PIB and the NNPC: Questions that Need Answers

PIB and the NNPC: Questions that Need Answers

By

Bello Salihu, PhD

Like a warped sequence of evolution, four years before we were set free from the colonial shackles of the British we discovered something that, if not properly managed, will substitute the colonialist and eventually keep us in worse penury. And it is sad to report that we have not managed it properly.

The discovery of hydocarbons in commercial quantities on Sunday, January 15th 1956 in Oloibiri of Ogbia local Government in today’s Bayelsa State brought to an end almost 50 years of frustrating search for hydrocarbons in commercial quantities the Nigerian Niger Delta. The well, Oloibiri-1 was spudded on the Wednesday, August 3rd 1955 and drilled to a pay zone buried 3660 metres beneath the earth's surface. The well that marked the arrival of Nigeria as an oil producing country was tested at about 5000 barrels of oil per day - which was deemed to be a commercially viable discovery. That, in effect, was the day that the seeds of conception of our Nigerian National Petroleum Corporation were planted. Since then the country has never looked backed - which is, in itself, a tragedy. Because everyday viable lessons that could have been learnt are missed because past decisions and actions are not reviewed and assessed with a view to improve on gains made or losses incurred. 

An even greater tragedy is that we also haven’t looked sideways or forward. Because if all we could learn from the past is to use the benefit of hindsight to avoid future pitfalls, looking forward enables us to better anticipate those pitfalls and our own strengths or shortcomings in trying to avoid them. Looking sideways on the other hand will provide a better view of the landscape and reveal to its policy initiators and executors what weapons they have in their disposal to reach objectives designed to make the corporation viable and relevant in the energy industry in Africa and wider world. 

Prior to 1971 multi-national oil and gas companies were the sole owners and operators of the prospecting and mining concessions issued to them by the Nigerian government. The government collected tax and royalties on production and the concession owners were free to do as they wished with their productions. By joining the OPEC in 1971, and as is encouraged by the tenets of the cartel, the then Nigerian government moved to take control of its petroleum industry and in the same year the forerunner of the NNPC, the Nigerian National Oil Corporation (NNOC) was created. A few years later, in 1975, the Ministry of Petroleum Resources (MPR) was also created to provide regulatory oversight to the industry and take charge of administrative roles that a commercially-focussed entity such as the NNOC should not be burdened with. Yet, the evolution continues - two years later in 1977 the NNOC and the MPR were merged to form the Nigerian National Petroleum Corporation, NNPC. A colonial entity charged with the supervision of the petroleum industry called the Hydrocarbons Section under the Ministry of Lagos Affairs later metamorphosed into the forerunner of today’s Department of Petroleum Resources (DPR). At various times, the DPR (or Petroleum Inspectorate) was part of the NNOC, MPR and later became the semi-autonomous Petroleum Inspectorate before finally being re-aligned with MPR in 1988 as the ministry’s technical arm.

Since the early days of the current political dispensation, politicians have surveyed the landscape and realised that there needs to be a step change in the way the industry is run. The government of the late President Umar Musa Yar’Adua brought together industry experts and who engaged widely with the industry and midwifed the reports that formed the nucleus of the original idea of the Petroleum Industry Bill (PIB). For better or worse - all indications point to the fact that the Nigerian oil and gas industry will be transformed by the petroleum industry bill soon to be enacted by the country’s national assembly. The difference between the two eras - pre and post-passing PIB is likely to be almost the difference between night and day.

So today, we will ask the question, is there anything in the PIB that - when passed - will herald a step change in the way the Nigerian National Petroleum Corporation, NNPC, is currently set up and run? Will the metamorphism of the NNPC to the National Oil Company (NOC) as suggested by the  draft Petroleum Industry Bill - make any difference to the way NNPC is run currently or as it is composed of today?

I have often been asked my opinion of this current re-incarnation of the much-touted PIB. All one can say now is that it is a pretty document. Its bark has been reduced to a whimper but still has some fangs that, in the right hands, could bite. One of the places where it can be made to bite is in the transformation of our flagship national oil company - the NNPC. What makes getting it right with the NNPC even more pertinent is because the corporation is the main interface between the Nigerian oil and gas industry and the greatest number of external stakeholders - from the citizenry - which include oil producing communities. Other stakeholders include the International Oil Companies (IOCs) operating in the country, potential investors and multilateral international energy concerns such as the OPEC, Gulf of Guinea Commission, the Gas Exporting Countries Commission, etc.

So the NNPC’s impact today is felt across the entire social and economic spectrum, in and out of the country. Certainly, transformation in the NNPC should be geared towards one direction and one direction alone - efficiency. A concept of efficiency that covers everything from products marketing to social and corporate responsibility, from profits and attracting investors to handling community issues and managing and satisfying, in the best way possible, the expectations of Nigerians.

At its inception, the NNPC’s objectives were four-fold and simple; 1. to build administrative and technical capacity in the young industry, 2. to form a commercially-independent oil and gas company capable of participating and competing in the industry globally, 3. to support active participation in the industry from individual and corporate entities in the country, and , 4. to ensure national energy security.

Even though the corporation has undergone countless changes in its evolution from 1971 to date, an assessment of the success or failure of the NNOC/NNPC idea in the last forty years must start from the hit/miss ratio of the four aforementioned goals at its inception because most, if not all, of the changes during all those years have been to reposition the corporation towards achieving those four cardinal goals.

The first goal, that of capacity building, can best be looked at in the context of not only job creation in the NNPC or its subsidiaries but also the impact of its activities in the generation of jobs in Nigeria as a whole. NNPC’s activities, especially in the upstream and midstream ends of the industry have created more jobs outside the shores of Nigeria than it has done in Nigeria. From foreign refineries, fabrication plants, shipping yards and even foreign lawyers, insurance brokers and investment firms have made more killing from the Nigerian revenue cow than the Nigerian based ones. What is sadder - is even naturally occurring minerals that can be used as inputs in oil well drilling and that would require little low-tech processing prior to use, are not promoted against foreign competition.

The two bodies, external to the NNPC, that were set up to counter this are the Petroleum Technology Development Fund and the Nigerian Content Division.

So why are Nigerians just feeling the impact of the Petroleum Technology Development Fund (PTDF), which was created a few years after the NNPC was created? But most importantly, is there any interfacing between the actions and performance of the two bodies? Does NNPC’s - and to a larger extent, the industry’s manpower needs - drive where PTDF commits its funds? 

What about the concept - Nigerian Content - which in my opinion is one of the more laudable efforts in the industry since its inception? Is it living up to the hopes of its creation? Why are local Nigerian firms still able to access contracting jobs still driven by the whims of the oil companies? Granted that by the nature of the way the industry operates globally, only firms that can perform should be considered for certain contracts - why is it still difficult for Nigerian companies to break the glass ceiling that is more often than not put in place by both the IOCs and those that should challenge the IOCs for creating that ceiling in the first place? For the Nigerian companies, my question to them is why, after the Nigerian authorities have spent over ten years actively promoting local participation in the industry, there are still very few Nigerian firms that are more than briefcase carrying individuals fronting for the same foreign service providers the Nigerian content drive is aiming to displace? Why have so few Nigerian firms broken the efficiency, innovation and professionalism barrier to be able to contest for design jobs that require more of brain power and less of feet on the ground?

Similar and deeper questions relating to the original objectives of the setting up the NNPC can be asked - and in due course will be asked on this column. Most importantly - ideas on solutions will be presented and discussed. But for now one will only hope that the entire PIB delivers and that, in the particular case of the NNPC - the industry’s more public face - it delivers big time.

One cannot be blind to the fact that one of the NNPC’s major impediments to achieving any of the said goals is political meddling from the successive governments and rulers of the land. And as long as that continues, it is difficult, nay impossible, for the NNPC to work as goal-driven, profit-oriented and responsible corporate entity. For a country like Nigeria, the resource(s) the NNPC controls, or should be given a free hand to control, are so mind-boggling that the corporation will continue to remain as an extension of the country’s treasury. But then, other countries have been able to successfully surmount that obstacle with their national oil companies, Malaysia and Petronas easily come to mind here.  Others, such as Brazil’s Petrobras, have risen in the last few decades to become the face of their countries coming of age and massive industrialisation.

Both Petronas and Petrobras exist and operate from countries that not very dissimilar to Nigeria in terms of level of development and political maturity - the difference is that their respective governments choose to do things a little differently.

The above opens up a discourse on a few questions that the future role of the NNPC, as suggested in the PIB, should elicit. In the next and concluding part of this essay I will be discussing possible answers to the questions raised here today. I am sure other questions will still be there to be asked – and more questions may yet be lurking in the corner as a consequence to the solutions that may be suggested next – but the industry and NNPC are both mammoth both in their pervasive presence and relevance – so we may yet still have more need for further discussions on this issue as the days go by.

This article was originally published in my column, 

Oil & Gas Weekly, in Government, 

a publication of Leadership Newspapers, Nigeria 2012.