Two years after PIA: NNPCL struggles with over $5.3b loans, JV debts, commercialisation

• Concerns over $8b loans, JV debts amidst worsening oil production
• Politically-constituted board worry stakeholders
• $2.9b PH, Warri, Kaduna refineries in limbo
• ‘Rationalise portfolios, sack current management, address transparency issues’

Two years after the transitioning of the country’s oil company, Nigerian National Petroleum Company Limited (NNPC) Limited, into a commercial entity, the expected benefit of the action coming under the Petroleum Industry Act (PIA) remains in limbo as stakeholders have raised concerns over the worsening state of the oil sector and mounting political intrigues deciding the fate of the company .

Expected to have gone public with a strong governance system that would make the NNPCL compete like other major national oil companies, especially at a time when oil majors are divesting from fossil fuel investments, an assessment of its performance is below optimal.

This assessment considers struggling oil production, mounting debts, poor management of assets and inability to meet funding obligations that would lead to the take-off or completion of critical projects, including cash-call areas in the joint venture agreements.

With a crude-backed loan of $3.3 billion, a payment backlog for imported petroleum products and a projected $2 billion cash-call debt, most stakeholders are worried over the inability to increase oil production amidst subsidy payment and dwindling contribution of oil sales to the country’s earnings.

Signed into law in 2021, the PIA created NNPC Ltd to accelerate the nation’s economic growth, establishment of good governance, competitiveness and global best practices that would create transparency and accountability and then make the company float an Initial Public Offer (IPO) at the stock exchange.

Coming under the Company and Allied Matters Act (CAMA) and the Ministry of Finance being the majority shareholder, a part of the new order was to make NNPC Limited wind-down NNPC assets while the company pays dividends to the government.

But a geologist and publisher of Africa Oil + Gas Report, Toyin Akinosho, said NNPC’s rating in the last two years has been abysmal, stressing that as a builder of infrastructure, the commercialised company did not complete a single project.

Although NNPC had started several projects, including the AKK Pipeline, power plants in Borno and Gwagwalada, Obiafu/Obrikom/Oben (OB3) gas pipeline and others, which are major pipelines, the projects are yet to be concluded.

Akinosho noted that as a JV partner, NNPC has been under-funding its share of the projects or basic operations that would optimise producing fields. According to him, while NNPC was exiting cash calls up until 2019/ early 2020s, it has resumed owing and has been increasingly indebted for the past few three years.

As of May 31, 2022, the total cash call debt was $4.68 billion, the company cleared $3.81 billion leaving an outstanding balance of $873.34 million. Industry sources said the debt has now climbed to over $2 billion.

Decrying the worsening oil production in the country, which currently stands at about 1.78 million against the two million barrels promised by the Group Chief Executive Officer of NNPCL, Mele Kyari, and the board chairman, Pius Akinyelure, Akinosho said: “What the NNPCL leadership has mastered is blustering.

They say facts are sacred, and comments are free, but the GCEO says things that are facts-free.     “Two weeks before the monthly publication of the country’s crude oil production, for the just-concluded month, the NNPC will insert itself in the narrative, and declare what the production supposedly is. And 10 times out of 10, it would be wrong.”

The President of the Nigerian Economic Society and energy scholar at the University of Ibadan, Prof. Adeola Adenikinju, who feels that NNPC has made some progress in the retail end of the business, stressed that in other areas, including expanding reserves base, raising production and export levels, and in the areas of transparency, the NNPC has fallen below the bar.

“In addition, the progress towards the full implementation of the PIA concerning deepening and expanding its ownership base has been painfully slow,” he said.

Adenikinju said the national oil company must become more commercially attractive to investors locally and internationally.  Adenikinju, a former Director of the Centre for Petroleum, Energy Economics and Law (CPEEL) said NNPC is yet to demonstrate that it can make independent, commercially sound business decisions that could lead to expansion in reserves and production levels, and improve overall productivity.

According to him, the NNPC could do more to improve transparency and accountability. With Nigeria’s Excess Crude Account (ECA) crashing to $473,754 from $35 million in 2022 when NNPC became a limited liability company, former head of Facility for Oil Sector Transformation Project (FOSTER), Ademola Adigun insisted that NNPC remained the major problem of the oil sector in Nigeria, adding that the acclaimed commercialisation of NNPC was only on paper.

Adigun argued that NNPC has not fully commercialised despite its attempts, citing political interference and dependence of the government on the company for everything. He noted that the lack of proper governance structure and financial reality further hinders NNPC’s commercialisation.

Adigun noted that there is a need to fully implement the PIA, regarding the NNPCL, stressing that the current state of the company is not different from the old firm.

Director of Centre for Democracy and Development, Dr Dauda Garuba, said there has not been any significant change in the commercialisation of NNPC to become a limited company, stressing that commercialisation was supposed to aid deregulation, “but NNPCL is largely the sole importer of petroleum products, thus freezing the opportunity for competition that would have played to the benefit of the people.”

Also raising eyebrows on the acquisition of Oando retail stations under the commercialisation arrangement, Garuba said NNPC Ltd retail stations capitalise on the opportunity of lower prices to sell products to flip their supplies to independent marketers at a price.

“It’s inappropriate to claim to deregulate and regulate the oil and gas sector at the same time. We either regulate or deregulate. Nigeria, through NNPC Ltd, needs to decide what it wants (to regulate or deregulate) and act accordingly,” he said.

While the spokesman of NNPCL, Olufemi Soneye did not immediately respond to questions regarding this report, Energy Consultant, Okeoghene Ughahe, said NNPC’s transition to a private entity enables independent decision-making, fostering innovation and partnerships.

Despite progress, Ughahe said the midstream operations of the company lag, reflecting the need for improvement in transforming initiatives into profitable national outcomes.

“Based on the above, I would rate NNPCL at 50 per cent, indicating substantial room for improvement. While they have made significant strides and are on the right path, the challenge lies in refining these initiatives into profitable outcomes with a national impact. These tangible results are what Nigerians are eager to see,” he said.

Ughehe said NNPCL’s underperformance in the downstream sector remained a major issue, with all Nigerian refineries non-operational, and delayed restarts for the Port Harcourt refineries.

According to him, neglected pipeline and storage infrastructure exacerbates crude theft and vandalism, reducing Nigeria’s OPEC quota contribution.  He said the company must combat these issues to boost oil production, revenues, and economic growth while restoring investor confidence and stabilising the naira.

Executive Director, OrderPaper Advocacy Initiative, Oke Epia, said while NNPCL wears a new garb imposed by the PIA, the company appears stuck to its old character.

He is concerned over the governance of the company, stressing that the company failed to raise the bar on transparency and accountability to match its new status as a commercially oriented entity.

Epia said a recent report on continued subsidy payments, which the company was charged by the parliament to clarify, exemplifies the need for greater transparency, noting that a truly transformed NNPCL must proactively enhance disclosure and transparency to minimise sensational parliamentary decisions and disquieting media reports.

While Epia said two years might be too short a time to make objective assessments, he said baby steps matter even as he added that the regulatory bodies appeared not to have the NNPCL under their full remit yet – a development which exemplifies subsidy issue where the company makes policy pronouncements instead of the NMDPRA.

Although the Kyari-led NNPCL declared N2.5 trillion in profit after years of losses, renowned energy expert, Prof. Wunmi Iledare, said the company has more to learn from the likes of Saudi Aramco, Brazil’s Petrobras and Venezuela’s PDVSA.

Iledare said NNPCL must embrace its creation as enshrined in the PIA and come out of its love for its old role as a federal government agency. He said NNPCL’s portfolio of assets is spread thin, adding that the company needs to rationalise its portfolio of assets by ranking and cutting mechanisms.

Iledare also stressed the need for the company to be apolitical, stating that the federal government continues to depend on the company as its cash cow.   He wants the reviewing of joint ventures with indigenous companies operating IOC-divested assets, noting however that while the company for lack of funding the company has the first refusal as per the Joint Venture it would be pragmatic for NNPCL to divest its interest from such assets.

“I must add the NNPCL Board as currently constituted, in my opinion, may need to study the intentional crafting of the PIA for its commercial institution christened as NNPC,” he said.

Former management staff at Shell and Convener, Public Interest Advocacy Network (PIAN), Madaki Ameh, said NNPCL is yet to transform from an inefficient behemoth into a truly commercial entity.

Ameh, who said retaining the old leadership to manage a commercialised entity like NNPCL was ineffective, akin to storing new wine in old wineskins, noted that loss-making NNPCL should be an embarrassment to Nigeria.

He wants the entire management team of NNPCL as currently constituted to be relieved of their offices and a new crop of the private sector-led team put in place urgently, adding that a full-scale reengineering of the processes, teams and delivery capacity of the organisation also needs to be embarked upon without further delay.