Thursday, 30 July 2015

NNPC STINKS: KILL IT NOW

A strong case for the immediate liquidation of the state-owned oil company by Mallam Nasir el-Rufai, the Kaduna State Governor, preceded a recent pronouncement by the Presidency that it would be split in two. The Nigerian National Petroleum Corporation (NNPC) is an opaque, labyrinthine agency, drunk on corruption and a drain on the country’s wealth. It should be thoroughly investigated: all funds stolen should be recovered and all those who broke the law, no matter the positions they held, should be prosecuted.

Seeking to “reform” it may likely be a long, costly exercise; we prefer, like el-Rufai, that it be replaced with an entirely new entity. Overall, Nigeria’s national interest will be best served if the state-owned behemoth is completely dismantled and rebuilt with new set of aims and objectives.

We are, understandably, on the same page with el-Rufai, having advocated the liquidation of the NNPC much earlier. We strongly advise President Muhammadu Buhari, who has admitted that “only God knows the amount of damage their (NNPC) actions have inflicted on Nigeria,” to refrain from any attempt to reform this leviathan: it will not work. His plan, as enunciated for the first time in Washington, USA, to break the NNPC in two – one to regulate, the other to “act as an investment vehicle for the country” – is great as long as it brooks no retention of the agency in any form. The devil may be in the details.

Speaking at the Seventh Wole Soyinka Centre Media Lecture in Abuja a fortnight ago, el-Rufai reinforced our position by recalling how the NNPC had been run like a parallel government, appropriating money to itself and remitting only what it deemed fit to the Federation Account, contrary to the Constitution that requires all government revenues be sent to the pool. He said: “This country can no longer afford to maintain an NNPC that arrogantly, unlawfully and unconstitutionally spends an unhealthy proportion of national oil earnings on itself.” We agree.

But unraveling the financial shenanigans of the corporation will not be easy. Efforts to verify claims by the then Central Bank of Nigeria Governor, Lamido Sanusi, that the NNPC had failed to account for $20 billion have so far been frustrated. After initially admitting to not accounting for $10.8 billion, it set about hindering a subsequent forensic audit by PriceWaterhouseCoopers, which in its report, had caveats saying that it was not availed of relevant information. Earlier audits by KPMG and the Nigerian Extractive Industry Transparency Initiative (NEITI), among others, uncovered shady deals, illegal deductions and withholding of state funds, false subsidy claims of N28.5 billion (2007 and 2009 alone) and a culture of bribery and collusion among the NNPC executives, political office holders and external players.

Put simply, the NNPC is beyond redemption. Its operations, according to The Economist, a United Kingdom-based newspaper, are the most opaque of all National Oil Companies.

“Politicians, oil workers and security forces are said to be behind the complex cartels that steal, illegally refine and sell crude oil. They have amassed almost unimaginable wealth in a country where poverty is still rife,” it said. Oil’s taint has seeped into almost all levels of government and business. Yet, the central problem is found in the petroleum ministry, which wields vast unaccountable power. The NNPC, a state-owned behemoth, is responsible for all aspects of the industry, from exploration to production and regulation. It is among the most secretive oil groups in the world, and is accountable to no one. Indeed, the NNPC’s entire downstream operations amount to one huge fraud. With four domestic refineries, a recent report said they were operating at just over 10 per cent capacity.

Nevertheless, the NNPC buys 445,000 barrels of domestic crude, to match its installed capacity, ostensibly to refine or swap for refined petroleum products abroad, yet spends vast sums on turnaround maintenance and pays itself subsidies. The swap arrangement, as Buhari reveals, now allows cabals to fleece the taxpayer every day. On kerosene, Sanusi, the whistle-blower, said: “In dollar terms every vessel of kerosene imported by the NNPC with federation money costs about $30 million and it was sold at $10 or $11 million, generating rent of $20 million per vessel to the syndicate.”

But a former NNPC Group Managing Director, Andrew Yakubu, promptly accused Sanusi of being ignorant of the technicalities of the oil industry. Now, the technicalities of the NNPC’s house of fraud are coming into the open. An exasperated Buhari just disclosed that up to the 10th of this month, our crude was still being illegally lifted by people who are in government. An equally infuriated el-Rufai was pained that despite producing an average of 2.2 million barrels of crude per day in 2014, the country imported most of its daily consumption of refined products of 43.5 million litres per day and spent $8.99 billion on questionable subsidy in the 18 months to June 2013. In 2011, the Goodluck Jonathan government paid out N2.5 trillion as subsidy when only N245 billion was budgeted for it that year.

A report said that in 2012, the NNPC sold N2.77 trillion of domestic crude, but paid only N1.66 trillion to the Federation Account; in 2013, it earned N2.66 trillion but paid N1.56 trillion; in 2014, it earned N2.64 trillion but remitted N1.44 trillion, while between January and May 2015, it earned N733.36 billion and remitted only N473.2 billion. According to el-Rufai, the NNPC remitted only 58 per cent of revenues earned between 2012 and 2015, leaving only 42 per cent for the federal, state and local governments to share, meaning that the NNPC appropriated more funds than were available to the federal, state and local governments combined. A minister has been mentioned as stealing as much as $6 billion.

The oil fraud story is not as awful as the NOCs elsewhere. By 2010, the world’s 13 largest oil and gas companies were NOCs, accounting for 75 per cent of all crude production. Six of the 10 biggest by 2013 were NOCs with Saudi Arabia’s Aramco the biggest in terms of production and reserves. Though state-owned, Aramco is run professionally and like Kuwait’s KPC, Mexico’s Pemex, China’s PetroChina and Sinopec, Russia’s Gazprom and Brazil’s Petrobas, is driven by the profit motive. Norway’s Statoil, 67 per cent owned by the state with the rest publicly owned, is the world’s 11th largest oil company by revenue and the 26 largest company of any industry by profit and operates in 36 countries.

For the NNPC, however, the scandals have been too many with very little value addition. Successive governments have been part of the looting orgy, which reached its nadir during Jonathan’s era. It is time to slay the leviathan. A new oil company to serve as a holding and investment vehicle should be established to take over its assets, while liquidators are appointed to wind down the NNPC.

Its subsidiaries should be privatised and Nigeria should move away from running commercial enterprises to creating an enabling environment for private capital, while government relies mainly on taxes for its revenues. It should exit the downstream immediately with the new company remaining only a landlord and equity holder on behalf of the state. It should be run purely as a commercial enterprise and shielded by law and strong regulation from political interference. (Source: Punch)