Following the suboptimal performance of the national company in Nigeria, the Federal Government has been charged to urgently embark on complete overhaul of the country’s oil and gas sector, in particular the Nigerian National Petroleum Corporation (NNPC) 1to make it both competitive and productive in line with international best practices.
The Nigeria Natural Resource Charter (NNRC), a non-profit policy institute, committed to effective natural resource governance in Nigeria made the call in a recent statement made available to BusinessUpdate.
According to the NNRC, the Federal Government should use the opportunity provided by the prevailing socio-economic situation nationally and globally to completely overhaul the oil and gas sector of the nation’s economy. particularly the (NNPC) to make it more productive and competitive al in line with international best practices.
Over the years, NNPC has consistently underperformed against the NNRCs global best practice benchmark for optimal national oil company performance which prescribes that national oil companies be accountable to their citizens and government, with well-defined mandates and an objective of commercial efficiency. However, the NNRC commends NNPC for its commitment to its TAPE agenda and its recent efforts to it by publishing the 2018 audited reports of its subsidiaries. Still, there remains a need for greater transparency and accountability. It is expected that these practices will survive the present administration and going forward become part of the corporate culture.
Holistic improvements across the NOC will require clear and appropriate decisions and role of the NOC and how it is financed, corporate governance systems that limit political interference and allow for efficient oversight, and a commitment to transparency and accountability. It is expected that the NOCs that will succeed in maximizing their potential enterprise value, and thus maximize their revenue contribution to the nation, will be those who succeed at building strong governance along with capital and operational excellence into their culture.
Comparing Norways Equinor and NNPC, performance records show that Equinors three refineries averaged 92.8% capacity utilisation in 2018 while NNPCs three refineries recorded 11.21%. A 2015 comparison of average refinery capacity utilisation in the USA of 90.98% and Nigeria of 4.88% is even worse. Unless NNPCs refineries can operate at minimum 90% capacity they will continue to lose money.
In the area of revenues accruing to government, NNPCs performance compared to Petrobras (of Brazil), or Petronas (of Malaysia) shows gross inefficiency. Even when benchmarked with similar national oil companies in Africa such as Sonatrach of Algeria and Sonagol of Angola, the NNPC still falls short on different counts.
Another area highlighted by the NNRC as a big challenge to the growth of the NNPC is the issue of corporate governance. It is noteworthy that peer group companies that are wholly government owned like the NNPC do have strong governing boards constituted by competent professionals, instead of preference for political representation. The NNPC is the only NOC with a serving government minister on its board. This brings unintended political baggage which impacts negatively on the smooth running of the organization.
Closely linked to governance, management and delivery is the concern for organizational flux. Compared to other NOCs the NNPC has had far more executive turnover. Unlike Petronas where the average tenure of a CEO is 6 years, and 9 years in Saudi Aramco NNPC by contrast has had 20 GMDs in 42 years, an average tenure of 2 years per chief executive.
Reforming the Corporation, according to the NNRC requires new thinking and new strategies. It starts with the recognition that NNPC is not and was never designed, from the beginning, to be a commercially driven enterprise. Had it been so, it would have been capitalised, granted more operational autonomy and burdened with fewer regulatory functions as in the NNPC Act. Its governing board would reflect that of a commercial enterprise, even if government owned like Saudi Aramco, with fewer political appointees.
No doubt the Petroleum Industry Bill will be a good platform to remedy the deficiencies in particular as it goes to greater lengths to separate commercial entities from regulatory authorities, leaving the national oil company to focus on finding, producing and commercializing petroleum resources.