By OBINNA EZEOBI, Published: Sunday, 21 Mar 2010
The Nigerian National Petroleum Corporation is known to be a monopoly for years, but with stories of huge losses and survival on Federal Government‘s support and guarantees. Ahead of the passage of the Petroleum Industry Bill, which would usher in a new era for the oil and gas industry, the corporation just embarked on a radical transformation which would determine its survival, writes OBINNA EZEOBI
Ask the average Nigerian the organisation he or she would love to work for or do business with and the person would likely mention the Nigerian National Petroleum Corporation or the Central Bank of Nigeria.
Rightly or wrongly, these establishments are believed to be among the richest in the country, hence the awe they hold for many Nigerians.
But contrary to the image of a thriving national oil company, NNPC is insolvent and must undergo transformation in line with Petroleum Industry Bill or file for insolvency as the company had a negative balance of N326bn in 2008.
The grim financial state of the corporation was presented by the Group Managing Director of NNPC, Mr. Mohammed Barkindo at the Transformation Townhall meeting held in Abuja penultimate Friday.
Barkindo confessed that without the support of the Federal Government and its sovereign guarantees, NNPC would simply wind up as it had recorded negative financial results across the entire value chain of operations for years.
And with the expected passage of the Petroleum Industry Bill which alter the realities of the industry and stop government‘s funding and control of NNPC and force it to compete with the international oil companies for survival, it was expedient that the corporation change its strategies.
The recently removed Minister of Petroleum Resources, Dr. Rilwanu Lukman, even made the transformation of NNPC more imperative, stating that it was the base of the Petroleum Industry Bill.
He said, ”Without NNPC‘s transformation, the vision and aspiration behind the PIB will remain a theoretical construct. More broadly, without NNPC‘s transformation, there can be no energy sector reform. NNPC is the delivery engine for the execution of the PIB when passed into law.”
An irrefutable case for the transformation of NNPC was made by the GMD who painstakingly examined the performance of the corporation in its different businesses and reported bluntly that the corporation and the entire staff had failed woefully and the scenario must change radically.
Talking about the downstream, which Barkindo described as the mirror through which members of the public viewed the performance of the industry, Barkindo regretted that the downstream business units of NNPC actually accounted for a major chunk of the corporation‘s losses.
He indicated that in the last 10 years, the nation‘s three refineries in Port Harcourt, Warri and Kaduna had only operated for three years.
He said, ”In 2009, capacity utilisation of the refineries was 13 per cent, compounded by actual premium motor spirit yield of 18 per cent, compared to the planned yield of about 30 per cent.
”The main root cause of this downtime was lack of crude supply to the plants. These refineries cumulatively lost N25bn in revenue.”
As a result of the refinery downtime, Barkindo noted that NNPC had to increase imports from the 50 per cent it was providing to almost 100 per cent at the cost of N800bn.
Making comparism with other international national oil companies, Barkindo noted that they held a market share of between 35 and 40 per cent of the downstream business in their countries but NNPC had only 7 per cent.
The GMD further explained that NNPC spent N175bn from 2000 to date on the repairs of vandalised pipeline and in 2009 lost about 132 million litres of petroleum products as a result of theft and diversions.
He added, ”In 2009, we spent N11bn to repair the Trans-Forcados crude line and over N4bn to repair the Escravos-Lagos gas pipeline.
”Customs clearance and delays impacted on demurrage and in 2008 we incurred N7bn in demurrage while delays in crude supply also resulted in 32 per cent refinery downtime.”
He also regretted that NNPC had 172 contingent liability-cases pending in courts and arbitration with total value of N188bn as at January 2010.
But he claimed that the liabilities were largely as a result of externally imposed obligations.
He said, ”In 2008, we spent N7.7bn to pay our solicitors to handle these cases. If these liabilities were to turn real, there is no answer but to file for insolvency.”
Although external factors contributed to NNPC‘s failings, Barkindo was honest in admitting that NNPC‘s dismal performance was mostly a reflection of internal issues, particularly in the upstream sub-sector.
He queried why the cost of crude oil production of the Nigerian Petroleum Development Company, the upstream subsidiary of NNPC remained one of the highest in the world at $23 per barrel of crude oil.
Successful international national oil companies keep their exploration and production costs in the region of $10 to $15 per barrel, he said.
He said, ”In oil reserve replacement, the INOCs have 96 per cent, but here we have 26 per cent.
In terms of operations, most of the INOCs are involved in their own operations in the region of 40 to 60 per cent; they are not silent onlookers like our Nigerian Petroleum Investment Management Services.
Here it is just two per cent.”
Although NPDC‘s production figure had just recovered from the 36,000 barrels a day it had slumped in 2008 to climb back to 60,000 bpd, Barkindo maintained that it was dismally poor for a national oil company.
He said, ”The truth is that as a national oil company with a production of 60,000 barrels per day, we still remain a marginal producer. This transformation will seek to transform us from this status of a marginal producer to a medium and major producer in the medium to long term.”
At the heart of the transformation of NNPC is the attempt to change from being a cost centre.
In this regard, Barkindo said NNPC would maximise the number of existing subsidiaries that can transform into profit centres and minimise the number of cost centres particularly at corporate headquarters and while improving their levels of effectiveness and efficient service delivery.
He said, ”The ready candidates for transformation into profit centres are the subsidiaries. We are going to face them in the first phase of the programme of 12 to 18 months.
We will transform them into fully capitalized, fully commercially run centres, deploying technology to run their operations.
”NNPC will not only transform itself from a cost centre into a profit centre, but will also migrate into the class of the most successful international oil companies.
“Therefore, we cannot remain as a passive investor. The incorporated joint ventures we are going to incorporate will enable NNPC to be a joint operator instead of being an onlooker through NAPIMS.
”We will have international presence in the upstream, midstream and downstream. We started by incorporating NNPC retail.
”We must have strategic autonomy, we must align with the aspirations of the economy. We must have operational independence, the ability to raise our own funding and deploy the funds without the terms being imposed from outside. We must also have an independent board.
”We should be able to determine for ourselves where to operate, what manner, what partnership, what model.
“At the end of the day, it is the profit and loss at the end of the financial year that will assess our performance as management and staff.”
To turn around the fortunes of the refineries and exit the losses recorded in the downstream, Barkindo said there would be a new management model.
The new model would see the refineries buy their own crude, charge processing fees and respond to the demand of their customers.
They will also market their products.
This model will be a departure from the current model where NNPC buys crude from the Federation account at international prices and pass them to the refineries, hence there was no reference to cost, profit and losses.
With that new management model in place, Barkindo expects that by December 2012, NNPC will be able to raise the capacity utilization of the refineries to 90 per cent, refining about 390,000 barrels of crude oil.
He added that the revenue potential was about N11bn, but this would depend on eventual deregulation and successful implementation of the reform.
The GMD also explained that in accordance with the Petroleum Industry Bill, NNPC Ltd would operate across the supply chain and would go back to retail sector where it was targeting 26 per cent market share.
He maintained that NNPC was not interested in monopolising the downstream, but for strategic and commercial reasons, it must have substantial market share in the retail sub-sector in order to provide the services expected of it by consumers.
Source: http://www.punchng.com/Articl.aspx?theartic=Art201003211541448
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