NNPC charts Nigeria's oil industry direction

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Thursday 4th February 2010
NNPC charts Nigeria’s oil industry direction
Sweet Crude Feb 1, 2010 THE Nigeria National Petroleum Corporation (NNPC), the state-run national oil company has attempted to provide a clear cut direction for the oil and gas industry currently bedeviled by an atmosphere of uncertainty owing to the pending passage of the Petroleum Industry Bill (Bill) before the National Assembly.

In what appears a clearer indication government was willing to go ahead with its planned transformation of the industry, management of the NNPC has made public a transformation agenda which will be implemented from the first quarter of this year through 2011.

The corporation has also dismissed the move by the Shell group to de-emphasise Nigeria as its growth driver, noting that given the prolific nature of the Gulf of Guinea and the country’s pre-eminent position regarding ownership, oil multinationals can only ignore Nigeria at their peril.

But even as the situation upstream raises concerns among industry stakeholders, fuel scarcity in the downstream persists across the country leaving motorists, commuters and industries at the mercy of black market operators.

While speaking in an exclusive interview with Sweet crude, Dr. Mohammed Sanusi Barkindo, Group Managing Director of the NNPC disclosed that the corporation was poised to chart the way forward for the Nigerian oil and gas industry in 2010, noting that this is part of the initiative arrived at during the 100 days initiative following a management retreat at Tinapa, Cross River State last year.
Unveils transformation agenda:

He disclosed that management of the corporation has come up with a transformation agenda aimed at impacting all streams of the NNPC business and transmuting from a cost to profit centre.

“The programme will commence with a transition phase and it covers the entire sectors from the upstream to the midstream and the downstream and it is corporate-wide. It is expected to maximise the profit centres within the group of companies as well as corporate service units and at the same time, minimising the number of cost centres. And don’t forget that the whole corporation is currently a cost centre and one of the objectives of the transformation is to ultimately turn the corporation into a profit centre and that will entail:

(a) maximising the number of the existing subsidiaries that can easily be transformed into profit centres (b) minimising as much as possible the number of cost centres, particularly at corporate headquarters and improving the level of efficiency of delivery of service of those cost centres.

The sum total of (a) and (b) will eventually transform the corporation into a fully capitalised, fully commercially run profit centre that will be governed by best practices, deploying technology to run its operations at headquarters as well as in the fields, both upstream as well as downstream and returning returns to our investors the Federal Government of Nigeria who is holding this investment in trust for the people of this country,” he said.

Dr. Barkindo assured that the corporation was on a path to recovery adding that prior to the management retreat at Tinapa there were managers in the NNPC who didn’t realise the organisation was in dire straits.

“What we have been able to do in 2009 through the 100 days initiative is to prepare the entire corporation to radically streamline our cost. For the first time in the history of this corporation, we have been able to record cost savings in excess of N27 billion within the 100 days initiative. You have to address the issues of rising high levels of cost in order to bring your book back to balance. By December of 2008, we had a corporation that was in the red to the tune of N326 billion. By all intents and purposes, as an ongoing concern, the corporation was insolvent. So, going into a transformation, you have to first of all address this challenge. And one way that we chose to do this was by looking at our cost profile in our operations, in our management, in our overheads, we’ve been able to achieve N27 billion. The target that we had set for ourselves was N20 billion,” he disclosed.

JV funding:
We had submitted a budget proposal to government and we are awaiting appropriation by the National Assembly. In this transition phase, we thought we should at least maintain the current level of funding. From the treasury, $5 billion for JV cash call, $1.5 billion for domestic gas obligation, and the MCA commitment is in a rolling mode covering multi-year implementation of projects.

But because it is a transition phase we also have to now begin to work out the modalities for the incorporation of the JVs and this we have already began discussing with the World Bank and the Minister of Petroleum Resources will be leading another delegation to the EU because these two institutions are major stakeholders and their participation in the incorporation of the joint ventures and their endorsement of the reforms in the oil and gas sector are also fundamental to the integrity of the entire reform agenda and they had already offered some technical assistance because to incorporate each of the six joint ventures, you will have to at the end of the day come up with a variety of models.

They may not look similar, depending on the participants involved. But during the transition phase, we will now begin to see the phasing out of the so-called joint venture cash calls because the independent joint ventures would have been in a position to raise funding from the capital and money market. And thereby save the economy from the high level of haemorrhage through cash calls.
Dismisses IOC’s threat to de-emphasise Nigeria:

Dr. Barkindo also dismissed comments credited to Peter Voser, the chief executive officer of the Anglo-Dutch oil company, Shell. The CEO said Shell has de-emphasised Nigeria as the country to drive growth. In his reaction, however, Dr. Barkindo said any multinational which adopts such a policy can only do so at their peril.

He said the Gulf of Guinea is about the only oil region that still has capacity for growth and that 50 per cent or more of this region is Nigeria.

“Therefore, for any multinational to as a matter of conscious policy decide to ignore Nigeria, will only do so at their peril.”
Barkindo noted that the issues of uncertainty raised regarding projects development in the upstream sector is a result of the impending legislation and the changing fiscal regime in the upstream.

He said while concerns regarding the impending legislation may be valid to an extent, this is only to the extent that the bill is before the National Assembly, adding that until it is passed into law, there is no telling what the fiscal provisions will be.

“We have had the opportunity to engage the joint venture partners and the entire industry on the most extensive consultation on the provisions of the bill that we can ever think of. So, they are fully involved and know all the details of what is being proposed to government. Therefore, to use the bill as a cause of uncertainty that impacts on their investment decision is very far fetched,” he said.
Fuel scarcity persists:

Even as the upstream oil sub-sector struggles to find its rhythm, the fuel scarcity which hit the downstream sub-sector in December last year appears to have assumed a life of its own, defying all solutions attempted by the government and its agencies.|

In Abuja, Lagos, Ibadan, Kano, Kaduna, Port Harcourt, Uyo, Enugu, Aba, Onitsha Maiduguri and other metropolises monitored by our correspondents, the situation oscillated between bad and worst.

In Port Harcourt where the NNPC operates two refineries, it got so bad on some occasion there wasn’t fuel at any filling station within the city and even the outer limits for motorists and other consumers.

Independent checks revealed that petroleum marketers are still not importing petrol (Premium Motor Spirit) in particular because of their seeming inability to recoup the price differential occasioned by the regulated pricing regime.

Added to this scenario is the current crisis of confidence rocking the banking sector where the Central Bank of Nigeria (CBN) is still conducting some house keeping exercise which has seen five of the banks’ management sacked and recently forcing bank chiefs who have served in CEO capacity for upwards of 10 years to quit.

Since the house keeping exercise commenced, there has been tighter control on lending and this has affected petrol products importers who hitherto depended on the flexible lending regime in the banking system to carry on their business.

Owing to the scarcity of petroleum products, dealers have grown in confidence, retailing petrol in particular above the regulated prices stipulated by government.

Within Lagos metropolis, petrol sells for N65 which is the stipulated price, at some filling stations, while some others sell as high as N80, N85, N90 and N100 per litre.

In Port Harcourt, Sweet crude checks revealed that within city limits, some petroleum marketers retailed petrol at stipulated pump prices while stations located on the outer limits of the metropolis retailed petrol at prices oscillating between N75 and N120 per litre.
Further checks revealed that in the northern parts of the country, the situation remained even worst with motorists and other fuel users forced to purchase at cut throat black market prices more than double what obtains in the south.

Even though Sweet crude had severally drawn the attention of the Department of Petroleum Resources (DPR) to the excesses of some marketers, no action is ever taken to achieve any measure of rectitude.

While speaking on the development during a courtesy visit to the Vanguard Newspapers premises in Apapa last month, Dr. Barkindo decried the current scarcity noting that there are several agencies of government superintending the supply and distribution chain.
He identified the Customs at the petroleum tanker vessel’s port of entry, the DPR, the PPPRA, NARTO, PTD and others as some of those in the supply and distribution chain whose actions or inactions could adversely impact the process


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