12 July 2016, Lagos – Citing the experience of Saudi Aramco where Khalid Al-Falih was Chief Executive Officer for eight years before he was appointed Oil Minister in May 2016, Ejiofor Alike reports that frequent changes in the Nigerian National Petroleum Corporation have served to create instability that have hindered implementation of strategic investment decisions
Frequent changes in the management of the Nigerian National Petroleum Corporation (NNPC) have become the bane of the state-run oil company, especially since the past nine years.
The last two group managing directors of NNPC to enjoy relative stability in office were Dr. Jackson Gaius-Obaseki (1999-2003) and Mr. Funsho Kupolokun (2003-2008).
With the recent appointment of Dr. Maikanti Baru, the NNPC has produced nine group managing directors since 2008 and none stayed in office for up to two and a half years.
While Andrew Yakubu spent two years and two months, Austen Oniwon was retired after two years and one month.
Among all the past heads of the corporation, the late Shehu Ladan enjoyed the most controversial outing, spending only two months before he was fired under controversial circumstances.
With these frequent changes, successive managements of the NNPC have not been able to implement long term plans that will solve the myriad of problems facing Nigeria’s oil and gas industry.
While other National Oil Companies (NOCs) have been able to sustain long term growth in their countries’ hydrocarbon reserves and production because of stable management, Nigeria’s crude oil reserves and production have continued to shrink over the years due largely to instability in NNPC.
For example, before Saudi Arabia replaced its veteran Oil Minister, Ali Al-Naimi in May 2016, Al-Naimi, 80, had been oil minister since 1995, thus the most powerful man in the global oil business for two decades.
Khalid Al-Falih, who replaced Al-Naimi as the new minister, was the chairman of the state oil company, Saudi Arabian Oil Company (Aramco), the equivalent of NNPC, for eight years before his new appointment.
So, while the minister was in office for over 20 years, Al-Falih also headed the state-run firm for eight uninterrupted years and this engendered stability in the country’s oil and gas industry.
As the oil minister of a country that controls the largest proven crude reserves in the world, al-Naimi was the de-facto leader of the Organisation of Petroleum Exporting Countries (OPEC).
Just like Nigeria’s Minister of State for Petroleum, Dr. Ibe Kachikwu, who until recently was also the Group Managing Director of NNPC, Al-Naimi had also at a point combined three roles – Minister of Petroleum, Chairman of Saudi Aramco and Chairman of Saudi’s Supreme Petroleum Council.
But due to the instability that characterises Nigeria’s oil and gas sector, Kachikwu’s tenure as the head of NNPC lasted for less than 12 months.
Al-Naimi’s over 20 years as oil minister created stability in the world’s largest crude oil exporter’s energy industry and strengthened the country’s voice in the global oil market as it embarked on economic measures to be less reliant on energy after the collapse of the oil prices.
For more than two decades in the post, Ali Al-Naimi, who was the central player in scores of OPEC meetings, steered global crude markets through several boom-and-bust cycles.
With the plummeting prices of crude oil, the former Saudi oil minister effectively defended his country’s market share in the global oil market, insisting that OPEC would not budge on its decision not cut production, even if oil hits $20 a barrel.
Having ensured that his country saved during the rainy day with long term plans guaranteed by his long tenure, he also once boasted that his country would survive at $20 per barrel oil, when Nigeria other OPEC members that frittered their resources during the period of boom were clamouring for production cuts to ensure price recovery.
Under Saudi’s new arrangement, the Ministry of Electricity has been discontinued and its activities folded into Al-Falih’s portfolio.
So, like Nigeria’s Babatunde Fashola, who is the Minister of Power, Works and Housing, Al-Falih is heading the Ministry of Energy, Industry and Mineral Resources as a super ministry also covering electricity.
Benefits of system stability
The most interesting thing in the case of Saudi Arabia was that while NNPC was ridden with corruption, mismanagement and instability occasioned by frequent changes in the management, Saudi’s Aramco enjoyed management stability as Al-Falih remained the head for eight years.
Under al-Falih’s leadership, Saudi Aramco had moved to secure its market share. With its solid revenue and investments made during the period of boom, the company was still spending as much as it did before the crash in crude prices.
In contrast, the NNPC’s inability to provide funding for its cash calls with the joint venture companies with the IOCs has stalled new JV projects.
While NNPC’s refineries have virtually collapsed on account of inadequate maintenance, Aramco is looking to invest in its refinery network around the world, with Al-Falih, being quoted as saying in January this year that Aramco could sustain low oil prices for “a long, long time.”
As the prices of crude oil dropped since 2014, the kingdom burned through roughly $115 billion in foreign exchange reserves, representing the biggest annual drop since reliable data started in 1957, according to the International Monetary Fund.
According to IMF, the decline in 2015 was more than double the plunge during the global financial crisis in 2009.
But despite these huge losses, Riyadh has $582 billion in foreign exchange reserves, which is a strong indication that it can weather a few more years of low prices.
Apart from planning to sell five per cent stake in Aramco to generate about $120 billion, the kingdom is also planning to tap the bond market late this year to raise funds. These are all dividends of long term planning and system stability in both Aramco, whose chief executive lasted for eight years, as well as the oil ministry where the minister was in saddle for over 20 years.
NNPC, on the other hand, has been bogged down by a debt of $7 billion owed the IOCs as joint venture cash calls.
Case of NNPC
While Al-Falih had enjoyed eight years of uninterrupted tenure as the President and Chief Executive Officer of Saudi’s Aramco from January 1, 2009 to May 2016, the NNPC has produced eight group managing directors since the past eight years.
In July 2015, 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-year reign of Mrs. Diezani Alison-Madueke as Minister of Petroleum Resources.
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.
Apart from Abubakar Lawal Yar’Adua, who was sacked early January 2009 by the late President Umaru Yar’Adua administration, the other 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).
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 the incoming OPEC’s Secretary General, Barkindo, on the prompting of the then Minister of Petroleum Resources, the late Dr. Rilwanu Lukman.
So, Dr. Maikanti Kacalla Baru, who was appointed recently to replace Kachikwu, is the eighth group managing director of the corporation since January 2009, a period of eight years during which only one CEO headed the Saudi Aramco.
In fact, Baru is the ninth GMD since former President Olusegun Obasanjo handed over power on May 29, 2007 when Mr. Funsho Kupolokun was the GMD.
Challenges of instability
Due to the instability in the management of the NNPC, the corporation has lost focus over the years and derailed from its core functions, resorting largely to a mere marketer of crude oil and importer of petroleum products, with no active participation in the core oil and gas business of exploration and production, as well as refining or processing of oil.
Instead of being active in the upstream business and competing for oil blocks with Shell, Chevron, Total, Agip and ExxonMobil, the NNPC concentrated largely on the downstream business of importing and selling petroleum products.
Despite having larger stakes in the upstream sector than the IOCs, the corporation allowed the multinationals to run the joint venture business.
The corporation was also ridden with massive corruption, which President Buhari inherited.
In fact, as Buhari was sacking the former Group Managing Director, Dr. Joseph Dawha and announcing Kachikwu as his replacement, a new report by the New York-based Natural Resource Governance Institute (NRGI), 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 allegation of corruption against the NNPC is however, as old as the national oil company, dating back to the military administration of General Obasanjo (retired), between 1976 and 1979.
It got to a peak during the administration of former President Goodluck Jonathan when a former Governor of the Central Bank of Nigeria (CBN), Mr. Sanusi Lamido Sanusi alleged 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 to President Jonathan, which leaked to the media, complaining about the alleged missing funds.
The corporation has also not been able to find solutions to the challenge of inadequate funding due to lack of effective and sustainable long term planning to address the issue.
So, the international oil companies (IOCs) are looking for opportunities elsewhere, citing the unpredictability of Nigeria’s operating environment and NNPC’s failure to provide joint venture cash calls.
With the dwindling investments, Nigeria’s target to grow crude oil reserves and production to 40 billion barrels and four million barrels per day, respectively by 2010 has remained a mirage up till today.
Before he was removed, Kachikwu had unveiled his blueprint to tackle the issues of dwindling funding and investments and had insisted that what was needed was the restoration of the confidence of investors to bring in new funding, while solutions were being explored to repay the historical debts.
With Baru as the new boss of the NNPC, it is not clear if he will implement Kachikwu’s blueprint or start all over again.
Also with lack of stability in NNPC, successive managements have not been able to find solutions to the country’s poor refining capacity as the refineries remain comatose.
- This Day