A Review of the Nigerian Energy Industry

Buhari to sack NNPC top management

NNPC Towers
NNPC Towers

*To remove Petroleum Minister from Board in massive restructuring

Oscarline Onwuemenyi,
with agency reports

16 April 2015, Sweetcrude, Abuja –
Nigeria’s President-elect, Muhammadu Buhari is said to have concluded plans to sack and replace all top management of the Nigerian National Petroleum Corporation, NNPC, as part of his mission to overhaul the oil and gas industry.

All Progressives Congress, APC, sources say the new administration will first sack and replace the top management of the state oil company. Then it will review its accounts to restore credibility.

A bill will be drafted to break the NNPC into four entities, as already prescribed in the latest Petroleum Industry Bill, PIB, draft. But it will also, crucially, remove the oil minister from the NNPC’s board of directors to curb political interference, one APC source said.

Others said more generally that the minister’s current powers would be heavily trimmed.

Oil and gas will have separate companies for upstream, with a third covering pipelines and refining, and a fourth will be an inspectorate. It could be submitted to parliament in the first quarter of next year, one parliamentary APC source said.

“We need to address the structural issues and leave the fiscal for now,” Senator Bukola Saraki, whose APC party controls both houses of parliament after a landslide win, told Reuters.

“A more transparent NNPC is needed with reasonable accounting,” he said.

Meanwhile, oil firms keen to know how Nigeria’s president elect Muhammadu Buhari plans to tax them could wait a long time as he makes ending corruption and reforming the opaque national oil company his most urgent sector priorities.

Four party sources from Buhari’s APC told Reuters the issue of fiscal terms, seen as crucial by the industry, will have to wait on current thinking about oil and gas policies for Africa’s leading producer.

Crude output has stagnated close to 2 million barrels per day over the past few years, owing partly to under-investment.

Buhari owes his March 28 victory against incumbent Goodluck Jonathan partly to a perception that Jonathan allowed corruption to get out of control — especially in the oil sector.

A string of multibillion dollar oil corruption scandals tainted the NNPC and other bodies that handle energy.

By contrast, Buhari was seen as one of the few Nigerian leaders to have cracked down on corruption during his military rule in 1983-1985. Many Nigerians hope he will again.

“The worry is that there’s going to be a lot of time wasted in witch-hunting…That could take a year in which nothing else will happen,” said a Nigerian investment banker focused on upstream oil and gas projects, who declined to be named.

APC leader Bola Tinubu, whose support was instrumental in Buhari’s victory and wields huge influence, told Reuters a transitional committee would be set up.

“No way will we discuss that now,” he said.

Jonathan’s administration re-drafted a Petroleum Industry Bill, PIB, in 2012 that had been in the works for a decade.

The PIB was meant to change everything from fiscal terms to overhauling the NNPC, environmental rules and revenue sharing, but its comprehensive nature caused disputes between lawmakers.

Yet the main thing the oil companies were worried about was tax. The bill proposes 20 per cent tax on offshore projects and 50 per cent for onshore. Shell (LSE: RDSB.L – news), Exxon and other majors had all complained publicly that the terms are unfair, given the risk associated with operating in Nigeria.

Uncertainty over the fiscal terms of the bill have been holding back billions of dollars of investment, especially into capital-intensive deepwater offshore, leading some to propose the bill be broken up into several pieces debated separately.

“It doesn’t need to be an omnibus, you can take things piecemeal,” one APC source said.

Hopes that doing so would resolve the fiscal issue quicker look slim, since the voting public are much more concerned about cleaning up graft than making oil majors happy.

The average Nigerian benefits little from the country’s huge energy resources while politicians wear gold watches and build monster homes in the capital Abuja.

Also, says Control Risks’ Thomas Hansen, “The cabinet needs to strategise first and fiscal terms are likely to take longer and require discussions with the (international oil companies).”

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