Rebranded NNPC: What is new?
President Muhammadu Buhari last month, unveiled the new Nigerian National Petroleum Company Limited, officially changing the oil firm from a wholly state-run entity to a commercial oil company, limited by shares. The NNPC Limited is expected to be managed as a private energy enterprise unlike the former corruption-ridden government organisation.
To many Nigerians, however, the skepticism lies in the fact that government entities, especially those heavily influenced by politics, will find it difficult to operate with the efficiency of the private sector. The question remains what has really changed aside from the christening? Every division of NNPC is rife with entrenched and deeply ingrained interests. The organisational culture would stay unchanged as long as the board, management, and staff of NNPC Limited are the same as those who have been controlling NNPC, making this ostensible transformation an exercise in futility.
Though the Petroleum Industry Act, passed into law in 2021, remains suspended, it gives the country a golden opportunity to strengthen its institutions, improve regulatory and fiscal frameworks and attract the much-needed investments. While the country was waiting for the PIA, Nigeria’s oil and gas industry lost about $50 billion worth of investments. In fact, between 2015 and 2019, KPMG states that only four per cent of the $70 billion investment inflows into Africa’s oil and gas industry came to Nigeria even though the country is the continent’s biggest producer and the largest reserves.
Under the new name, the NNPC Limited is expected to run like state-owned entities, like Saudi Aramco, owned partly by the Kingdom of Saudi Arabia and American oil investors and PETRONAS Global, owned by Malaysia. According to the law, the company will run on a commercial basis in a profitable and efficient manner without recourse to government funds. The new entity is expected to declare dividends to shareholders and retain 20 per cent of profits as retained earnings to grow its business. Apart from profit-seeking, NNPC Limited is expected to operate above board by mandatorily making disclosures for every financial year. While profit might seem evasive, disclosures are important for shareholders to know the state of affairs of any going concern. Until 2020, the NNPC had not published its audited financial accounts for 43 years. Nigerians would love to see how their commonwealth is being managed.
For the new NNPCL, the road to profitability is a bit sloppy considering the many baggage and liabilities it will be carrying over. With the exception of Nigeria LNG, many of the existing state-owned entities operate at a loss. NNPC currently owns four refineries located in Port Harcourt (two), Warri, and Kaduna. The refineries have a combined installed capacity of 445,000 b/d, but they are moribund and do not refine a single litre of fuel, leaving the nation entirely dependent on importation and an expensive subsidy regime. This is in contrast to Saudi Aramco, which it seeks to emulate. Aramco currently owns five refineries with its last one, Jazan Refinery Complex, completed in 2021. Aramco currently refines about 3m b/d from its refineries. Oil from its refineries is used domestically and also exported to different parts of the world.
While the pandemic in 2020 affected businesses and economies all over the world, especially the oil industry, Aramco reported a revenue of about $205 billion in 2020. In 2021, the corporation reported revenue of $360 billion. This makes Aramco one of the world’s most profitable companies with a net income of over $100 billion in 2021. The NNPC since its creation has incurred losses, after each financial year. In 2020, the NNPC reported revenue of N3.7 trillion (less than $10 billion), reporting a profit of N281 billion. In 2021, the corporation made revenue of N2.9 trillion (less than $8 billion). The NNPC has over the years been embroiled in corruption scandals, debt repayment, and other issues, in addition to its production and refinery capacity, which accounts for the significant discrepancy in revenue.
Presently, stakeholders are totally unsure about how the new NNPC would deal with legacy issues, including redundant staff, religious and ethnic considerations, government and political interference, extant liability, compulsory commitment to frontier exploration, mounting pressure over energy transition, derelict refineries and over 90 per cent loss-making subsidiaries. Many believe that the current transition by NNPC is merely a change of nomenclature and the company will soon go back to its business as usual.
Unlike Nigeria that has been unable to take advantage of the high oil prices, Saudi Aramco says it plans to use its enormous profits from last year to double down on boosting oil output capacity and move into shale drilling, which has transformed the oil industry in the United States. The company had reported net income of $110 billion for 2021, more than double that of the previous year. The earnings mostly reflected higher prices as oil demand recovered from the steep falls in the early stages of the pandemic. For Nigeria, meeting its OPEC quota remains herculean.
To be taken seriously in the geopolitics of the oil industry, Nigeria needs to do more than make open declarations and begin to address its domestic challenges. While rebranding the NNPC is a major step to its oil and gas reforms, implementing the PIA in part will not help the country. Nigeria is long due for deep reforms that will see institutions become efficient and serve the interest of over 200 million Nigerians. Aramco was able to pay a hefty dividend of $75 billion for the 2021 fiscal year. The NNPC can and should be doing more for its shareholders. With the rebranding, Nigerians are hopeful that they will get rewarded for the many years of pain and endless financing of the loss-making national oil company. To be like Aramco, the NNPCL needs to be run with transparency, accountability and judicious management of resources. After all, NNPCL is only a special purpose vehicle helping Nigerians manage its commonwealth.