07 January 2012, Sweetcrude, Lagos – Rather than the outright privatisation of some units under the Nigerian National Petroleum Corporation, NNPC, the Federal Government has decided to set up an asset management company, as a holding company, for some of the corporation’s subsidiaries.
The holding company will include all the assets of the corporation, excluding the National Petroleum Investment Management Services, NAPIMS; and the Nigerian Gas Company, NGC, 30 per cent of which will be given up for private equity to investors.
NAPIMS and NGC will then become separate entities to make up the three National Oil Companies, NOCs, instead of one, as being proposed in the Petroleum Industry Bill, PIB, currently undergoing scrutiny at the National Assembly.
The development comes even as the Exploration and Production Directorate of the NNPC has put in place measures to address the high cost of operations in the nation’s petroleum industry, one of the bones of contention with the International oil companies, IOCs, in the fiscal regime proposed in the PIB.
Clarifying further on the development, Executive Director, E & P, NNPC, Mr. Abiye Membere, told journalists in Lagos, weekend, that the new PIB was not the monster bill, being described by the IOCs.
Rationale for decision
He explained that rather, the bill merely seeks to enhance the Federal Government’s take from petroleum resources in a very competitive and unambiguous manner, in line with global trends.
Other objectives of the PIB include: To enhance exploration and exploitation of petroleum resources; to significantly increase DomGas supplies especially for power and industry; create competitive business environment; to establish fiscal framework that is flexible, stable and competitively attractive; to create commercially viable national oil company’; to create efficient regulatory institutions; to engender transparency and accountability; to promote Nigerian content development; to promote and protect Health Safety and Environment
He disclosed that the government had to toe this line after considering all the issues involved in the privatisation of the NNPC assets, particularly the refineries, which he said were being priced as peanuts because of their current states.
He noted that with the Joint Venture, JV, assets as well as those of the National Petroleum Development Company, NPDC, the value of the refineries would be shored up, once the 30 per cent equity is privatised.
He said the move was meant to “preserve the very profitable JV arrangement that contributes over 82 per cent of the total revenue from petroleum, ring fence so there is no divestment of the National Asset Company in addition to providing opportunities for IJV with the JV partners.
Contrary to criticisms, he argued that the fiscal policy framework was “derived from a strategic national interest and incentives for attracting sustainable investment in the region.”
Expatiating further, he said the holding company would require a seed loan for two years to prepare it for self funding, adding that this will also provide private participation as it is in similar other NOCs like Petrobras of Brazil, Petronas of Malaysia and a host of others; promote cultural change to a fully accountable and commercial company; and provide adequate funding for the NOC.
He said all these were part of the presentations made by the National Working and Group Executive Committees of PENGASSAN and NUPENG, with a view to understanding the draft PIB better.
Cost reduction measures
With regard to the cost reduction measures, membere said there was an industry wide standardisation of processes and evaluation mechanism for estimation of drilling and drilling services costs, using a common template across all the IOCs.
Part of the standardisation include personnel and common costs, while also benchmarking major projects costs in line with international best practices.
Furthermore, he said the NNPC also intended to rank projects and select proposals in accordance with well established project selection, particularly on life cycle costs, and unit technical cost.
Other cost reduction measures include develop synergy among operators by pooling common services and resources to avoid duplication of costs; address security challenges in alliance with security agencies, and reducing management costs induced by lengthy contracting cycles.