A Review of the Nigerian Energy Industry

How Kachikwu can transform NNPC

11 August 2015, Lagos – For the new Group Managing Director of Nigerian National Corporation Dr. Emmanuel Ibe Kachikwu to bring radical change in the corruption-ridden state-run oil firm, President Muhammadu Buhari must insulate the corporation from undue political interference. Ejiofor Alike reports.

Dr. Emmanuel Ibe Kachikwu.
Dr. Emmanuel Ibe Kachikwu.

The Nigerian National Petroleum Corporation (NNPC) witnessed yet another change in its leadership last Tuesday when President Muhammadu Buhari appointed Dr. Emmanuel Ibe Kachikwu as the new Group Managing Director of the corporation.
Kachikwu, took over from Dr. Joseph Dawha, who was appointed in 2014 to replace Andrew Yakubu, who spent about two years in office. Yakubu, who was appointed July 1, 2012, was the fourth GMD of NNPC in the about five-years reign of Mrs. Diezani Alison-Madueke as Minister of Petroleum Resources.

Prior to now, the previous administration had allowed political interference to destablise the operation of the corporation even as  allegations of corruption continued to bedevil the national oil company.

Within five years (2010-2014) the NNPC had five GMDs, a development that sent panic to operators, particularly foreign operators that wanted to engage in long-term oil and gas business with Nigeria.

The five GMDs within the five year tenure of Alison-Madueke included Dr. Mohammed Barkindo (January 12, 2009-April 2010); Mr. Shehu Ladan (April – May 2010); Mr. Austen Oniwon (May, 2010-June 26, 2012); Mr. Andrew Yakubu (June, 2012-2014) and Mr. Joseph Dawha (August 2014-August 2015).

Even Mr. Lawal Abubakar Yar’Adua, who was the first GMD appointed by the late  President Yar’Adua, served for  less than two years before he was replaced with Barkindo, on the prompting of the then Minister of Petroleum Resources, the late Dr. Rilwanu Lukman.

Thus Kachikwu is the eight GMD since former President Olusegun Obasanjo handed over power on May 29, 2007 when Mr. Funsho Kupolokun was the GMD.

The most striking feature in Kachikwu’s appointment is that he is seen as an outsider, having been appointed from outside the NNPC.

But his vast knowledge of the oil and gas industry, both locally and globally, is not in dispute.

Though Kupolokun was not a staff of the NNPC as at the time of his appointment as the GMD, he had worked for the corporation and was enjoying his retirement when Obasanjo appointed him.

Kachikwu, who was the Executive Vice-Chairman and General Counsel of Exxon-Mobil (Africa), is a First Class graduate of Law from the University of Nigeria, Nsukka and the Nigerian Law School, where he was the best graduating student and multiple awards winner in both institutions.

He also has Master’s and Doctoral degrees in Law from the Harvard Law School.

The new NNPC boss started his working career with the defunct Nigerian-American Merchant Bank before moving on to Texaco Nigeria Limited where he remained for about eight years before joining ExxonMobil.
Kachikwu, who assumed duty shortly after the announcement on his appointment was made, expressed gratitude to his predecessor, Dawha, for his hard work in holding the corporation.

He also pledged to work assiduously in achieving the president’s growth aspirations for the oil and gas industry.

Given his impressive resume, Kachikwu’s appointment has elicited positive reactions from the industry with the expectation that as a very well respected technocrat with an impeccable record, he will use his vast experience to restructure the NNPC, recover missing funds and reposition the corporation into a world-class corporation.

However, for Kachikwu to surmount these daunting tasks, President Buhari  must use his political will and anti-corruption stance to chase away influence peddlers from the NNPC and insulate the corporation from undue political interference from the corridors of power.

This will give the new NNPC boss the free-hand to run the corporation

professionally and in line with international best practices.

The practice of sacking a GMD by the President at the instigation of the Minister of Petroleum Resources or any other top politician must stop, if Kachikwu must succeed in repositioning the corporation to realise the dream of both the President and all other stakeholders.

Buhari’s recent threat to split the corporation into two entities to assume regulatory and commercial functions was an old song and a rehearsal of the late President

Yar’Adua’s position as far back as February 2008.

Shortly on assumption of office, Yar’Adua had observed that the NNPC had assumed multiple and conflicting roles.

Declaring open the 13th Nigeria Oil & Gas (NOG) Conference and Exhibition in February 2008, the late President stated that the NNPC has “lost focus” in the discharge of its primary functions.

“They (NNPC) has been made, over the years, to assume multiple, and often times conflicting roles, including those of policy formulation, regulation, commercial operations, and national assets management. This has adversely affected (its) capacity to effectively perform its primary role as an internationally and fully integrated commercial oil and gas company. This has become even more so, considering that the last few decades have witnessed sister national oil companies, including those from OPEC countries, effectively competing against the international oil companies in all spheres of the industry, including certain significant operations of the industry beyond their national boundaries,” he had said.

Unfortunately, the late President died without realising his lofty dreams of repositioning the NNPC and Nigeria’s oil and gas industry.

The need for a reform had prompted former President Obasanjo set up the Oil and Gas Reform Implementation Committee (OGIC), headed by his Honorary Special Adviser on Energy and Strategic Matters, the late Dr. Rilwanu Lukman on April 24, 2000, to carry out the first comprehensive reform of the oil and gas industry.

However, Obasanjo completed his eight-year tenure without implementing the National Oil and Gas Policy (NOGP) submitted by the Lukman’s committee.

The imperatives for reform in the oil and gas sector prompted the late Yar’Adua to reconstitute a new committee, also headed by Lukman, on September 7, 2007.

Lukman’s new committee, which submitted its report to the late President on August 3, 2008 was mandated to “transform the broad provisions in the NOGP into functional institutional structures that are legal and practical for the effective management of the oil and gas sector in Nigeria”.

The Petroleum Industry Bill (PIB), which has a chequered history, according to a former Deputy Speaker of the House of Representatives, Hon. Emeka Ihedioha, was based on the report of these two committees.

Unfortunately, seven years later, the PIB, which seeks to replace the current myriad of about 16 obsolete legislative and administrative instruments and transform them into a single transparent and coherent document, is yet to be passed into law.

Saudi King Abdullah bin Abdulaziz, who had ruled since 2005, died in January 2015 at the age of 90 but it did not take his successor, King Salman bin Abdulaziz al-Saud up to five months to reform Aramco, which is the equivalent of NNPC.

In fact, within hours of his accession to the throne of the oil-rich kingdom, King Salman vowed to maintain the same policies as his predecessors.

In less than five months, the new ruler has split its state oil company from the country’s Petroleum Ministry in what was regarded as the biggest shake up of the country’s hydrocarbon industry for the last 50 years.

Aramco, Brazil’s Petrobras and Malaysia’s Petronas are some of the well-run, world-class national oil companies.

King Salman bin Abdulaziz al-Saud had issued a decree in April 2015, splitting Aramco from the control of the Ministry of Petroleum, which is headed by the country’s long-serving Oil Minister, Ali al-Naimi.

King Salman also named Khalid al-Falih, Saudi Aramco’s Chief Executive, as Chairman of the company.

Saudi Arabia is the world’s largest oil exporter of crude oil with the capacity to pump more than 12 million barrels per day, compared to Nigeria’s 2.5 million barrels per day capacity.

With Nigeria’s system of government, reforming the NNPC may be much more cumbersome than that of Aramco, but it will not take a focused government with strong political will more than two years to achieve this dream.

Rather than spitting fire and brimstones, Buhari should hit the ground running to reposition the oil and gas industry so that he will not end up like the three previous presidents, who had similar dreams but ended up not realising their aspirations.

The appointment of Kachikwu is a strong signal that Buhari is determined to ensure that it is no longer business-as-usual at the NNPC.

The new NNPC boss did also not waste time to commence the restructuring of the corporation withthe retirement of all eight Group Executive Directors (GED), in a sweeping move expected to affect more senior executives in the next one week.

The affected GEDs, whose retirement was with immediate effect, include Mr. Bernard Otti, GED Finance and Accounts; Dr. Timothy Okon, acting GED Exploration and Production, who also doubled as Coordinator Corporate Planning and Strategy of NNPC; Mr. Adebayo Ibirogba, GED Engineering and Technology; and Dr. David Ige, GED Gas and Power.

Others are Ms. Aisha Abdurrahman, GED Commercial and Investment; Dr. Dan Efebo, GED Corporate Services; Mr. Ian Udoh, GED Refining and Petrochemicals; and Dr. Attahiru Yusuf, GED Business Development.
In addition to the removal of the GEDs, Kachikwu is also said to be considering the slashing of the number of directorates in the corporation from eight to four.

President Buhari should therefore, provide the political protection for Kachikwu, shield him from the undue political interference from influence peddlers and give him the required free-hand to run the NNPC like other world-class national oil companies.

With politicians out of his way, the new GMD will have the capacity to tackle the internal challenges of corruption within the NNPC, as well as the powerful operators, whose motive is only to make profits.

Before Lawal Yar’Adua rose to the position of the GMD under the late President Yar’Adua, he was at one time, the Managing director of Kaduna Refinery and Petrochemical Company (KRPC).

THISDAY gathered that when Yar’Adua had issues at the refinery and was heading on a collision with the then GMD of the NNPC, Dr. Jackson Ebiuwairo Gauis- Obaseki, the most respected former boss of the NNPC to date, Yar’Adua allegedly ran to the then Vice President Atiku Abubakar for intervention.

But with the free-hand given to Obaseki by Obasanjo, the former NNPC boss was able to resolve the issues professionally without the former Vice President’s intervention.


Corruption is the major challenge Kachikwu will likely confront with the NNPC and its subsidiaries.

Though alleged corruption and dubious accounting practices within the NNPC are as old as the national oil company, they assumed alarming proportions with the increasing influence of politicians in the day-to-day running of the operation.

Even as Kachikwu assumed office on Tuesday, he was confronted with yet another report, this time by the New York-based Natural Resource Governance Institute (NRGI), which claimed that Nigeria lost over $32 billion oil revenue due to the mismanagement of domestic crude allocations (DCA) by NNPC, as well as the opaque revenue retention practices and oil-for-product swap agreements signed between the corporation and some oil traders.

The report also recommended the overhaul of how NNPC sells its share of crude oil output to save billions of dollars in wasted and lost revenues.
About half of Nigeria’s 2 million barrels per day (bpd) crude output goes to NNPC. NNPC sells about half of that oil to its subsidiary Pipelines and Product Marketing Company (PPMC) for the country’s refineries.

The poorly maintained plants are however unable to process the bulk of the oil and over the years this allocation has devolved into a “nexus of waste and revenue loss,” the report by NRGI, a non-profit body, said.

The other half of NNPC’s oil share is mostly sold to “unqualified intermediaries”, earning significant margins for little or no added value, rather than directly to the end-users, NRGI said.

A summary of the report signed by the Director of Communications of NRGI, Mr. Lee Bailey, which was made available to THISDAY, said: “Some buyers of this oil are unqualified intermediaries who capture margins for themselves while adding little or no value to deals.

“Several contracts, including oil-for-fuel swap agreements, are opaque and contain unbalanced terms, researchers found.”

Oil sales are Nigeria’s biggest revenue stream, but management has worsened in recent years, said NRGI

“By our estimate, just three of the problematic provisions in a single swap contract may have cost the government $381 million, or $16.09 per barrel of oil, in a single year (or over $1.9 billion between 2010 to date).

“The combination of a new government and the current budgetary shortfalls offers Nigeria its best chance in years for overhauling NNPC’s oil sales. The status quo is unaffordable,” said one of the authors of the report.

Bailey added: “Everyone from trading companies to Nigerian citizens is waiting to see how the new government will approach these transactions, including the allocation of new export or swap contracts. Our research maps the current state of play, and we suggest what issues reformers in Nigeria ought to urgently address.”

This is aside the fact that NNPC channelled Nigeria’s precious crude — worth $35 billion – to swap deals between 2010 and 2014, the recent OPAs containing unbalanced terms that did not efficiently serve Nigeria’s needs and interest.

Even though the credibility of the report was punctured by the failure of the NNPC to make available the papers to exonerate itself, the latest allegation by NRGI was in line with the previous ones made against the NNPC.

However, under the previous administrations, it was not the NNPC that approved the list of oil traders that lift Nigeria’s crude oil, neither was the corporation given the free-hand to determine the terms of these transactions.

Major decisions concerning the operation of the NNPC, including fuel importation; crude oil lifting contracts; Strategic Alliance Agreements (SAAs); Offshore Processing Agreements (OPAs); kerosene deals and appointments within the subsidiaries were allegedly made by the immediate past Minister of Petroleum Resources, with the apparent approval of the former President, with little or no regard to professional inputs from the GMDs.

So, until Buhari insulates the corporation from political influences, the alleged large-scale corruption will continue to be induced from the outside, while a helpless GMD will either resign to protect his honour and integrity or continues to sign papers and take the blame for corruption.

Toga of missing money

The allegation of missing money is perhaps, as old as the national oil company, dating back to the military administration of General Obasanjo (retired), between 1976 and 1979.

It was after Obasanjo had handed over to the civilian administration of former President Shehu Shagari in 1979 that the first alarm was raised that N2.8 billion got missing in NNPC.

During Obasanjo’s military regime, Buhari was the Minister of Petroleum Resources (Federal Commissioner for Petroleum, as it was then called).
Shagari’s government was said to have set up a Judicial Commission of Inquiry headed by Hon. Justice Ayo Irekefe of the Supreme Court, to probe the alleged missing oil money.

Up till date, controversy has continued to trail the findings of the commission.

One account claimed that the commission reported in its findings that no money was actually missing.

But the political opponents of Buhari resuscitated the issue during the 2015 presidential elections campaign, claiming that the money actually developed wings from the Midland Bank, London account of the NNPC, during General Obasanjo’s era as military head of state.

One account alleged that the money was traced to the Midland Bank London branch fixed account of an unnamed official but another account said that the White Paper from the Irikefe Commission showed that no money was missing.

The allegation of missing money continued to trail the operation of NNPC after the N2.8 billion incident, but the allegation that ridiculed Nigeria beyond imaginable proportion in the eyes of the international community was the one made by a former Governor of the Central Bank of Nigeria (CBN), Mr. Sanusi Lamido Sanusi that the NNPC failed to remit the sum of $49.8billion for the period January 2012 to July 2013.

Sanusi, now Emir of Kano had written a letter, which later leaked to the media, to President Goodluck Jonathan, complaining about the alleged missing funds.

But inter-agency reconciliation brought down this figure to about $10.87 billion.

However, the respected apex bank governor later reviewed the disputed figure upwards to $20billion, after initially accepting $10.87billion at the end of the inter-agency reconciliations.

NNPC made spirited attempts to provide clarifications on how the purportedly missing fund was spent but the efforts did not remove the damage done to its reputation.

Non-remittance of NLNG’s $11.6bn

The issue of missing money also resurfaced after Buhari took over as the Executive Secretary of NEITI, Mrs. Zainab Ahmed had in June informed Buhari’s administration in a statement that a total of $11.6 billion, which represented outstanding total dividends arising from loans and interest repayment from the federal government’s investment in Nigeria LNG should be recovered into the government’s coffers.

“Our 2012 audit report discovered that total dividend, loans and interest repayment from the LNG paid to the NNPC in 2012 was $2.8bn; however, in the course of NEITI’s audit, the NNPC was unable to provide any evidence that the funds were remitted to the Federation Account as required by law. The total amount received by the NNPC from the LNG under the same circumstances, which has not been remitted to the Federation Account, stands at $11.6 billion.”

Ahmed also called for full investigation into the transfer of eight oil wells sold by the NNPC to the Nigeria Petroleum Development Company in 2010 and 2011.

But explaining the circumstances surrounding the non-remittance of the $11.6 billion NLNG dividends, the Group General Manager, Group Public Affairs Division, NNPC, Mr. Ohi Alegbe, said a committee working on the alleged unremitted funds had not concluded its assignments.

Kachikwu has a task to clean the books of the NNPC and make its accounting policies very transparent, so as to strip the corporation of this toga of ‘missing money.’

General industry challenges

It is also expected that without distractions from undue external influences in the operation of the NNPC, Kachikwu will concentrate energies to tackle the real industry challenges that have hampered investment and the country’s aspiration to hit daily production of 4 million barrels per day and reserves of 40 billion barrels.

These challenges include but are not limited to NNPC’s inability to meet its cash-call obligations; long contracting cycles; multiple agencies involved in contracting processes; uncertainties created by the non-passage of PIB; declining exploratory activities and security challenges.

In this article

Join the Conversation