A Review of the Nigerian Energy Industry

NNPC explores alternative funding to pay $6bn arrears of JV cash call

26 September 2015, Lagos – The Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), Dr. Emmanuel Ibe Kachikwu has said the corporation had started to explore alternative funding models to pay the outstanding arrears of its obligations to the joint venture companies with the International Oil Companies (IOCs), which currently stands at about $6 billion.

Dr.Emmanuel Ibe Kachikwu, NNPC GMD-480x500

Speaking to journalists in Lagos, Kachikwu, who stated that he targets to pay all the arrears by the end of December 2015, also stated that the corporation had saved $150 million monthly from the recent cancellation of contracts, which did not give good financial yields to the country.

He insisted that transparency must remain his major focus, adding that if the NNPC must get back its credibility, it must be on the altar of transparency.

Kachikwu further disclosed that only Port Harcourt Refinery may meet the 90-day deadline he handed over to the refineries to operate at 60 per cent from the current abysmal low level of 30 per cent.

The NNPC boss noted that the arrears of JV cash calls accumulated to about $6 billion because the National Assembly over the years did not allocate enough money for the cash calls in the country’s budget.

“If you ask for $4 billion; they (National Assembly) will give you $1.5 billion,” he said.
He said the corporation had started to explore alternative funding models to pay the arrears within this year, stressing that President Muhammadu Buhari has given him free hand to operate.

“I am grateful to be working with the President, who has done everything that you would expect in terms of giving you the latitude to bring the issues on the table; discuss with him; and reach decisions that will be fruitful to this industry. So, if you see the speed with which we are moving, it is because he has given me the free hand and is willing to work with me to sanitise the company. The President is very emotional about the poor people,” Kachikwu explained.

Kachikwu cited the $1.2 billion multi-year drilling financing package secured recently by the corporation for 36 offshore/onshore oil wells under the NNPC/Chevron Nigeria Limited Joint Venture as one of the funding models being explored.

According to him, the other IOCs are being encouraged to come up with funding models that would be favourable to the joint venture partners.

“Cash call arrears is over $5 billion and between now and December I will deal with the arrears of cash calls,” he said.

Kachikwu noted that from his preliminary assessments, it is likely that only the Port Harcourt Refinery would meet the 90-day deadline given to the refineries to operate at a capacity of at least 60 per cent.

“The refineries are not yet working because if you give me 60 per cent this week and go down to zero next week, you find out that the average performance is just 30 per cent. Coastal movement of crude oil and petroleum products is not a solution; it is unsustainable and unprofitable,” Kachikwu said.

He stated that NNPC has some of the best engineers in the country, adding that the fact that they are able to maintain and operate the refineries without Turn Around Maintenance (TAM) is a sheer miracle.

“Every international team you call will say scrap them (refineries) because they are bad. So, we must respect their intelligence. What we need to do to help them is some level of independence; be able to shut down and do TAM when they are due; and be able to create contractual models that make the business profitable. Right now we are losing N10 billion monthly on each of the refineries. It is a huge loss effort. So, we should move away from era of emotion to the era of business,” he said.

“Another aspect of this transparency is that the contracts models we run must be transparent. Nigerians have an entitlement to participate in the contracts; it is also not a privilege; it is a right and everybody must have the same opportunity to be able to participate. But in doing that we must choose the best contractual models that offer the best value chain yield for this country. You saw that the first bullish effort we made was to cancel the contracts,” he added.
Kachikwu stated that the contracts were cancelled because there were challenges and issues and not because the contracting parties were bad.

“Again, I place less emphasis on individuals and institutions and I place emphasis on processes and outcomes. So, it is not to say that a company was bad or was not good. I am not a judge and I am not going to be the jury. But if a contract doesn’t give me a good financial yield for the company and for the country, I am going to cancel it.

“It is not to say that the individual who is the operator of that contract is bad. What it simply calls for is to open it up and ask others to give you an alternative yield and if they come up with the best alternative, so, be it. I think if you look at some of the contracts we cancelled, we saved average of over $150 million monthly just by those contracts being cancelled and being given new models even for the interim period.

“The other aspect of transparency is how do we deal with the accounting issues? We are doing a couple of things in this direction. First, we are bringing back all the auditors, who did the partial audit to do a full audit. The issue was that they did not get all the data; but we are going to give them all the data. I need to know what the state of the finances of the corporation is and the treatment of funds up to this date.

“Our account was last audited in 2010 and it will be audited and brought up to date. I hope we will achieve that before December. Once we know that, whether the accounts are good or bad is secondary but at least, we know what the state of the finances are and we owe that to the country,” Kachikwu said.

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