Hector Igbikiowubo
26 March 2004
analysis
THERE is change in the air at the Nigerian National Petroleum Corporation and everything from the award of contracts to environmental targets have been profoundly affected by the direction of the new management which took over recently. Developments at the corporation indicates that the appointment of Funsho Kupolokun as Group Managing Director of Nigeria's biggest corporate organisation promises to transform the region's energy landscape and operators are watching events unfold with bathed breath and hope that the tempo would be sustained. Heralding a new culture of accountability and transparency at the NNPC, Kupolokun has given indication that he intends to play the energy game by the book.
In a bid to put in place a more enduring communication channel between NNPC, the government and other organizations, Kupolokun disclosed that he will manage the sector's liberalization process with the utmost integrity, paying scrupulous attention to who gets what contract. There are also indications that the environment and social responsibility will move up the corporation's agenda.
Industry operators admit that the process for award of contract for petroleum products import has been streamlined since the new helmsman took over the reigns of administration at the corporation. It would be recalled that a few weeks after the first award contract for imports of 52 cargos of fuel under the new helmsman, contractors served notice that prices had gone up in the international market, adding that they would not be able to meet their contractual obligations to the NNPC. Noting that handling of the situation could precipitate another round of fuel scarcity in the country, Mr. Kupolokun made it clear that the terms of a contract is sacrosanct and that contractors who do not meet their obligations to the corporation would be sanctioned. For fear of impending sanctions over 80 per cent of the contractors delivered.
Investigations revealed that under previous administrators of the corporation these contractors would have failed to deliver their cargo at the contractual prices and this would have led to another round of fuel scarcity. The other scenario is that the corporation would have offered to pay the difference between the NNPC contractual prices and the prevailing market prices. Even smaller fuel import companies who hitherto were not allowed to partake in the importation of petroleum products have been given a new lease of life since the new helmsman took over the reigns of administration, giving indication that government is ready to move from rhetoric to action regarding increased local content. However, there are fears that the process may be hijacked by a cartel of indigenous operators if government does not put measures in place to check excesses.
Shaking up the gas sector and turning it into a vibrant, stand-alone industry is one of the new helmsman's central responsibilities. NNPC is charged with fully commercializing the sector including, among other things, appointing a gas regulatory agency, developing new ways to fund gas infrastructure and projects and establishing the Nigeria Gas Transport Company from an unbundled Nigerian Gas Company.
"The company will provide services on a local, non-discriminatory basis to anybody in the gas business wanting to transport gas, provided they are ready to pay the price and relevant tariff," Kupolokun says.
Under the guidance of external consultants, NNPC is addressing all barriers to entry into the gas sector, with the aim of introducing financing, pricing, fiscal, regulatory and institutional reforms. "When this work is finished we will present the bill before the National Assembly and we should 'go live' with the gas sector reforms by January 2005."
President Olusegun Obasanjo's ambitious aim of generating the same revenue from gas as from oil, by 2010 will not be easy to achieve. Already though, a number of high-profile gas projects are helping Nigeria increase its future capacity. "We have the gas to liquid plant bidding process underway, we expect the bidding termination to take place by June this year and by 2005 we should have the gas to liquid plant." Similarly, transformation of the country's power sector has revolutionized domestic consumption of gas. From 197 million standard cubic feet (scf) in 1997, consumption has leapt to around 600 million scf today. By 2008 the figure could be as high as 1.7 billion scf, Kupolokun predicts. NNPC and its joint venture partners are also well on their way towards achieving the 2008 target ban on gas flaring. When the current administration entered government in 1999, gas flaring stood around 68 percent. Just over three years later, the figure is down to 48 percent.
Meanwhile, down stream liberalization is continuing, with Nigeria's four existing refineries scheduled for privatization. First under the hammer will be Port Harcourt. Against criticism that the refineries are outdated, unreliable and costly to maintain, Kupolokun argues that new investors will have the cash to modernize them and bring in new business practices. At the signing of concession agreement for OPL 242 between the corporation and Ocean Energy/NPDC joint venture, the NNPC helmsman disclosed that several companies including the major operators in the industry have expressed interest and that there was ongoing discussion between them and the Bureau of public Enterprises (BPE). Despite the impending privatisation of these refineries, the NNPC has given indication that the refineries would be up and operating optimally by May this year and investigations show that the new management is working round the clock to ensure that the target is met.
Increasing petroleum production will also mean Nigeria has to rely much less on imports of refined products. While domestic demand stands at about 29 million bpd, Nigeria's four refineries in Warri, Port Harcourt and Kaduna currently produce about 5 million bpd. By May this year though, production should be up to around 17 million bpd as the refineries come fully operational again.
New refineries are also on the cards with the holders of licenses granted two years ago finally moving to the engineering study stage. It was gathered that the licensees had failed to move forward till now because the conditions for free competition were not yet in place. Only recently Dr Edmund Daukoru, the presidential adviser on petroleum disclosed that one private refinery had been given the presidential nod to commence operation, adding that while three others have scaled the technical stage, the presidency was yet to give its nod.
Liberalization is also being translated into reduced energy prices and extra local jobs. New entrants in the rnarketing field are forming themselves into consortium and investing heavily, Kupolokun notes. "Several new companies are coming into the supply and distribution business, and when they are coming in they are not bringing foreign workers, they are going to hire Nigerians.
This is just what is needed to turn around a negative perception among ordinary Nigerians of the country's energy industry, because they see themselves as not having benefitted from oil. To do this will require more than words and dollars though. NNPC has to deliver tangible benefits such as indigenous job creation, community regeneration and environmental cleanup.
"A lot of spending is going on in the upstream area, a lot of work is going on, but it has not translated into benefits for the larger economy in terms of local content and technology transfer. We must do something about this," Kupolokun acknowledges.
It was gathered that in line with this posturing, the NNPC is now working with National Petroleum Investment and Management Services (NAPIMS), Department of Petroleum Resources and the Office of the Presidential Adviser on petroleum to develop a coherent local content policy. There are also signs that ethnic violence and vandalism in Nigeria's Delta region are being brought under control with the increased awareness and active response of the Niger Delta Development Commission (NDDC) in collaboration with the NNPC and its joint venture partners whose financial contributions continue to empower the commission to dispense its responsibilities.
Aspirations to take production capacity to a higher level is also on track, helped by new offshore production sharing agreements, such as Shell Nigeria Exploration and Production Company's Bonga field. By 2007, NNPC aims for production capacity of 4.4 million barrels per day (bpd) and to build upstream recoverable reserves to more than 36 billion barrels.
To reduce the burden on state coffers, NNPC wants to find new funding channels for joint ventures, on top of funds it can secure from the government. The corporation is currently sitting on a committee with the Ministry of Finance to look for solutions. "In addition to the $3.5 billion we can get from the government, we also need to find some further funds, investment," the GMD pointed out. Foreign partners are required to provide a minimum 57 percent of funding with NNPC providing the rest.
Balancing Nigeria's capacity building ambitions against OPEC's pro rata production limits is a continuing tight rope act "The pro-rata formula of OPEC has worked since 1998," says Kupolokun. However, in more recent times, the rate of growth in capacity of Nigeria and Algeria has reached the rate of growth of capacity for OPEC, creating an un-equilibrium."
The NNPC helmsman expressed confidence though that Nigeria's push for more flexibility from OPEC will bear fruits and as it does, the whole country will benefit. The lack of oil benefits filtering through to the majority of the populace has long been a charge against Africa's oil producers. Herein lies the challenge for Nigeria's top oil managers under the leadership of the new management at the NNPC.
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