‘Making NNPC accessible to private sector will unlock its competitiveness’
Prof. Damilola Olawuyi is the Deputy Vice Chancellor, Afe Babalola University and Director, Institute for Oil, Gas, Energy, Environment and Sustainable Development (OGEES Institute). In this interview with KINGSLEY JEREMIAH, Olawuyi gives insight into several issues that could improve the efficiency of the Nigerian National Petroleum Corporation (NNPC).
The release of the audited report came after a year that the new Group Managing Director (GMD) assumed office and promised to address transparency and accountability issues. Is this sustainable, and can it bring change Nigerians demand in the running of the oil firm?
Proactive disclosure of the financial and operational reports by the Nigerian National Petroleum Corporation (NNPC) is a highly commendable step and I congratulate the current leadership for displaying clear and unequivocal commitment to transparency, accountability and public information in line with the Nigeria Extractive Industries Transparency Initiative (NEITI) standards and international best practices.
Providing credible information about revenue, assets and expenditure is one of the most basic requirements of regulatory excellence. In order to retain public confidence and trust, NNPC as the national oil company must not only be open and transparent, it must also be seen as transparent by the public. Lack of transparency feeds the suspicion of conflict of interest, corruption and lack of integrity even when it is absent. This singular act is visionary and can significantly restore public confidence and trust, thereby lifting the burden of allegations, and at times misinformation, that has trailed the NNPC for over 40 years.
What are the primary areas the oil company require reform?
When you look at the functional structure of national oil companies across the world, you see a progressive shift towards more innovation, entrepreneurship and structural independence. NOCs are increasingly becoming commercially aware and business like, and you see several of the mega-NOCs such as Saudi Aramco now making moves towards flexible ownership and less bureaucratic management structure. As many countries go along this path, NOCs that fail to adapt may be left behind in terms of attractiveness and ease of doing business. NNPC is already on the right path as evident in the wave of structural reforms that have occurred there over the last few months. To achieve greater independence, private sector partnership, accountability, efficiency, it is, however, important to sustain these efforts in an entrepreneurial and business-like manner.
For example, transparency and information disclosure have to move beyond just financial disclosures. When you look at Qatar Petroleum’s recent disclosures for instance, you see a lot of innovative sections dedicated to sustainability and how the company is contributing to the attainment of the Sustainable Development Goals across all sectors of the country. NNPC can take a cue from this and also embed the SDGs in its operations and disclosures. Not only is this the expectation in international law, proactive disclosures on social, environmental and financial aspects can provide a more systemic and all-in-one picture of NNPC’s overall progress.
If passed, do you think the Petroleum Industry Bill (PIB) will become an all-in-one solution to the challenges confronting the oil company?
The PIB contains robust provisions on transparency and integrity; regulatory independence; stakeholder engagement; accountability and streamlined institutions to avoid regulatory overlap, all of which are needed for good oil sector governance. These and other coherent and updated standards in the Bill can go a long way in addressing several of the regulatory challenges facing the entire oil and gas industry in Nigeria. For example, the proposed Nigerian Petroleum Regulatory Commission under the bill would be responsible for the regulation of the entire oil and gas sector. This regulatory coherence can go a long way in addressing regulatory overlap across the industry, and could further enhance NNPC’s perception and operations as an independent commercial entity. Given the strategic importance of the PIB to good oil sector governance in Nigeria, stakeholders in the industry must never be tired of demanding for its passage.
How exactly can reforms at the NNPC attract entrepreneurial support?
Previous calls for the privatisation of the NNPC have unfortunately been politicised, thereby obscuring the real issues. No one is calling for the sale of the NNPC. The real and urgent issue is that in the light of the economic impacts of the COVID-19 pandemic, many oil producing countries will require capital injection to sustain economic recovery, and to build the infrastructure needed to maintain the commercial viability and competitiveness of the oil sector. Considering the high level of capital, expertise and technology required to construct and upgrade critical oil production, refining and distribution infrastructure, government, with its many responsibilities in other sectors of the economy, cannot finance and oversee the NNPC alone. Private sector entrepreneurs can play a key role in unlocking the competitiveness of the NNPC. For example, what you see with Saudi Aramco and Qatar Petroleum is that some of their viable subsidiaries, such as QAMCO in Qatar, are listed on the stock exchange, while the government retains significant shareholding. Commercial entities cannot afford to be averse to legitimate supporting capital sources, not mentioning the innovation, entrepreneurial vision, efficiency and strategic experience that private sector entrepreneurs can bring to the table.
Looking at the country’s political architecture, do you think NNPC could be given the kind of independence it requires for desired result?
The decision as to whether, and to what extent, the NNPC can be privatised is a policy decision that is beyond the NNPC itself. It has to be comprehensively assessed at the highest levels of government, with strong inputs from the National Council on Privatisation (NCP). The NCP can design criteria and guidelines on the choice of strategic investors, timelines, pricing, as well as the scope of commercialisation, all of which can be tailored to reduce the sensitivities and political coloration that tend to obscure discussions on privatisation in Nigeria.
In what ways can host community issues be addressed under the current reform?
Proactive disclosure of financial and operational information by the NNPC is a positive first step in building trust with host communities. Business enterprises worldwide, including the NNPC, have further obligations under international law to respect, protect and fulfill the human rights of host communities across their entire business value chain. For example, the guidelines elaborated in the United Nations Guiding Principles on Business and Human Rights require all business enterprises to place the welfare of host communities squarely at the centre of all operations. In order to adopt and promote the UNGPs in their operations, all NNPC subsidiaries and contractors must carefully undertake strategic due diligence processes that could enable them understand the full range of their activities on local communities. This would include assessing actual and potential adverse impacts, integrating and acting upon the findings, tracking responses, and proactively disclosing how impacts are addressed.
The AKK Natural Gas pipeline project is the first phase of the 1,300km-long Trans-Nigeria gas pipeline project, which aims to deliver natural gas from parts of the Niger Delta axis to all parts of Nigeria. What are your thoughts on this project?
This project is a remarkable and visionary first step that could help leverage the benefits of natural gas production in Nigeria to address other social and economic challenges. In addition to its long-term electricity generation prospect, the project is starting at an opportune time.
As many countries of the world roll out economic recovery plans to address fiscal and economic hardships resulting from the COVID-19 pandemic, this project could create economic benefits such as employment, training and business opportunities for local communities. Current workforce forecast already suggests that the project could generate at least 1,000 new jobs at peak construction periods. Furthermore, upon completion and transfer to the Nigerian government, the pipeline is expected to generate additional government revenue both from the use of the pipeline and from the increased ability to export natural gas to other African markets. More importantly, the public-private partnership (PPP) build and transfer model of the project is very reassuring as it, to a large extent, allays fears about availability of continued and sustained financing to complete the project, given that all the financial requirements are expected to be met by the contractor.
However, in our current optimism we must remain cautious. There is a need for governments at all levels to cooperatively monitor and address socio-political challenges that tend to frustrate monumental projects of this nature. For example, pipeline networks in Nigeria continue to face persistent disruptions, vandalizations and sabotage, which hinder optimal production and distribution processes. There is therefore a need to map out water-tight security measures to protect the pipeline during and after construction.
Furthermore, infrastructure projects worldwide now have to be designed to address emerging threats of natural and hybrid disasters such as climate change and explosions. International law has increasingly recognized the need for climate-smart infrastructure, that is, pipelines, structures and systems that reduce greenhouse (GHG) gas emissions, and improve resilience to the risks posed by climate change. The projected increase in intensity and prolongation of very hot days due to climate change could result in increased maintenance cost and consequent damage to pipeline infrastructure if not designed to be climate-smart. The perennial challenges of leakage and environmental pollution risks have to be transparently anticipated and addressed in order to avoid adverse environmental impacts typically associated with projects of such magnitude.