20 December 2015, Abuja – Nigeria’s oil sector reforms Czar and Group Managing director of the Nigerian National Petroleum Corporation (NNPC), Dr. Ibe Kachikwu, is facing, perhaps, the toughest test of his glittering career as fuel scarcity persists across the country, threatening to undo his honest intentions about that lucrative but problematic sector.
He is fluent, articulate and has good grasp of issues and challenges of the sector when you engage him. You are held spellbound as he reels out figures upon figures concerning the sector. You can see his intentions to reform the sector but all that will pale to nothing if Nigerians cannot drive freely to the filling station, top up their car tanks and drive home.
In this exclusive interview with Shaka Momodu and Ejiofor Alike, Kachikwu, who is also the Minister of State for Petroleum Resources, espouses the challenges he is facing, allays the fears, captures the hope and re-echoes the dream of a time when fuel scarcity will become history in the country. It is not for nothing that his reputation preceded him on his current assignment as he also speaks on the direction of the present administration in dealing with the controversial challenges of fuel subsidy; privatisation of refineries; operatorship of divested oil blocks; Petroleum Industry Bill (PIB) and the efforts of the corporation to end fuel shortages, among other contemporary issues in Nigeria’s oil and gas sector. Excerpts…
Why has the fuel scarcity persisted after what seems like your best efforts so far?
Let us put it this way: you will notice that it is almost cyclical – you get up and some weeks it is cleared and then it comes right back again. So, that shows you the amount of work going on in this thing. The key thing was that by the time I joined, marketers had not been paid for a year. In fact, they had not been paid subsidy since October 2014 and they continued to import on the basis of trust and promises that something was going to happen. But nothing was happening.
They served me notice once I joined that they were going to cut but obviously I used personal influence and pressure on them. But I think when it came to about October, a lot of them began to pull out of the market largely because some of them, especially when they were private companies, were beginning to lose staff; were unable to pay their bills; had outstanding letters of credit that were not funded and all kinds of stuff. Immediately I got approval from Mr. President, subsidy was eventually paid a few days ago, roughly four or five days ago, through the process of the National Assembly and all that. Right now, what we are dealing with I think, more is they have just gotten their money; they are all beginning to re-engineer and ability to order but of course they have foreign exchange challenges.
Last month, the NNPC directly intervened using its own foreign exchange, working with the Central Bank of Nigeria (CBN) to get that into the hands of a few of the marketers but it is just a drop in the Ocean. We make only an average of $200 million when we sell some elements of the 445,000 barrels per day of the crude meant for local consumption. So, it doesn’t quite touch it. Remember, we have 445,000 barrels per day of crude allocation for the purpose of working the refineries and doing the SWAP programme as we use to have it. And when the refineries are not working, we sell that and that comes in as a component. When I saw this crunch going on I directed at the end of last month that rather than just go ahead and sell it-our obligation is in Naira-let us tie it to individuals who are importing products to give it to banks. But we let the banks know that the only reason we give it to them is to pass it on to A, B, C on the basis of their allocations or share it to everybody on some level of ratios. But that was just a little better; it doesn’t cover what is required.
Did the CBN contribute in terms of the funding?
No, it was our own funding and what we therefore now expect CBN to do is basically to complement it which I think the CBN Governor is working on. But the bottom-line is that we need to sit down and deal with the foreign exchange component. Let me tell you the challenges. A typical marketer will need to open up letters of credit to bring in these products. In the past, sometimes they would give you some level of support in letters of credit, externally. I think they are beginning to have situations where some institutions are not doing that. Quite frankly, some of the major marketers to my opinion are not making real serious efforts on this. Understandably, it is a commercial transaction.
But what it means for us is that through some level of structuring, Naira has now been provided to enable them go out and import on the regularity with which they were doing. NNPC, usually will import 40 per cent to 50 per cent of local supply. We are supposed to be really a company doing the last resort intervention, not the main supplier and that is the way it has been historically. Over the last three months we have done literally about 92 per cent. Yes, over the last three months, the only products you have seen in the market belong to the NNPC, largely. There were few trickles here and there but the PPPRA confirmed that about 92.3 per cent comes from the NNPC. We literally have been the sole importer.
So, that is why you see that after a while our capacity is very much extended both in terms of funding, both in terms of logistics because it is not just that you bring it in. When you bring it in, you have to deal with the logistics: you put it into tanks for throughputs. In some cases we are even trucking ourselves because some majors just refused to pick it up. As far as they are concerned, we should go and sort out our problems. So, we have situations where I have to take trucks and intervene in people’s filling stations and tell them that they are obliged to take my products because I need to service the country. You can imagine this going on in the whole country.
So, it has been a huge amount of work and to be honest, I give kudos to NNPC staff on this occasion because they impressed me in terms of how everybody rallied to do these things. But ultimately, that is not the solution. The solution is not for us to be a 100 per cent importer. Of course, if that is the guideline in the policy, we could adjust to that . It will require a lot of adjustment but you still need to back it up with some elements of foreign exchange support. So, myself and the CBN Governor are working these issues, trying to see how much support can we get. Obviously, there were some concerns in the past that may be, there was some round tripping; people getting foreign exchange and misusing it. That wasn’t my era. But currently, the President is very focused on integrity on these issues.
So, I don’t think that will be an issue. So, we need to first make sure that if there is any layer of doubt, that is eliminated and then focus on really how to provide foreign exchange. That is one. Number two is that in fairness to CBN, petroleum marketing sector accounts for 35 per cent of their foreign exchange allocation. Going forward, that is a huge pressure to place on a country. So, there are going to be issues to be discussed obviously – too early in the day. The President is considering all kinds of proposals that we are putting on his table. Some have to do with the issue of subsidy where do we go with it? Some have to do with price modulation and what to do with re-pricing mechanics, taking advantage of today’s crude pricing to see how that works.
However, irrespective of where you go to, there is going to be need for foreign exchange, whether government is supporting or not supporting. Crude doesn’t get sold in naira, I mean refined products do not get sold in Naira and our refineries have not been helpful. You remember the deadline that I set for 90 days; that 90 days is almost approaching and I have not seen signs yet. Looking at the performance of the refineries, you take an average. There was a time one or two kicked off doing between 50 per cent and 60 per cent but if you take national spread for the whole year, it is less than 10 per cent. So, in terms of performance, the refineries have done poorly. So, some very major decisions will have to be taken on the issue of the refineries and on that, myself and my principal have largely agreed that first; that the state of the refineries today is not the state to sell them, otherwise we sell them as scraps.
However, funding needs to be brought into the refineries but you can’t get the funding from the government because the government for too long in my view has spent money on Turn Around Maintenance (TAM) that just did not go anywhere. So, what I am looking at is an alignment to bring in technical partners who will bring in their own funding, not on an equity infusion basis but almost on forward sale-loan basis and prepare the refineries; help us manage it for a while and then recoup and then between that you can then begin to decide if you now want sell it and those guys are individuals you give the first right of refusal so that you don’t sell what has been a government’s huge investment over the years as a scrap. So, that really is the concern. So, we are working on that but time is not on anybody’s side on all these. I was in Warri Refinery yesterday and I am being told by Warri and Port Harcourt Refineries that they are likely to begin preliminary production.
For me, any barrel that you add for me today- any liquid molecule you add for me–is really a plus for me, given all the challenges I have in terms of importation. Now, going forward the answer is not throwing up your hands in the air. There are all kinds of plans we are looking at. First, of course, you know that we had the bid on Swap programme and I cancelled it. I am going to do what I call the direct sale and direct purchase because I wanted to remove middle layering. We are almost concluding that. When we conclude that, we will be dealing directly with refineries and hopefully five or six refineries all over the world, most likely in Europe and whatever the African numbers are because of proximity in terms of freight.
Now, once we do that, hopefully we can build on a non-cash-backed supply programme that is buoyant. What I mean by that is that first of all, your 445,000 barrels per day will provide you the basic crude oil on exchange basis. So, hopefully, you don’t need foreign exchange and that takes away pressure. Now, if I plunge in all my 445,000 barrels into it without giving anything to the refineries, I, probably can provide 100 per cent of the needs of the country on a PMS basis and without the pressure of foreign exchange.
That is one option. If the foreign exchange crunch continues, that is one option to go for. The only thing I don’t like about that is that it expands the whole scope of what the PPMC has to do consistently. You become the sole importer, the sole supplier. I worry about when market is shut down from that sort of perspective. But if you were to get a crunch and the reason I am saying that is that so Nigerians don’t get panicky and say my God, so this is even more serious. But if we were to get a crunch, that is what you will do: you use your crude on a back-up basis and hopefully be able to get foreign exchange window and supply your products. A lot more logistics can be done , though not my ideal level way to go, but it can be done.
That is one option. Second option, of course, is that you ensure that your refineries come back at some level-not all of them but even if it is one that comes back-if the Port Harcourt comes back with five million litres per day, that takes pressure off the 40 or 45 million litres I am trying to supply the country. So, that obviously is a strong one. The third option obviously is that working with those refineries over time, they will get to a point where they are comfortable to meet your strategic reserves needs without necessarily a cash-backed Letters of Credit because they can see a history of relationship flowing, taking advantage of the very soft belly of the refineries’ operations all over the world where there is product awash and not a lot of buyers, given the circumstances today. These are all January programmes but my immediacy concern now is to make sure that this period that we are in, we get sufficient products to be able to satisfy Nigerians.
All your ideas sound good as alternatives but the central point is subsidy. We have wasted huge amount of money for several years on payment of subsidy that could build many refineries. The World Bank has just said that we have spent N6 trillion in the last couple of years servicing subsidy. Why do we have to continue to keep something that clearly is not sustainable?
My position on this issue largely is that we look at market mechanics for this. Whenever you do this, there is always a strong move understandably, by the Labour unions in terms of all the ones they have removed in the past, what happened. So, before we get to the point of just saying okay, let subsidy go, which ideally should be the right market reaction, we are looking at what are going to be the palliatives. The President is concerned about that. What are you going to give to the poor people, who are going to suffer some of these things? I am being able to see in the horizon that given the price of crude today if we work it well, you probably will hover pricing around the present pricing without necessarily quite frankly pulling out subsidy in its entirety. So, subsidy becomes something that you go to when there is an absolute need. The only danger of course in that is that so long as people know that there is a potential to go back to subsidy regime, they continue to do their investments on those sorts of notions. It would have been nice to just say this is market-driven and we go.
We have done that with AGO and it worked. We are probably going to do that with kerosene at some point because once you get out, the marketers go in, and they take advantage of the business and grow with it and they can do long term investment and they can do their long term reserves and planning. So, yes, it is a concern of everybody and believe me, the president is not less concerned. People say to me: why is he (Mr President) not doing that? But I think in fairness to him, he is very committed to the campaign promises he made, which is: ‘I need to look after the poor, I don’t want them to suffer; they can’t be the first point of target. I am not yet convinced that if I took this thing out completely, I won’t go back to a situation where prices just hit the ceiling’. So, we are working through that; not just me but a whole economic committee is working through all that.
I believe that at the end of the day, we will hopefully get him comfortable and something will give in this but like I said even it is not to take away subsidy in its entirety, my position is that there was a N97 position for subsidy. I think the circumstances under which it was removed were very political. Given the fact that we cannot even afford it, the first right move is to give that umbrella to say you have a pendulum between N87 and N97. So, we can swing, depending on the price of crude and yet not technically affect the notion that you have actually removed subsidy. So, we are looking at all that.
Now that some foreign banks and companies have classified Nigeria country-risk and that means they don’t have confidence in us. This also makes it difficult for marketers to do business with foreign partners. How are you going to help rebuild this confidence?
I will leave the CBN to deal with those country-risk issues. That is really their job and not mine but I think that one of the things that give people confidence in an economy is your policies.
There is a lot of energy around making sure that there are processes; making sure that there is transparency and that definitely has its own power and ultimately, even though there will be struggle in the short term, you will find out that in the long term, people will get to see us serious. I am going round; I am trying to get investment into the oil sector and the sort of response I am seeing is very positive. People, for once, say okay, now, we can talk to you; before, we could not for all manners of reasons. So, ultimately, this will help.
I think that what we will need to do is to be clear about what our message is; very clear about what our direction is. Our reserves are pressured; heavily pressured but the reality also is America. They lived on deficit financing for how long? Who knows? We need to manage things in such a way that we can meet the needs that we have in an immediacy basis, while looking at long term goals and I think that the CBN Governor and the Minister of Finance are very focused on these.
I wouldn’t speak for them. All I know is that we are all focused on these. There is a huge amount of challenges this administration inherited, probably unknown to people. I guess as matters are coming on every day, you will begin to share the enormity of the problems. I am not sure anybody going into this ever imagined that we are in this much of a problem but thank God that it is out; thank God that we are now confronting it. So, there is a lot of pressure; a lot of work. I don’t envy anybody who is doing those works right now. The whole idea is to bring the private sector practices to begin to bear on all of these.
There is a huge amount of areas where our four months of intervention are already doing magic; in terms staff morale and work at NNPC. In terms of transparency; in terms of openness; in terms of costs; in terms of policies going forward. If you look at our report last month, we started with an average of over N180 billion in deficit losses every month for the corporation. It went down to eighty something billion and now, it is down to N12 billion. What it tells you is that you are on a trajectory to really, for the first time in the company’s history, get it to a point where you can be comfortable over the next one year. So, huge amount of things are taking place. But there is still huge amount of work to go on. We have not finished restructuring. So, I think what I was prepared for was efficiency and that is what I am pursuing very well. What obviously I wasn’t also prepared for was the amount of dead matter, the amount of fraud indexes you find in a system like this but everybody in the company is committed on this.
There is a good alignment in terms of things that have got to change. We have got to go on our strides and change the image of the company, which is what excites me in what I am doing. If you look at how we handled this fuel crisis period, it is something to be written in a later day but it involved everybody out there; it involved people out in the regions; the ministry, DPR; everybody; it was just massive. We complain about the inconveniences we face and I hate what Nigerians are facing through no fault of mine but the reality quite frankly is that it would have been absolutely extremely worse but for the sheer focus and energy we put in.
You are here on Sunday and, if I leave you here I am off to the depots. You just have to continue that pressure. I do appeal that those who are in this business, for once, let them make money but let them also take the interest of Nigerians into consideration. You asked me about the quantity of products I have. Today, we have products self- sufficiency in excess of about 18 days on land. Now, we are making efforts to make that about 40 days through importation. A lot of vessels are around but you have logistics issues. You won’t believe that Nigeria does not have any point where you can discharge a 60,000 metric tonnes vessel. So, most times you put the vessels out, you have to lighten them to bring them into the tanks. The highest they can get in here is about 30,000 metric tonnes.
If you want to save money and bring 60,000 metric tonnes or 90,000 metric tonnes, they can’t come in. There are not facilities built for that; there is none. So, what you have to do is to leave those vessels over there and be using smaller vessels to lighten them to bring them back into the depots. Then the ones I put in Mossimi depot, I have to deal with the pressures of the pipelines and all the pipeline ruptures. Until about a week ago, we were losing massively. Each time you open that tap, something goes wrong, with all the security that we throw at it. I think I told them two weeks ago that we should all go private, this thing isn’t working for me.
The first signs I am seeing of their first one week of performance is giving me a lot of hope because for the first time you can see the number of people and barges that they are arresting through these private efforts and for the first time we have been able to pump at least for five to six days continuous, without ruptures. So, it shows that if you throw private hands at these things things will work. And that is the direction we need to go because any attempt to put more soldiers and policemen on it, everybody is busy- the soldiers are focused on Boko Haram; the police are focused on internal security and they can’t spend their energy guarding pipes. Imagine what I am facing around the whole country.
This is just Mosimi to Ilorin; then I have the ones going to the East; I have the ones going to the North. I haven’t been able to pump crude into Kaduna Refinery for nearly four months because of breaches. Each time I set up to do it, somewhere is breached. So, the crude can’t go across and that is the only means I can get crude into the refinery. So, it is a huge amount of challenge and this is just the downstream sector that we are talking about. The main money earner is upstream. They don’t have much security issue but they have other challenges. Funding challenges is key; price of crude today is key; cost issues are key and that is where I need to put energy because ultimately that is what brings in the money the Federal Government can spend.
Before you came on board, the issue that dominated public discourse was corruption in NNPC. When you joined, you embarked on measures to sanitise the place and enthrone transparency. We understand that there were investigations but why is it that up till this moment, nothing has been found against anybody in terms of corruption in the former NNPC, despite the publicly-held view that there was massive corruption in the organisation before you came?
That is not right. All the trials you see going on abroad were all products of NNPC. My job is not that of a security agency. The DSS and EFCC are doing all that. My job is basically to get the company back on its feet as an operating platform. I mean things are going on-it is not things I am going to start sharing on the pages of newspapers. But when you bring a situation that I find that something has happened, my first focus is how do I fix it? How do I get it to work properly and get the best value yield for the country? The rest in terms of who did what goes up to security services. I will just point it out that this has happened and that there is suspicion that goes on. If they want evidence or support of documentation, we pass it on. But that is their focus; that is not my focus. My focus is to make this company work because at the end of the day, it doesn’t matter how much we shout about corruption; we have got to deliver to Nigerians.
I am focused on building the company and I will leave other experts to focus on the issue of security. Some of the things we are changing is stopping corruption right on its footsteps. So you can’t even do it today. It has changed. That is where my focus is. The auditing process is very extensive; the approval process is very extensive and the fact that we need to publish our performance is putting everybody on their toes because if you are a manager running an outfit, and the first month you did not do well, okay, second month, you did not do well, fine, and third month, we say hey, it is like the refineries. I gave them 90 days. So, it put them on pressure. By the end of 90 days, okay, you begin to ask yourself, do you really have what it takes and discussion changes from what your problems are to what your foresight is? So, it is now a performance-driven organisation.
That is what I am focused on. We are putting enough pressure points; enough checks in the system; enough controls in the system. If we fail, may be, we did fail but I have not seen that happening in the last two months. It is getting tougher and tougher and it is not just office; there are external interventions; there is oversight at federal level. Auditors moving in; checking in every signpost. Quite frankly, the major part of our restructuring really has not taken place; what we have done is just a top layer look . We are now going into the subsidiaries to unbundle the corporation as a whole. Look at NPDC. How are they bled up to the point of earnings? It is just a global thing. Somebody needs to sit down and begin to break down asset things. Why are they producing 20,000 barrels? Why couldn’t they 40,000 barrels. Is it a pipeline issue? Is it a funding issue? Is it a technical spill issue? You understand my point.
That is what oil companies do; that is what we are trying to do and if we do that, that company has the capacity to produce for this country, in excess of 400,000 barrels per day. When we got in there, they were doing 80,000 barrels per day; now they are up to 120,000 barrels per day. If you add that with other operators there, they are up to about 200,000 barrels per day but quite frankly they have a capacity within a year to produce 400,000 barrels per day . At that point, they will be producing more than some of the majors that we have here.
Some of the Nigerian companies that acquired oil blocks had serious difficulties getting the nod for operatorship. Instead, the operatorship was given to NPDC which did not have the funding to raise the production volumes of those blocks compared to those private companies. This nearly stifled the companies that bought those blocks. What are you going to do to ease such fears?
It is the way to go. I am not sure we have much of alternatives on that. There are a lot of people on those fields who have better capacity, better skills, better funding and we need to step back from playing this big god, who must be in charge of everything while we can’t run it. So, we are looking at putting models together to enable each of those operators; if you justify us that you have the capacity and you have the funding lines and we can raise this fund together and you can show me the growth track; that is why i’m saying that if I move this from 200,000 barrels per day to 400,000 barrels per day.
That is what is going to come from a lot of such efforts. So, joint operatorship is a key for me and in January; once I can sort out the downstream issue, that is where I am going to focus my energy on because that is a quicker. It is a low hanging fruits for me than forcing majors to do things. That is one. Two; on an institutional framework basis, even NPDC has got to a point where it got to look for somebody who has competences as a technical partner to come in and stay with them in the management. I know there is always emotion about Nigerians aiming to be in charge but oil is not where nationals just take charge alone; oil is an international global best practice thing. Get experts to join you; change culture, leave the asset; get the best where you can. That is where we are focused.
The Petroleum Industry Bill (PIB) is being broken down for phased implementation. Was that really the original idea?
Frankly, I think that is the only idea that will make sense. That is my own personal view. If you try to get almost 400-500 legislations right into one block and merge them into one codified system, it is going to be very difficult. That is what stalled it at the last time. Once you bring in fiscals, everybody now will focus on fiscals and leave some of the other advantages that the PIB brings to the table.
So, I think what the National Assembly is trying to do is taking them on one or two phases. First, take the non-fiscals; discuss soft belly issues; get everybody’s alignment on the processes; on the governance; on the issues of local communities’ concerns and then you can then move on to say okay, what are the financials? Can the financials, for example, be done through amendment of existing laws? Bear in mind that 60 per cent of our production today is largely based on Production Sharing Contract (PSC). So, can that jurisdiction of the contracts themselves provide you the framework for the fiscals. I decided to look at that from a very well-studied, expert analysis point of view.
What I have advised the National Assembly basically is to get an expert to look at these things. We give our thoughts; you give your thoughts; experts give their thoughts and we go from there. But then at least, everybody is looking at the same template and world best practices. So, I think that is the best way to go. They (National Assembly) have recently engaged us in the last two or three days with some of the initial drafts. It is still early days; still a lot of work to be done. We are going to take it and try and see what we can do to clean that as much as we can. I think in fairness to the National Assembly, they are very receptive to ideas.
- This Day