At a time that oil and gas face a bleak future over net-zero concerns, leaving Nigeria’s revenue outlook in disarray, attempts by the NNPCL to cut cost and sustain profit making should be a good step in the right direction but lingering political interference remains a big concern that the President Bola Tinubu administration must avoid. KINGSLEY JEREMIAH writes.

For over 44 years, Nigeria’s national oil company, the Nigerian National Petroleum Company Limited (NNPCL) remained a loss making entity until 2020 when the company declared a N287 billion profit after tax (PAT) and a record N674.1 billion profit announcement for 2021

In its previous ‘last resort’ mentality, profit is necessary but social service for public good was a priority and as such the company operated in line with its then motto: “We touch your lives in many positive ways.” 

After decades in limbo, former President Muhammadu Buhari, in 2021, signed the Petroleum Industry Act (PIA) 2021 into law. The development brought the national oil company under the Companies and Allied Matters Act (CAMA).

With the move, the oil firm was compelled to transition into a limited liability entity. This meant that the company, like other international oil companies and national oil companies, must compete and leave behind its corporate culture where rewards, salaries and operations are seen as an entitlement instead of being tied to productivity and efficiency.

With the PIA and CAMA, the national oil company is expected to operate as a private entity, a development which meant that the company would no longer have an excuse but to compete and deliver value at a time that the world is shifting from fossil fuel even as Nigeria neck-dives into persistent borrowing, poverty and dismal access to energy.

While in October 2022, NNPCL announced that it grew its profit after tax and assets from N287 billion and N15. 86tn in 2020, to N674 billion and N16. 3tn in 2021, respectively, The Guardian gathered earlier this week, that NNPCL has collapsed some of its subsidiaries in a major shakeup aimed at drastic cost cutting and profitability.

The company had, similarly, recorded a loss of N1.7 billion in 2019 before it returned to profit-making in recent years, arising from critical business strategies adopted by the company’s management lately. All the financial statements of the company from 2015 to 2022 were at some point made open to be verified in the office of the auditor-general of the federation.

Not less than six subsidiaries are reportedly affected as stakeholders had told The Guardian that the move is sacrosanct, following the changing landscape of the global oil and gas industry as well as the passage of the PIA.

The company’s global oil shipping companies, NIDAS Shipping Services and Nikorma Shipping Services, which was reportedly set up in 2008 for LNG shipping and marine logistics have been merged to become NNPC shipping company, reliable sources said.

In another development, Integrated Data Services Limited, NNPC Oil Field Services, and Frontier Exploration Services have also been merged to form NNPC Energy Services Limited (Enserv).

Under pressure to optimise and reduce overhead costs, and ensure better operability and profitability, The Guardian learnt that the former refining and petrochemical directorate was merged with the downstream to align with an improved cost effective structure. 

Reportedly, the three refineries, currently undergoing rehabilitation, would allegedly be handed over to a reputable third party with experience to operate and maintain them.

In the past, NNPCL had been affected by portfolios that existed without profit making as well as staff that are mainly redundant as the culture is in Nigeria’s civil service, where rewards and earnings have nothing or little to do with competence. 

Before being shut down in 2019, the refineries were major loss making entities that regularly painted the books of the company red. As critical as there is a need to bring the assets back for the benefit of Nigerians, managing the assets to ensure that they become profit making entities is sacrosanct. It is on that note that the plan to hand them over to a reputable third party for operation and management is critical.

Recall that the government is fixing all the assets at about $3 billion. Ensuring that the handlers repay the loan and deliver value to Nigeria is therefore important.

For most stakeholders, despite being a private entity, the attitude of the Nigerian government, especially the Tinubu-led government and others that will come after it in allowing the company to run independently and transparently is critical.

Organisations are in business to make profit and a lot of national oil companies are making profit. In 2018, Saudi Arabia’s Aramco made a $414.6b revenue; China National Petroleum Corporation recorded $392.9b revenue, and $79.45b accrued to Kuwait Petroleum Corporation. Algeria’s national oil company also recorded a $39b revenue. 

In the case of Nigeria, NNPCL had been a tool in the hands of politicians, who come with undue political interference to target illegal deductions of money from the company’s account for payment of subsidies, funding of arms and politically-related activities.

The Chairman and Chief Executive Officer, International Energy Services Limited, Dr. Diran Fawibe had told The Guardian that misappropriation and misallocation of funds by the government affected the profitability of the national oil firm.
Without such development, Fawibe said the corporation would have continuously made profit, adding that the Federal Government has been the major challenge of the state-owned firm.

“Presumably, that such a situation is not happening now or not allowed to be the case is a big credit to the leadership of NNPCL.
“If NNPCL had been allowed to run its operation freely without political interference, it could not have kept its refineries for many years without refining a litre of product.

“You can imagine the pernicious effects of subsidy payments of the years and the cost of pipeline vandalism on the financials of NNPCL leading to losses year in year out. And this is not a case of non-performance on the part of NNPCL as a company,” he said.

While the company may be making efforts to become efficient and profitable, the need to break its silence on so many issues is germane.

To many Nigerians, NNPCL remains opaque and lacks transparency despite being a limited liability company. This is because there are so many questions around the operations of the company that remain unclear to many stakeholders. 

These developments continue to create wrong perceptions locally and internationally and remain a snag on the integrity of a national oil company that needs to, more than ever, deliver value to Nigerians. 

Energy expert, Henry Adigun insisted that the move would enable the organisation to reduce cost and perform optimally.
“It is a good signal,” Adigun said, adding, “They are going towards profitability and efficiency and this is what we need.”

Adigun noted that with the Petroleum Industry Act (PIA) and the incorporation under the Companies and Allied Matters Act (CAMA) and the current operating environment of the NNPCL, the development would yield positive results.

Renowned energy scholar at the University of Cape-coast, Ghana, Prof. Wunmi Iledare, said the move should be lauded. 
“Anything an organisation does to enhance its economy of scale is laudable. Collapsing units is one of such things an organisation can do to reduce cost without compromising effectiveness,” Iledare said. 

Iledare had noted that “the way forward is to define the Key Performance Indicators for the management team of the sub-business units, and continue to make cost efficiency an important component of strategy for profitability.”

Former president of the Nigerian Association of Energy Economics (NAEE), Prof. Adeola Adenikinju said: “I think this is good. NNPC is now a limited company and must evolve a business model that is most suitable for it to deliver value to its owners and to function efficiently.

Adenikinju insisted that the company has to cut its costs, reduce overheads, and learn to compete effectively. An oil and gas lawyer, Emeka Okwuosa, who expressed the need for sustainable improvement by the NNPCL, stressed that since the PIA is now in place, the NNPCL will become more commercially competitive, and must become a more profitable entity with transparency and accountability as core values.

Okwousa said: “The financial profitability that we are witnessing is good and further shows that the days of NNPC operating as an opaque behemoth, and a loss-making machine is gone. The passing of the PIB will further enhance this new financial discipline. We now hope that the funds are applied for the benefit of the teeming suffering masses,” he stated.