New GMD Kachikwu Begins NNPC Cleanup and Restructuring

The newly appointed Group Managing Director (GMD) of the Nigerian National Petroleum Corporation (NNPC), Dr Ibe Kachikwu, has wasted no time in getting on with clean up and restructuring of NNPC. Barely days into the job, the new GMD was hiring and firing in his multi-faceted restructuring approach. He intends to take the three facets to his restructuring agenda in turn.

1. The People Phase
The first stage is what he calls the “People Aspect.” The GMD’s approach is to purge the top echelon of the Corporation, which has been described as a cesspit of corruption by critics. There is no suggestion that all of those removed were involved in wrong doing but his view is that to get a clean start at NNPC you have to get new people in who know from the start that it is no longer business as usual.

Deciding in this part of the restructuring to let the axe fall where it may, Kachikwu has sacked all the former GEDs of the Corporation. The sacked GEDs of 8 directorates are: Mr. Bernard Otti, GED Finance and Accounts; Dr. Timothy Okon, Acting GED Exploration and Production who also doubles as Coordinator Corporate Planning & Strategy; Engr. Adebayo Ibirogba, Engineering and Technology; Dr. David Ige, Gas and Power; Ms. Aisha Abdurrahman, Commercial and Investment; Dr. Dan Efebo, Corporate Services; Engr. Ian Udoh, Refining & Petrochemicals; and Dr. Attahiru Yusuf, Business Development.
The 8 Directorates have been reduced to 4, with Finance merged with Services, Refining merged with Techonology whilst Business Development as well as Gas and Power done away with altogether.
The new GEDs are:
• Dr. Maikanti Baru, Exploration & Production
• Mr. Isiaka Abdulrazaq, Finance & Services
• Engr. Dennis Nnamdi Ajulu, Refining & Technology
• Dr. Babatunde Victor Adeniran, Commercial & Investment

Other appointees in the culling exercise which the Group General Manager, Group Public Affairs, said in a statement, was intended turn the Corporation into a lean, efficient, business-focused, transparent and accountable national oil company, include the following appointees to head the NNPC subsidiaries:

Mrs. Esther Nnamdi-Ogbue, Managing Director, Pipelines and Products Marketing Company (PPMC); Engr. Chinedu Ezeribe, Managing Director, Warri Refining & Petrochemicals Company (WRPC); Mr. Babatunde Bakare, Managing Director, Nigerian Gas Company (NGC); Mr. Inuwa Ibrahim Waya, Managing Director, Hyson; Mr. Abubakar Mai-Bornu, Managing Director, Nigerian Petroleum Development Company (NPDC); Mr. Ladipo Fagbola, Managing Director, NNPC Retail; Mr.
Rowland Ewubare, Managing Director, Integrated Data Services Ltd (IDSL); Mr. Modupe Bammeke, Managing Director, NNPC Properties; Mr. Abdulkadir Saidu, Managing Director, Duke Oil; and Mr. Dafe Sejebor, Group General Manager, Nigerian Petroleum Investment Management Services (NAPIMS).

Chidi Momah has been appointed as Group General Manager, Company Secretary & Legal Adviser, a crucial appointment given the GMD’s plans to look at NNPC contracts.

In total, Kachikwu has axed 38 top management staff and reduced numbers from 122 to 83 “to jump-start a new business outlook to enhance the operational environment as a profit-driven business as against the current civil service orientation.” Among the top managers relieved of their duties were General Manager (GM) Commercial, GM NNPC Retail, GM Sales and Marketing NNPC Retail, GM Operations NNPC.

2. The Process Phase
Kachikwu is being clinically methodical in his approach to restructuring the Corporation, which has been racked with corruption and scandal over the years. In the next stage of his battle to reform the Corporation will be about processes. In that phase, he intends to get a forensic audit done. He said: “We are going to put processes and controls in place. We are going to do retraining and repositioning and then, we are going to re-engage our majors and minors, all those who are active in the sector, for us to work as a team to take Nigeria forward.” Then the man, who has been chosen to wield the axe in the President’s laudable ambitions for the State corporation, says, he will be able to say to the nation: “This is the state of the company.”

3. The Business Phase
Kachikwu’s plans in his three-phase project are to culminate in a thorough review of the existing contracts. He intends to use this stage to look at all the existing contracts, which makes the Corporation’s legal adviser, a key appointee in the process. He said: “The final stage will be the business stage, which will be looking at all the existing contracts. Are they good? Are they okay? Do they need to be re-kitted and redone?”

In a move, which many Production Sharing Contract holders will welcome, Kachikwu says he will look at the PSCs. He wants to look at restructuring the contracts to deal with the challenges posed by reduced balance sheets as a result of $40 or $50 per barrel oil. In particular, holders of PSCs are looking to him to reduce the onerous performance bond requirement, which is preventing many awardees from moving forward with the development of their assets. He wants to energise recovery and income growth to increase revenue for the government. Industry watchers are also expecting him to take the scissors to the highly criticized and opaque “Strategic Alliance Agreements” with its subsidiary, NPDC.

Buhari’s hatchet man is not sleeping very much. He says: “It is a very intensive work; very calibrated work. A new process of oil administration in the country and obviously, giving fillip to Mr. President’s dream of taking the oil industry back to where it should be.”

Buhari is expected to delay the appointment of a Minister of Petroleum Resources for at least 18 months, in order to give Kachikwu free reign in his restructuring process. That means that Kachikwu will report directly to the President until a new Minister is appointed. Even then, the President’s plans to split NNPC into two, with one regulatory arm and another commercial arm may mean that the Kachikwu, depending on which arm he stays with, may not even have to report to the Minister of Petroleum Resources when appointed.

Kachikwu Begins Review of NNPC Oil Swap Deals
Following on from the President’s mandate to find urgent means of plugging the revenue leakage from the Nigerian National Petroleum Corporation (NNPC), which is currently undergoing an extensive clean up, the new Group Managing Director of NNPC, Dr Ibe Kachikwu, is to invite oil traders in for discussions over oil swap transactions. The highly controversial crude oil swap deals involved oil traders being given allocations of oil in return for the delivery of petroleum products. But this gravy train is about to grind to a screeching halt as Kachikwu continues his attempt to bring some semblance of accountability to NNPC affairs.

The deals were criticised by many, including the Nigerian Extractive Industries Transparency Initiative (NEITI), the Swiss NGO, Berne Declaration (BD) and recently, the New York-based Natural Resource Governance Institute (NRGI), for the heavily loaded landed costs that made the deals extremely uneconomical for the nation. The deals were also said to be heavily tinged with corrupt practices that traders were able to get away with, with some awardees alleged to have under-delivered, and in some cases, even failed to deliver, the products they were contracted to supply. NRGI claims that Nigeria lost over $32 billion oil revenue due to the mismanagement of domestic crude allocations by NNPC, including through the oil swap deals.

Another aspect of the crude swaps, which the traders will be expected to explain, is what has become of what is known in the industry as “retained products” from these deals. Normally when the crude oil allocated to the traders is processed, following the extraction of the more valuable lighter fuels, the heavy oil products, which remain still have some value. The traders are expected to account to the Corporation for these products either through payment or supply of further lighter fuels. Those invited will have to show that they have paid for or delivered further products in exchange for the “retained products.”

These crude oil swaps and offshore processing contracts were a creation of the Jonathan administration. Their justification for introducing the crude oil swaps was the failure of the 4 Nigerian refineries to meet Nigeria’s refined product needs after years of neglect and mismanagement.

The 445,000 barrels per day combined name plate capacity of the refineries, which was allocated to NNPC was given to traders for offshore processing in return for delivery of products. However, the criticism of these deals is not only the alleged failure of NNPC to remit the proceeds to the federal revenue account and the under deliveries, but also the added costs which made these deals uneconomic.

At this stage, the invitation to the traders is part of a reconciliation process begun by the Department of State Services (DSS) into the transactions to ensure that the traders delivered the quantity of products they were contracted to supply.

Kachikwu insists this is not a witch-hunt in which people are to be sent to jail. He said that his interest in the exercise is to make the defaulting traders pay up if it is established that they under-delivered product cargoes. He said that he was willing to accept payment plans from the defaulters to ensure that their companies are not driven under as a result of the process, in order to avoid job losses. It is only where they continued to fail to meet their obligations that they would be handed over to law enforcement agencies for prosecution.

NNPC Bank Account Shakeup in Buhari’s War on Graft
As President Buhari embarks on his “War on Graft” he has ordered the Nigerian National Petroleum Corporation (NNPC) to stop using multiple accounts. The State agency has been plagued by accusations of missing funds that should have been remitted to the revenue account. Some of the funds have mysteriously turned out to be lurking in some obscure NNPC account or other.

This will no longer be possible under the Buhari administration, as the President has ordered all federal government ministries, departments and agencies to start paying all receipts only into government approved banks.

This is a bid by the President to drive down corruption and improve transparency. The directive, which also includes the Department of Petroleum Resources, requires that all receipts due to the government or any of its agencies must be paid into accounts maintained by the Central Bank unless specific permission has been granted to do otherwise.

Implementation of Gas Transport Code Signals Level Playing Field for Gas Distribution
The recently appointed Director of the Department of Petroleum Resources (DPR), Mordecai Danteni Baba Ladan, has revealed that the Department has begun implementing the Nigeria Gas Transportation Network Code (NGTNC). Speaking at the Society of Petroleum Engineers (SPE) 2015 ‎Conference and Exhibition, Ladan said that the DPR had already met with stakeholders to discuss how to implement the code without disrupting supplies.

The NGTNC is a contractual framework devised to facilitate transparent, fair and competitive access to the national gas transportation infrastructure. Under the Code the contract is between the Transportation System Operator (TSO) and the shippers of gas. The framework specifies the terms and guidelines for the operation and use of the gas transportation system. The framework modeled on the Uniformed Network Code (UNC) in the United Kingdom is said to be clear, unambiguous and comprehensive.

It is designed to ensure that gas meant for domestic use either for power generation, petrochemicals or industrial uses, will have a single entry and exit point to cut out the sharp practices prevalent in the current supply and distribution system. The Code will also provide a uniform platform in terms of guidelines for agreements between buyers and sellers ensuring transparency and eliminating existing bottlenecks.

With the NGTNC, the tariff is expected to reflect the cost of service rendered by the operator of the network code system, while the Department of Petroleum Resources (DPR) is to approve the tariff.

Whilst industry watchers have welcomed the development, they point to the challenges that could mar the implementation of the Code. At the top of those is the lack of infrastructure. Presently, the Escravos Lagos Pipeline System (ELPS) is the only completed network. Others under construction include the Warri-West, Oben-Ajaokuta-Obajana, Alakiri-Obigbo, Obigbo-Calabar, Owaza-Aba and the ELPS-2. Until many of these pipelines are completed, the implementation can only be of limited effect.

Suppliers, transporters, shippers and agents are required to obtain licences from the DPR to access the system. Earlier this year, the DPR had said that the implementation of the network code would start on a Manual basis and that in 2016 the implementation would transit from Manual to Auto with full implementation of the Auto Mode commencing in 2017. The DPR has been training its personnel in the use of the system that is designed to create a transparent system that will give open access to any gas user or buyer desirous of access to Nigerian gas. It will provide a level playing field for all stakeholders.

The existing agreements in the sector are expected to be reviewed once the Code roll out is complete. The implementation Committee comprises representatives from DPR, NNPC corporate and the Nigeria Gas Company. Projected spin-offs following successful implementation of the Code include on-grid power enhancement, improvement in off-grid power for industries and provision of feedstock for industrial use (such as the petrochemicals and fertilizer industries).