*Refutes comments that petrol will sell for N97 per litre
*As NNPC awards Crude Lifting Contract to 21 Off-Takers
18 December 2015, Sweetcrude, Abuja – President Muhammadu Buhari has approved the next restructuring phase of the Nigerian National Petroleum Corporation (NNPC), the Minister of State for Petroleum Resources and the corporation’s group managing director, Dr. Ibe Kachikwu, disclosed on Thursday.
Kachikwu, who made the disclosure at a parley with journalists and civil society organisations, in Abuja, stated that the next phase of the restructuring, as approved by the president, would see the state oil company broken into four different autonomous profit-oriented companies.
He said, “Right now I have just received the president’s approval to embark on the final phase of the restructuring we are doing.
“That restructuring effort will unbundle this company into four key components: the upstream company, the downstream company, midstream company which is the gas and power company and then of course, the refining group holding company.”
According to him, the four firms to emerge from the exercise are the upstream company, the downstream company, midstream company, and the refining group holding company.
All of them would operate independently with quasi-managing directors and remit profits and taxes to the coffers of the government.
He further explained that the effect of the restructuring would enable NNPC to focus on individuals who will lead as quasi-managing directors to run the entities with the aim of delivering profits for the organisation.
He explained, however, that there would still be other managing directors at the corporate level.
“A lot of the non-performing but asset-based subsidiaries that we have, we will put them into a venture company where we will begin to help manage them to profitability and hopefully either spin them off ultimately or make them so profitable that we may decide to keep them.
“This is the sort of financial model that we are going to be dealing with over the next few months and trying to set up a performance index that is comparable with the very best in the world,” he explained.
The minister also spoke on some of the activities that he would focus on in 2016. According to him, cutting production cost; growing crude oil production to 2.4 million barrels per day (mbpd); cutting government’s subsidy on domestic supply of petrol through market-based methods; helping the country exit the onerous cash call regime in joint venture operations; reducing the industry’s contracting cycle to six months; and reengineering a profitable operational model for the country’s four refineries, would be his focus in the coming year.
He said, “For upstream, some key essentials: average production for this year was about 2.1 million barrels per day, but we think we ought to be able to move forward a little bit to about 2.4 million barrels per day in 2016.
“To do that, there are key things that need to be looked at. Oil majors have major issues in terms of funding; there are lots of cash call arrears which we need to look at. So a lot of financial engineering will be needed to enable us support that industry.”
He added that, “Finance is key, cost is key. In an era of declining price of oil, it is going to be very essential that we are able to produce the most competitive oil in the market and that is the OPEC philosophy, we must be the least cost producers and so our energy is going to focus on working with NAPIMS and every other directorate here to bring down substantially the cost per barrel of oil in this country.
“Other than the cost element, obviously, is speed. One of the greatest problems we have in the upstream is the turnaround time for the approval of projects and on the average it is two-and-a- half years. We are committed to taking that to six months.”
In the downstream segement, Kachikwu noted that, “Downstream problems obviously have been the systematic degradation of our ability to deliver services on time.
“That comes to the issue of pipeline ruptures; the issue of the inability of our refineries to perform; and not just being able to manage the entire infrastructure we have to be able to deliver services.
“We need to focus quite frankly on reengineering through investments in some of these facilities and some of the things we are looking at in 2016 would be joint ventures with technical partners to come and help us run some of these plants.”
The Minister observed that new models of financing will have to emerge, adding that the country does not have the sort of resources to continue to finance the industry “and as we go upstream, we will see a lot of innovative financing mechanisms to provide funding for the industry and I hope that by the end of 2016, we will completely exit the cash calls and be able to find our funds one way or the other to support our businesses.”
He also spoke on the refineries and government’s plan to end the subsidy on petrol: “We have four refineries, none is in the best state but we can get them back because refineries never die as long as you do what you need to do.
“Ultimately, technical support, technical services, technical joint venturing will be models we are going to be looking at for the refineries. The whole idea is find the funds, find the right skills that you need and try and deliver above 90 per cent for the refineries.”
Meanwhile, the Minister has dispelled insinuations in some quarters that the Federal Government has concluded plans to increase the pump price of fuel from N87 to N97 per litre as from January 2016.
According to him, the discourse has long left the realm of subsidy removal to a more scientific price modulation approach which entails an elastic price mechanism regime to be reviewed periodically to reflect the prevailing international price of crude.
He explained that when operational, the novel price modulation system will place a N97 per litre cap on the price of fuel to ensure that Nigerians are insulated from the vagaries of the global crude price.
“I did not say that refined petroleum products will sell for N97 per litre next year. I said that between a band of N87 and N97 we are going to be looking at prices and today the prices are largely close to N87. So, there is no need to change the price.’’
The Minister noted that to determine the price of petroleum products in future, the Petroleum Products Pricing Regulatory Authority, PPPRA, will undertake quarterly review of the crude market situation.
He said, “I have not put a static figure. PPPRA will have to do the calculation to be able to announce what price of PMS will sell for in January; but we do not anticipate any major shift because of the price of crude today.’’
In the meantime, the Corporation has said the new wave of openness and transparency pervading the operations of the NNPC since the advent of the new administration was sustained with the announcement of 21 Off-takers as winners of the open bid exercise conducted in October.
The exercise witnessed the unprecedented public harvesting of 278 bids submitted by indigenous and foreign firms seeking to secure contract for the sale and purchase of the 26 Nigerian crude oil grades on offer.
A breakdown of the 2015/2016 crude oil term contract off-takers for the 991, 661 bpd Nigerian equity crude indicate that 240, 000 bpd representing 24 percent of the total volume on offer is awarded to four Refiners classified as major current receivers of Nigerian Crude with capacity to process all of Nigerian crude grades. The Off-takers in this category include: Emirates National Oil Coy, ENOC, Indian Oil Corporation, CEPSA Refinery Madrid and Sara SPA Refinery. Each of the Off-takers in this category was awarded 60, 000 bpd.
Three notable International Trading Companies, namely Trafigura PT Ltd, Mercuria Energy Trading SA and Vitol SA won the bid for the lifting of 32, 000 bpd of crude based on their pedigree as large scale buyers of Nigerian Crude with structure for short term freight intervention and storage. The off-takers in this category represent about 10 percent of total crude volume on offer.
Trading Affiliates of International Oil Companies consisting of ENI Trading and Shipping SPA, TOTSA Total Oil Trading SA, Exxon Sale and Supply LLC and Shell Western Supply and Trading received term allocation of 32, 000 bpd each totaling 128, 000 bpd representing about 13 percent of total volume of crude oil on offer.
Nigerian downstream players with wide experience in crude trading and large asset base accounts for 405, 000 bpd representing about 41 percent of total crude volume on offer. In this category, Emo Oil & Petrochemical Coy/China Zhenhea- an NNPC long term trader is allocated 45, 000 bpd. Other off-takers in this category include: Northwest Petroleum and Gas Ltd, 45, 000 bpd, Forte
Oil, 45, 000 bpd, Oando PLC, 60, 000 bpd, Sahara Energy Resource Ltd, 60, 000 bpd, A.A. Rano Nig. Ltd, 45, 000 bpd, Eterna Oil, 45, 000 bpd and MRS Oil &Gas Coy Ltd 60, 000 bpd.
NNPC Trading Companies Calson/Hyson 32, 000 bpd and Duke Oil Incorporated 90, 000 bpd account for combined off-take of 122, 000 bpd representing about 12 percent of total volume on offer.
Apart from ensuring transparency, the companies were carefully chosen based on their track records and trading experience to ensure that Nigerian crude cargoes are not left unsold.