PSCs Under Review
Federal government may have kicked off most awaited institutional reforms in the Petroleum Ministry with imminent unbundling of the Nigerian National Petroleum Corporation (NNPC) into 30 separate commercial entities.
The government also restated its resolve to review the existing Production Sharing Contracts with local and international oil companies, stressing that the review is long overdue.
The move which is coming ahead of the highly controversial Petroleum Industry Bill (PIB) in the sector is one of the recommendations prescribed in the bill which experts have described as nebulous and jinxed.
Both institutional reforms in the sector and fiscal reviews are key questions in the PIB that sparked protracted debates and disputes that stalled smooth passage of the law since it was introduced in the National Assembly nearly a decade ago.
Spokesman of the corporation, Mr. Ohi Alegbe, stated that the Minister of State for Petroleum Resources and Group Managing Director of NNPC, Dr. Ibe Kachikwu, has commenced transformation of NNPC.
Mr. Alegbe quoted Dr. Kachikwu as saying that NNPC is to be unbundled into 30 profit-making companies with separate Managing Directors in the weeks ahead as part of the ongoing transformation of the national oil company.
The unbundling of the corporation, according to Dr. Kachikwu, is to steer the operations of loss making NNPC into the paths of commercial profitability by dismantling internal subsidies and challenging all the strategic business units to survive independently.
Under the new arrangement, bureaucratic coordination at the corporation’s headquarters would be narrowed down while all the subsidiaries would be granted administrative and financial autonomy to operate independently under separate Managing Directors.
Currently, the 13 strategic business arms of the corporation include the Nigerian Petroleum Development Company (NPDC); Nigerian Gas Company (NGC); Integrated Data Services Limited (IDSL) and National Engineering and Technical Company Limited (NETCO).
Others include Products and Pipelines Marketing Company (PPMC); Warri Refinery and Petrochemical Co. Limited (WRPC); Kaduna Refinery and Petrochemical Co. Limited (KRPC); and Port Harcourt Refining Co. Limited (PHRC).
The rest are Hydrocarbon Services Nigeria Limited (HYSON); NNPC Retail; Duke Oil; NNPC Pensions Limited and National Petroleum Investment Management Services (NAPIMS) which coordinates the group’s involvement in joint ventures and production agreements operated by private partners.
Mr. Alegbe did not state where the new entities will carved from but it is likely that the joint ventures in which NNPC holds overriding 55 percent will transform into incorporated joint ventures with financial and administrative autonomy.
Joint venture cash calls have hitherto been a traditional funding burden on the corporation, a situation that prompted proposals in the PIB for them to be incorporated after the model of the cash minting Nigerian Liquefied Natural Gas (NLNG) in which NNPC holds 49 percent non-operating interest.
Internal synergies and cross-subsidies mean that some loss making subsidiaries with huge social and political responsibilities drain the profits made by sister companies, a situation that have left the corporation as a traditional loss maker.
However, Dr. Kachikwu stated that the NNPC has started walking up to profitability, having moved from a loss position of N160 billion to some N3 billion by January 2016. He expressed hopes that the corporation would hit the profit bar by year end.
“For the first time, we are unbundling the subset of the NNPC to 30 independent companies with their own Managing Directors. Titles like Group Executive Directors are going to disappear and in their place you are going to have Chief Executive Officers and they are going to take responsibilities for their titles. At the end of the day, the CEO of an upstream company must deliver an upstream result,” Dr. Kachikwu stated.
To smoothen business processes in the industry, Dr. Kachikwu said government would rapidly review the contracting cycle of projects from two years to six months in the upstream, stressing the need for operators to cut costs across all streams of the business.
He noted that for the Nigerian oil and gas industry to make remarkable progress, there is need for all the stakeholders in the upstream, midstream and downstream sectors to be on the same page on cost control, contracting circle, technology and environmental issues.