A Review of the Nigerian Energy Industry

An arduous job for Kachikwu, new NNPC GMD

09 August 2015, Abuja – Dr. Ibe Kachikwu, who was appointed the new Group Managing Director (GMD) of the Nigerian National Petroleum Corporation (NNPC) assumes duty at a rather intricate time. But he has his job at the corporation quite spelt out, writes Chineme Okafor


Notwithstanding the national applause which the appointment of Dr. Ibe Kachikwu by President Muhammadu Buhari as the new Group Managing Director (GMD) of the Nigerian National Petroleum Corporation (NNPC) received, one thing is however certain – that he will be saddled with the arduous task of cleaning reported age-long operational mess at the state oil company.
The appointment of Kachikwu, reportedly a thorough bred oil czar, has received good levels of appreciation by industry stakeholders who described him as a ‘round peg in a round hole’ due majorly to his grasp of the workings of the global oil industry.
Based on his educational background, Kachikwu is a first class graduate of law of the University of Nigeria, Nsukka and the Nigerian Law School (NLS). He also holds postgraduate degrees from Harvard University.
But unlike his predecessors whose job description may not have come as tough as his, Kachikwu will have to reset the working conditions of a corporation that has received bad judgements from spectators across climes; the NNPC has over the years lost tremendous face value amongst its peers, it has rather been adjudged corrupt and inefficient.
Calls for the restructuring of the NNPC which by law manages the Joint Venture operations between the federal government and multinational oil companies had been on with varying degrees of controversies surrounding its operations.
Apparently due to lack of supervision by its board, the NNPC has overtime relapsed into a mere rent-collector for the government with very little value addition when compared with its contemporaries such as Petrobras of Brazil or Petronas of Malaysia.
The corporation, has also failed in the acts of transparently conducting its business and accounting for same openly. Yearly, cases of operational dysfunctions, corrupt operations and poor accountability from the NNPC dominates audit reports on the oil sector by the Nigeria Extractive Industries Transparency Initiative (NEITI).
For example, even with powers granted it by law to deduct funds for its operations from source, auditors found that between 2007 and 2009, the NNPC had over-deducted funds in subsidy claims to the tune of N28.5 billion without properly accounting for same.
Instances of such deductions running into billions have continued to crop up and also questioned by agencies and officials of government. One of such remains the reported failure of the corporation to remit up to $20 billion into the federation account as statutory proceeds for crude sales within specified periods. The former governor of CBN and now Emir of Kano, Sanusi Lamido Sanusi, disclosed this in 2013.
Also, a recent in-depth and independent analysis of how the NNPC sold its share of Nigeria’s total crude oil output by the Natural Resource Governance Institute (NRGI) revealed that the operational approaches adopted by the corporation were faulty and unsustainable.
The NRGI report which questioned NNPC’s approach to crude oil sales in the Domestic Crude Allocation (DCA), noted that the DCA framework had suffered from high corruption risks and subsequently failed to maximise returns for Nigeria.
It added that the shortcomings in the DCA characterises the NNPC as a whole and that about half of Nigeria’s two million barrels per day (bpd) crude oil output goes to NNPC, out of which the NNPC sells half of the quantity (445,000bpd) to its subsidiary, the Pipelines and Product Marketing Company (PPMC), within the DCA for the country’s refineries.
The report however noted that the poorly maintained refineries are unable to process the bulk of these 445,000bpd oil and that over the years, the allocations have devolved into a “nexus of waste and revenue loss.”
Apart from its claims that the other half of NNPC’s crude oil share are mostly sold to “unqualified intermediaries,” thus earning significant margins for little or no added value, rather than directly to the end-users, the report suggested that an urgent clean-up was needed at the NNPC.
“The DCA facilitates some of NNPC’s worst habits, and no longer serves its intended purpose. NNPC’s discretionary spending from domestic crude returns has reached runaway, unsustainable levels, averaging $6 billion a year between 2010 and 2013,” the report stated.
It added that: “Over 38 years, the corporation has neither developed its own commercial or operational capacities, nor facilitated the growth of the sector through external investment. Instead, it has spun a legacy of inefficiency and mismanagement. Its faults have been described by a number of scathing reports, many commissioned by government itself.”
But these are not just some of the controversies and cleaning up that will require Kachikwu’s attention, the 2008 and 2004 admittances of  Willbros Group Inc and ABB Vetco Gray of making ‘suspicious’ payments of over $6.3 million and $1 million to officials of NNPC’s subsidiary, the National Petroleum Investment Management Services (NAPIMS), for assistance in obtaining and retaining contracts at the Eastern Gas Gathering System (EGGS) exchange for obtaining confidential bid information respectively will also do.
As a reputed technocrat who has traversed the oil industry garnering experiences; from Texaco Nigeria, as General Counsel upstream and downstream, to flame Oil Company, his personal oil firm, and then later, as General Counsel to Exxon-Mobil, for many years before he was promoted to the position of Executive Vice Chairman in charge of Africa, Kachikwu will be expected to clean up the fabrics of NNPC, but methodically.
With the overriding objective of reestablishing standard practices in all of its operations, Kachikwu will have to push back the avalanche of oppositions that will confront his reforms, notably at the corporation’s four refineries in Warri, Port Harcourt and Kaduna.
He will also have to review the management of NNPC’s oil sales which has worsened in recent years and particularly since 2010.
The NRGI report indicated that the largest problems with NNPC’s oil sales stem from the numerous number of ad-hoc, makeshift practices the corporation had introduced to work around its deeper structural problems.
It explained for instance that the NNPC entered into poorly designed oil-for-product swap deals when it could no longer meet the country’s fuel needs.
The corporation similarly began unilaterally spending billions of dollars in crude oil revenues each year, rather than transferring them to the treasury, because its actual budget process fails to cover its operating expenses.
However, some of these makeshift practices which began with credible goals but overtime became overly discretionary and complex as political and patronage agendas would have to be reviewed by Kachikwu and his management team.
From the foregoing, the task before Kachikwu at the NNPC will include; restructuring and inoculating the corporation from political interference on its operations, shoring up internal supports of NNPC employees into his reform agenda, and most importantly, selling his plans to the Nigerian people to gain their patience.
The good aspect of this, however, for Kachikwu is that the last government which failed to muster the will to reform NNPC had left for him to consider quality reform proposals from the work of such restructuring committees like the Dotun Suleiman Special Task Force on Corporate Governance and Controls in NNPC.

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