Towards
Greater Nigerian Resource Control
By Bayo
Ogunmupe
BY greater Nigerian Resource Control,
I mean that the Executive Council of the Federation of Nigeria should exercise
stricter control over Nigeria’s mineral resources, particularly oil. The
Nigerian National Petroleum Corporation (NNPC) is Nigeria’s main oil
corporation that serves the interest of Nigeria’s Federal Government in the oil
industry. Founded in 1977 by a merger of the Nigerian National Oil Corporation
(NNOC) and the Petroleum department of the Ministry of Mines and Power. The
NNPC by law was set up to manage the Joint Venture (JV) partnership between the
Federal Government (FG) and multi-national oil companies prospecting for oil in
Nigeria. Some of such oil companies include Royal Shell, Chevron, Exxon, Mobil,
Agip, Total, Elf and Texaco.
Apart from performing regulatory
functions, the NNPC also serves as the platform for Federal Government’s
participation in the oil industry. However, the NNPC is essentially a royalty
collector. Otherwise, the corporation’s role in the oil industry is peripheral.
The core duty, which the corporation is to perform is lacking. This is unlike
its counterparts in the other oil producing countries that are fully active in
the upstream, midstream and downstream sectors of the oil industry, thereby
helping to build a strong economy and leveraging their people.
Indeed, the NNPC should be an active
player in the oil industry. It ought to be actively involved in oil
exploration, refining and marketing. Also, the NNPC should lead in producing
the needed technical expertise for Nigeria’s oil industry. The NNPC failed to
do much because it was originally created to collect rent from foreign oil
producers without involving Nigerians as stakeholders in the oil industry.
The NNPC lacks the technical expertise
needed in the oil industry. If the joint venture partners were to leave the
industry today, the Nigerian oil industry will grind to a halt, because there
are no homemade alternatives. However, if we compared NNPC with Petrobrasy, the
Brazilian national oil corporation, that will give us insight into the missing
link in the NNPC operations. This comparison will give us the means by which
NNPC could be reformed to serve a more beneficial purpose to the Nigerian economy.
The Beginnings of Oil
Shell-BP Petroleum Development Company pioneered prospecting
for oil in Nigeria. After 30 years of concerted effort, in 1958, oil was
discovered in commercial quantity at Oloibiri in present day Bayelsa State. By
1959, the Nigerian colonial government introduced the first regulations
governing petroleum taxation. Under the regulation, profits made from oil were
to be shared equally at 50-50 between the government and the respective oil
companies. That arrangement was expedient at the time since the colonial
administration was almost out of office in a matter of months. Arguably, it was
not meant to serve as the framework for sharing oil revenue in independent
Nigeria.
On October 1, 1960, Nigeria gained
independence from Britain; British flag the Union Jack was lowered and the
reins of government were handed over to the new Nigerian authorities. In the
same vein, the management of the oil industry was transferred to the
government. It was indeed at that time that Nigeria should have fashioned out a
patriotic framework for exploiting the oil resources and the sharing of
revenue. That was the time the government should have called on interested
Nigerians to be stakeholders. Unfortunately, that was not done. Nigeria’s
founding fathers failed to do what was expedient but settled for royalty
collection. Consequently, Nigerians were denied stake in the oil today.
The oil profit sharing formula of 50-50
between the government and the oil companies should have been changed to give
Nigerians equity share and participation like in Brazil, where oil was seen as
belonging to Brazil and its people right from the beginning in 1953. The
philosophy adopted in Brazil was, “The Oil is Ours.” Brazilians were made major
stakeholders in the oil industry without foreign participation until 1997.
But the critical vision was not
conceived in Nigeria. Without creating room for Nigerians to be core investors
right from the start, the Nigerian government assumed the role of a passive
royalty collector while the foreign oil companies have the upper hand. Thus, it
was government that edged itself and Nigerians out of the core activities in
the industry and also denied Nigerians the opportunity to be stakeholders.
This trend has persisted till today.
Nigerians only hear about oil and at best act on the periphery. Local content
is not an important issue. Worse still, government officials and politicians
corner whatever revenue accrues to the country for selfish enrichment.
Corruption is rife. Thus, rather than bringing about the much needed
development, oil has brought poverty and misery to the overwhelming majority of
Nigerians. Fifty years of oil exploitation has led to ecological disaster in
the Niger Delta. The situation would have been different if Nigerians were
major stakeholders in the industry. The ugly state of affairs needs to be
changed for the oil to benefit Nigerians.
Formation
of the NNPC
Between 1958 when oil was discovered and 1970, there was no
national body responsible for managing oil in Nigeria. The Western oil
companies were fully in control of the industry and only paid royalty to
government.
The precursor of today’s NNPC was the
Nigerian National Oil Corporation, which was established by Decree No. 18 of
1971. Its mandate was “to participate in all aspects of petroleum including
exploration, production, refining, marketing, transportation and distribution.”
The corporation was also charged with the task of “training indigenous workers;
managing oil lease over large areas of the country; encouraging indigenous
participation in the development of infrastructure for the industry; managing
refineries; participating in marketing and ensuring price uniformity across the
domestic market; developing national tanker fleet; constructing pipelines and
investigating allied industries such as fertilizers.
Following alleged operational failures
and poor accounting procedures, among others, the NNOC was reconstituted as the
NNPC by Decree No. 33 of 1977. Like its predecessor, the NNPC started essentially
as a holding company. It inherited the assets and liabilities of the NNOC. It
had a board structure similar to that of the NNOC. The same inefficiency that
plagued the NNOC caught up with the NNPC early in its life. The accounting
procedures and record keeping were ineffective and this has persisted till
today.
In line with the indigenization Decree
of 1979, the NNPC’s equity holdings in the oil major’s operations was raised to
60 per cent. The companies were Elf, Agip, Mobil, Texaco, Gulf and Pan Ocean.
Similarly, the NNPC’s stake in Shell venture was raised to 80 per cent after BP
lost its 20 per cent stake following disagreements with the Nigerian government
over apartheid South Africa.
From then on, the NNPC was riddled with
accusation of gross mismanagement and misappropriation of funds. That prompted
the then President Shehu Shagari in 1980 to make a national broadcast and
establish the Crude Oil Sales Tribunal that uncovered the gross mismanagement
in the corporation. Ever since, the NNPC has not been able to rise above board
to manage the nation’s oil industry efficiently to benefit Nigerians. The bug
that afflicts government owned companies caught up with it and it remains
inefficient.
Reform
and Commercialisation
The outcome of the Crude Oil Sales Tribunal in 1980 was a
series of reforms that were meant to decentralize the NNPC and instill more
commercial approach into its operations. Thus, in 1988, the corporation was
split into several subsidiaries that presently constitute its operational
structure. The subsidiaries are:
• National Petroleum Investment
Management Services (NAPIMS)
• Nigerian Petroleum Development
Company (NPDC)
• The Nigerian Gas Company (NGC).
• The Products and Pipelines Marketing
Company (PPMC)
• Integrated Data Services Limited
(IDSL)
• Nigerian LNG Limited (NLNG)
• National Engineering and Technical
Company Limited (NETCO)
• Hydrocarbon Services Nigeria Limited
(HYSON)
• Warri Refinery and Petrochemical Co.
Limited (WRPC)
• Kaduna Refinery and Petrochemical co.
Limited (KRPC)
• Port Harcourt Refining Co. Limited
(PHRC)
• Eleme Petrolechemicals Co. Limited
(EPCL)
It is important to note that some of
these companies are not wholly owned by the NNPC but operate as joint venture
concerns like the NLNG. Similarly, there are moves to privatize the refineries
but which have not yet materialized. The operations of the other companies are
in lip and bounds. There are hardly any of the companies managed by the NNPC
that operates optimally as a profit-making venture.
For instance, none of the four
refineries is operating at full installed capacity, even after billions have
been spent on Turn Around Maintenance (TAM). The result is that virtually all
the petroleum products used in the country are imported. The NNPC has grossly
failed to leverage the Nigerian economy as an oil-producing nation, which has
in turn truncated development. According to a 2005 statistics, the NNPC made
$2.6 billion in sales. This is grossly below the standard expected of its after
three decades of operation. The problem, however, is that there is no accurate
statistics on the quantity of oil produced, exported or sold. Also, there is no
record of the quantity of oil stolen through illegal bunkering.
By depending on 60 per cent royalty
payment from the oil majors without attempting to grow into a profitable
company, the country has never benefited from its abundant oil resources. This
explains the need to recreate the NNPC such that it could operate profitably as
a growing concern that would leverage the economy.
The
Petrobras Model
Petrobras-sa is Brazil’s giant multinational oil company.
Founded in 1953, it is semi-public with the Brazilian government owing 55.7 per
share while Brazilian people privately own the rest. Its motto, “The
Petroleum is Ours,”
underscores Brazil’s vision to be fully in control of its oil and gas resources
without foreign involvement. The privately owned shares are traded on BM&F
Bovespa, where they’re part of the Ibovespa index. Thus, between 1953 and 1997,
a period of 44 years, Petrobras was the sole legal monopoly in Brazil’s oil
market.
Unlike the NNPC, Petrobras is rated as
the largest company in Latin America by market capitalization and revenue with
a 2008 sales of $118.3 billion. Compare this with NNPC’s sales of $2.6 billion
in 2005. Petrobras controls significant oil and energy assets in 18 countries
in Africa, North America, South America, Europe and Asia. The company’s
holdings worldwide altogether amount to a total asset of $133.5 billion. The
company is rated as the 63rd largest company in the world according
to Fortune 500 Companies.
Before 2001, Petrobras operated the
world’s largest oil platform known as the Petrobras 36 Oil Platform, which
unfortunately sank on March 15, 2001 after an explosion. But in 2007, the
company inaugurated the Petrobras 52 Oil Platform to replace the damaged one.
The Platform is the largest in South America and the third largest in the
world. Petrobras is also a major sponsor of environmental conservation projects
in Brazil. The company is involved in whale conservation projects and in the
production of bio-diesel, using the H-Bio process.
After many years of impressive
performance in exploration, production, refining and transportation, two new
bodies, the Petroleum’s National Agency (ANP) and the National Council of
Energy Policies were created to regulate and supervise the sector activities.
This followed agitation by foreign and national companies over Petrobras’
monopoly of the market. Before the new turn of events, however, Petrobras had
already made a mark and helped to place Brazil among the emerging economies of
the world.
Charting
Future Course for the NNPC
From the early days of the oil industry in Nigeria, there
has been no enduring framework for exploiting the oil and channeling the
accrued revenue to the benefit of the country. Besides, the country has dealt
with one conflict or the other in form of civil unrest, political instability,
border disputes, corruption at the highest level and poor governance. The
remote cause of the civil war, for instance, was oil. With the splitting of the
country into states, discontent has increased. Since 1999, agitations by
sections of the country over marginalization and control of resources have led
to militancy in the Niger Delta.
At the same time, the Federal
Government has been promising to introduce changes in the NNPC but action to
get that done has been slow. There is presently the Petroleum Industry Bill
(PIB) that is at the National Assembly that is said to contain far-reaching
changes but which is being politicized. It is not known how far the bill would
be tinkered with or how soon it would be passed into law given the mounting
conveyance over it. Even at that, there is no guarantee that the interest of
Nigerian people has been protected.
Over the years, military dictators have
largely supervised Nigeria’s oil industry. That explains why the sector has
been mismanaged. But since 1999, when the current democratic politics was
inaugurated with President Olusegun Obasanjo, government has been working to
reorganize the oil and gas industry, with emphasis placed on natural gas
development.
Before now, most of the country’s gas
has been wasted through flaring, a grossly environmentally unfriendly process.
The decision to terminate gas flaring and increase revenue through gas export
led to the setting up of the Nigeria Liquefied Natural gas (LNG) Plant in Bonny
in 2003. The NNPC is also working on the West African Gas Pipeline project,
which would supply gas to Togo, Benin, and Ghana.
Since 2005, there have been plans to
privatize certain segments of the oil and gas industry with focus on the four
refineries. At the same time, government is pushing for deregulation of fuel
prices. It is not clear how deregulation would affect business and how the
market would respond to it.
While there are indications that the
NNPC is on the path to a positive bright future given the reforms on ground,
issues dealing with civil unrest and dissatisfaction remain grave in Nigeria’s
oil and gas sector. Also, Nigerians are not given stake in the sector. The
reforms proposed have done nothing to make Nigerians part owners of the oil
like in Brazil. This is the gap that needs to be filled.
At this point, the Federal Government
should consider adapting the Petrobras model into the NNPC to make its
operations and services beneficial to Nigerians. The following recommendations
should be considered for adoption:
• The Federal Government should
re-define ownership of the country’s oil and gas resources and who should
benefit from it given Nigeria’s underdevelopment and mass poverty. Presently,
Nigerians have no share in the oil and benefit nothing from it. Foreigners and
their Nigerian collaborators in government and top political offices share the
oil proceeds.
• Once the ownership is re-defined
to include Nigerians, the law setting up the NNPC should be amended
accordingly. The National Assembly should enact a law similar to the
indigenization Decree of 1979, which would increase the equity holding of
Nigeria to at least 80 per cent. Out of this, Nigerians should be given 40 per
cent share holding while the NNPC retains 40 per cent.
• The NNPC should be made a growing
business concern with public ownership. With Nigerians owning 40 per cent
equity share in the corporation, its operations would change as a commercial
business concern and not as a government-owned company that doesn't work.
• The NNPC shares should be quoted and
traded on the floor of the Nigerian stock exchange. In this way, the
corporation would be required by law to operate transparently like other
publicly quoted companies. Its books of accounts would be audited and made
public like any other publicly quoted company. Lack of transparency and
accountability has been a major problem of the NNPC.
• Finally, the NNPC should engage in
core oil and gas operations. It should be involved in all aspects of petroleum
industry including exploration, production, refining, marketing, transportation
and distribution as contained in its original mandate. The NNPC should divest
itself the status of being a passive non-performing royalty collector and
operate as a full-scale business concern to leverage Nigerians and engender
national development.
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