Friday, 11 March 2016

WHY FED. GOV. SHOULD NOT HAVE UNBUNDLED THE NNPC

Dr. Emmanuel Ibe Kachikwu
If the move to overhaul the Nigerian National Petroleum Corporation (NNPC) is based on the erroneous impression that the corporation is too big, then, that is not plausible enough reason to embark on such complex exercise. The problem with the NNPC is lack of transparency, opaqueness and abrasive corruption that pervades the entire Nigerian system. Any talk about reforming or overhauling the corporation should gear towards making it transparent, efficient and profitable.

Caution must be exercised in dismembering the NNPC to avoid putting a final death nail on it. Reason is that our experience with unbundling of government establishments in this country has not been impressive. The unbundling of the erstwhile Power Holding Company of Nigeria (PHCN) into private generating companies (Gencos) and distribution companies (Discos), has not achieved the desired result. As a matter of fact, the power sector has been plunged into deeper crisis and government is at a loss on how to handle the situation.

If private power companies are unable to bring the desired change into the power sector, how does anyone believe that unbundling the NNPC into 30 discrete companies run by public servants would do magic? I don’t believe so. Government should understudy how national oil companies in other countries are managed. Oil and gas operations have international dimension, such that the way it is run in one country is not entirely different from the others.

The Minister of State for Petroleum and Group Managing Director of the NNPC, Dr. Emmanuel Ibe Kachikwu, the other day, disclosed that a major overhaul was underway to unbundle the NNPC into 30 different companies. Dr. Kachikwu disclosed this at the Oloibiri Lecture Series of the Society of Petroleum Engineers in Abuja.

He said government has started resolving the governance issues in the oil and gas sector, adding that an overhaul had not happened at the corporation in the past 20 years. He revealed that the latest financial report of the NNPC for the month of January showed that the corporation’s losses had reduced from over N160 billion of some six months ago to about N3 billion.

Good development, one might say, but how much was NNPC’s revenue in 2015? How much did it earn in January/February 2016? Why does the NNPC always report about financial losses without any mention of financial gains/revenues like other national oil companies around the world?

That is where the problem lies. There may be no way out of the entrenched financial mismanagement in the NNPC when other sectors of the economy are equally rotten. One can argue that the cleansing has to start from somewhere but it is foolhardy to begin the experiment with the life wire of the economy.

Any reform/unbundling that does not address the issue of transparency will be meaningless. So, what framework has Kachikwu developed to instill transparency in the corporation or are the new companies going to be old wine in new wineskin?

Whereas, some people think that the problem with the NNPC is its “huge” size, which is not true, NNPC is nowhere near the biggest national oil companies in the world. The biggest national oil company in the world is Saudi Aramco with 2015 revenue of US$478 billion, followed by China National Petroleum Corporation with US$428.62 billion and Petro China with US$367.982 billion.

The question about the revenue profile of the NNPC is out of this world; such information is never made public like other national oil companies around the world. NNPC’s revenues are hidden from the public. The only thing that Nigerians hear is the amount that has been stolen and the empty probes to recover such funds.

Not long ago, we did a comparative study on the operations of the NNPC and Petrobras, Brazil’s national oil company. While the revenue profile of Perobras is published on its website that of the NNPC says “no information.”

Since NNPC is not among the biggest national oil companies that have, at the apex, one president or managing director, why should anyone believe that having one Group Managing Director (GMD) is the problem that has to be resolved by splitting the corporation in 30 small companies, thereby complicating the matter?

We are talking about how to reduce the bureaucracy that bedevils the NNPC; yet somebody is thinking that having 30 quasi-independent companies that creates more complex bureaucracy is the solution.

To begin with, having 30 companies would mean having 30 CEOs, deputies, directors, etc. At the end of the day, we might be talking about having over 200 new executive offices with all the perks of office for a job that was done by one person. How would you compare the overhead cost of having one GMD with having 30 and much more? There are Nigerians that can manage a complex organization like the NNPC and achieve positive results.

Moreover, there is the question of who manages the new 30 companies. Dr. Kachikwu said, “We are going to bring in experienced hands.” Are the experienced hands Nigerians or expatriates? Bringing in expatriates will defeat the local content philosophy of the Federal Government? Besides, is the unbundling in line with the prospect of having a new Petroleum Industry Bill (PIB)? Another thing is the timing. Dr. Kachikwu said the proposed overhaul “hasn’t been done in over 20 years.” Does it mean the overhaul is being done just for the mere sake of it and not necessarily due to expediency?

Implementing a major overhaul at a time when oil prices are down could have both positive and negative fallout. Positive in the sense that it might be the right time to test the professional capability of the new managers, but there could be negative fallout when you bring new hands to steer the NNPC turbulent ship at a most inauspicious time. The new hands might wreck the boat for lack of experience on the terrain.

Whatever the case may be, there is high expectation on the NNPC to do what other national oil corporations are doing for their countries. The Ghana National Oil Corporation that began a few years back has embraced international best practice by publishing its revenue profile on its website. That shows transparency in its operations. NNPC should do the same. Dr. Kachikwu’s overhaul should focus on that. (Guardian)