Ongoing reforms in NNPC anchored on NEITI audit reports

10 November 2015, Abuja – The Nigeria Extractive Industries Transparency Initiative (NEITI) has described its yearly investigative reports on the activities of operators in Nigeria’s oil and gas industry as the dominant document with which the federal government is restructuring business and operational processes at the Nigerian National Petroleum Corporation (NNPC).

NNPC-Towers-AbujaNEITI affirmed recently in Abuja that the decision of the government to restructure the NNPC’s operational processes cannot be isolated from the various findings and recommendations in its yearly audit report of Nigeria’s hydrocarbon industry.

Its immediate past Executive Secretary, Zainab Ahmed, who has been appointed by President Muhammadu Buhari into the federal cabinet as a minister, told reporters when she handed over at the agency that several recommendations NEITI had made on restructuring the NNPC but which were in the past ignored are what is being adopted by the new management of NNPC in the corporation’s ongoing restructuring.

Relationships between NEITI and NNPC had in the past been extremely frosty with NNPC often accusing NEITI of ill intents each time audit reports on its activities in the sector flagged off unwholesome practices by it.

Ahmed however explained at the valedictory session that NEITI’s reports had provided the government with very useful tools on how to restructure NNPC’s activities in the oil sector. She said that issues such as NNPC’s domestic crude oil allocation, joint venture cash call arrangements, unbundling of the Pipeline Products and Marketing Company (PPMC) and the corporation’s participation in the petrol subsidy scheme have all been given priority reviews and recommendations in the reports it had published so far.

“Each of the audits conducted during my tenure disclosed facts and crucial information that formed the basis of our recommendations for remediation. Although implementation of the recommendations have been slow in the past, I am encouraged that the present administration has taken the implementation seriously,” Ahmed said.

She further explained that: “The ongoing reforms in the NNPC are largely informed by the recommendations contained in NEITI audit reports. This include the review of the crude oil swaps and oil processing agreements; ongoing debate on the subsidy regime; the new directive on NLNG remittances to the federation account and other restructuring in the NNPC.”

On NEITI’s stance on the government’s allocation of about 445,000 barrels per day of domestic crude oil to NNPC, Ahmed said: “We have said over time that we need to address the issue of domestic crude allocation, the domestic crude we have been allocating to NNPC is supposed to be used for local refining in our four refineries, but the refineries have been operating over time far below their installed capacity.

“We had said that we should reduce the level of crude oil we allocate to NNPC that would serve as a real incentive for the refineries to actually improve in their performance capacity. So, if we reduce what is allocated to the NNPC to the refining capacity plus a small margin it would encourage more capacity development for the refineries themselves.”

She said on cash call arrangements that the reports had requested for a review of the framework to allow the country transit from the existing operating arrangement to other type of arrangement that will ease the cash call burden on it.

Speaking on PPMC, NNPC’s downstream subsidiary, Ahmed said: “What we have recommended is the unbundling of the NNPC because the way NNPC is structured it is managing policy, doing some regulation and also operating.

“So, that places it at a position of significant conflict of interest. It needs to be unbundled into independent unit that must themselves be made to be commercially viable. The PPMC, Crude Oil Marketing Department (COMD), National Petroleum Investments Services (NAPIMS) and each of them should be unbundled and made to stand alone companies that have responsibilities.

“As it is because of the way NNPC is structured, the refineries for example are operating at huge losses, so the other arms of the businesses are subsidising those loses. But if you make each of those units to stand on its own, it will bring about more efficiency.”

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