined) petroleum products by 2023,” Kyari is playing the political game instead of strongly advising the government that privatisation is the only way out to achieving national self-sufficiency in refined petroleum products and stopping the subsidy payment that, according to the Senate, drained N11 trillion from the treasury in the last six years and imports cost of petrol that rose by 50 per cent to N2.95 trillion in 2018 as tabulated by the National Bureau of Statistics. He should rather devote energy to fulfilling his promise to help fast-track the completion of the 650,000 bpd Dangote Industries refinery, assist other private operators and promote modular refineries. He should end the NNPC’s monopoly on imports, a dysfunctional system that is draining scarce resources and crowding out private initiative in the downstream.
National Oil Companies, says the Petroleum Economist magazine, are reforming and privatising: Brazil’s Petrobas is selling eight of its refineries, Saudi Aramco has resumed its listing plan. Greece is to offload state refineries to private investors too.
Kyari should advise Buhari to quickly sell the refineries, get the NNPC out of the downstream sub-sector completely and stamp out corruption in the corporation. Nigerians will hold him to his promise to open up the books for scrutiny and work with the Economic and Financial Crimes Commission to tackle graft.