NNPCL: Long-term strategic imperatives (Part three)

This is the third in my series on the long-term strategic imperatives before the Nigerian National Petroleum Corporation Limited (NNPCL), which should be to exit the midstream and downstream petroleum sectors in the short to medium term and concentrate on accelerating the development of Nigeria’s upstream assets to optimise the nation’s overall gains from upstream operations. The overall strategy would be to privatise the entire organisation within a ten-year time horizon, following British Petroleum’s (BP) privatisation model, which took nine years. NNPCL can remain a ‘national oil company’ vigorously pursuing Nigeria’s national interests in the upstream oil and gas sector without necessarily being owned by the government. This article, however, is the second and concluding part of last week’s article, which focused on the privatisation of NNPCL’s midstream assets, or its four petroleum refineries.

Read also: NNPCL: Long-term strategic imperative

Last week’s article dealt extensively with the series of turnaround management (TAM) of the four refineries and the billions of dollars allegedly spent over a period of four decades, with very little results. The article took the position that the management and employees of the four NNPCL refineries and the entire NNPCL are no less competent, nor are they inherently more corrupt or unprofessional, than their colleagues elsewhere in Nigeria and beyond, but that the main factors responsible for the poor performance of the refineries over the years have been government ownership, political interference in their day-to-day operations and the loss of financial autonomy by NNPC in the 1990s under the military, which meant that decisions concerning maintenance and contracting were no longer made by NNPC professionals but by government officials.

While last week’s article focused on the technical, financial management and governance challenges that constrained the effective operation of the refineries, this article will concentrate on the human and political dimensions, which are the core issues.

If the NNPC refineries had been owned by private concerns or managed professionally, without political interference, they would either have been sold a long time ago or made to work. For example, the Warri Refinery has been shut down since 2004 due to technical issues, principally safety concerns over its crude distillation unit’s main heater. Likewise, the Kaduna refinery has been shut down since 2015 due principally to technical issues and pipeline vandalism. On September 10, 2020, Mele Kyari, Group Chief Executive Officer of NNPC, announced that NNPC management had taken a deliberate decision to close down all four of its refineries, one or two of which could at the time have been operating at best nominally. In its 2023 audited financial report, NNPCL revealed that all four refineries were indebted to the tune of N4.5 trillion, which meant that the refineries, even while they were shut down, were still incurring costs, and idle workers were being paid a total wage bill of N68 billion annually for work not done. These were some of the huge operational losses sustained by NNPC in the running of the refineries over the years, which were only conceivable under the atmosphere of intense political interference in the daily operations of the corporation over the past decades. This is apart from the huge financial losses associated with poor TAM contract governance.

The idea of selling off the four inoperable NNPCL refineries is going to be a hard sell to Nigerian politicians, principally because the oil and gas sector has always been seen as a trophy to be competed for and a prize to be won and as the spoil of war in Nigeria’s peculiar brand of politics, where contestants can go to any extent to secure victory. The billions of petrodollar annual windfall revenue was the key reason military dictatorship persisted in Nigeria for decades and the reason for coups and counter-coups and unnecessarily prolonged political transition programmes. So the ‘soldier of fortune’ syndrome, after years of intense political pressure, reluctantly gave way to the syndrome of ‘politics of extraction’, where the primary motive of political governance seems not to be service but personal gain for many, or perhaps most, politicians. This is the peculiar political governance scenario that has negatively impacted governance across the board in Nigeria and the oil and gas sector in Nigeria, particularly severely. It is going to take tremendous political will by the current political leadership in Nigeria, specifically President Bola Ahmed Tinubu, to make an impactful dent on the prevailing technical, operational and financial governance of the oil and gas sector.

But political interference is strictly not limited to politicians alone. If one were to develop an artificial intelligence algorithm for ingenious geospatial analysis to determine the geographical spread of the political influences on NNPC operations (relying on some insider knowledge), the resulting outcome may be shocking. What that means is that there are widespread, interconnected, extraneous vested interests in the operations of NNPC that have been well entrenched for decades and that are difficult to dislodge just by fiat for political reasons.

“What that means is that there are widespread, interconnected, extraneous vested interests in the operations of NNPC that have been well entrenched for decades and that are difficult to dislodge just by fiat for political reasons.”

Then, there are, of course, the labour unions in the Nigerian oil and gas sector, the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN), and the Nigeria Union of Petroleum and Natural Gas Workers (NUPENG). These are powerful industrial unions that have consistently stood in the way of reforms in the oil and gas industry for decades, particularly concerning the privatisation of the four NNPC refineries. Their stand is understandable because one of the key goals of an industrial union is to protect the jobs of its members. However, in the specific case of the four NNPC refineries, which have been technically inoperable or moribund for decades and are incurring huge losses even in their inoperable state, the stand of the labour unions is not justifiable. What they should be demanding is a win-win outcome for all parties: the employers, NNPCL, the employees, the Nigerian people and the economy. And a win-win outcome can always be worked out. First will be an agreement by all parties that the best economic decision will be to sell or scrap the four inoperable refineries, which will save the NNPCL and the government from continuing to incur trillions of naira of historical waste. Second is to offer the employees, members of PENGASSEN and NUPENG, mouth-watering golden handshakes they cannot refuse. Third, NNPCL should contract employment agencies to find jobs for younger and mid-career professionals and workers among them. Fourth, employees close to retirement should be given sufficient entrepreneurship training and encouraged to form partnerships and companies they can use to find jobs in the oil and gas sector, including maritime and logistics and beyond, as contractors, subcontractors, oil and gas servicing companies, and downstream oil and gas operators, among others. In addition, they should all be given intense financial and investment education to know how to invest and manage their post-NNPC employment benefits and pensions. Benefits for the consuming public include the availability of good-quality petroleum products at affordable prices from efficiently run refineries. The benefits for the economy include seamless petroleum product supply chain management, a significant contribution to the gross domestic product (GDP) by the oil and gas sector, and a beneficial impact on the naira exchange rates.

Read also:  NNPCL: Long-term strategic imperative (part two)

Retaining the four refineries has been at a huge cost to NNPCL and the Federal Government and the Nigerian people at large. Besides, it has been a great distraction to the management of NNPCL, which should be replotting its strategic direction to focus more intently on growing Nigeria’s upstream assets.

Against the foregoing, it is obvious that the decision for NNPCL to sell or scrap its four refineries and exit the midstream petroleum sector is not one its management can make alone. It is also going to be a tough economic decision for President Bola Ahmed Tinubu to make, as it will generate far-reaching political reverberations. But it is a decision the president should make in the national interest and as part of the overall package of decisions to achieve a trillion-dollar economy by 2030 or thereabouts, which, in my view, is achievable if we can put our minds to it.

Mr Igbinoba is Team Lead/CEO at ProServe Options Consulting, Lagos.