Buhari Approves NNPC’s unbundling into Four Autonomous Units
President Muhammadu Buhari has approved the next restructuring phase of the Nigerian National Petroleum Corporation (NNPC), the Minister of State for Petroleum Resources and the corporation’s group managing director, Dr. Ibe Kachikwu, disclosed on Thursday.
Kachikwu said at a town hall meeting with journalists and civil society organizations in Abuja that the next phase of the restructuring, as approved by the president, would see the state oil company broken into four different autonomous profit-oriented companies.
According to him, the four firms to emerge from the exercise are the upstream company, the downstream company, Midstream Company, and the refining group holding company.
All of them would operate independently with quasi-managing directors and remit profits and taxes to the coffers of the government.
Kachikwu said: “Right now I have just received the president’s approval to embark on the final phase of the restructuring we are doing.
“That restructuring effort will unbundle this company into four key components: the upstream company, the downstream company, midstream company which is the gas and power company and then of course, the refining group holding company.”
He further explained that the effect of the restructuring would enable NNPC to focus on individuals who will lead as quasi-managing directors to run the entities with the aim of delivering profits for the organisation.
He explained, however, that there would still be other managing directors at the corporate level.
“A lot of the non-performing but asset-based subsidiaries that we have, we will put them into a venture company where we will begin to help manage them to profitability and hopefully either spin them off ultimately or make them so profitable that we may decide to keep them.
“This is the sort of financial model that we are going to be dealing with over the next few months and trying to set up a performance index that is comparable with the very best in the world,” he explained.
The minister also spoke on some of the activities that he would focus on in 2016. According to him, cutting production cost; growing crude oil production to 2.4 million barrels per day (mbpd); cutting government’s subsidy on domestic supply of petrol through market-based methods; helping the country exit the onerous cash call regime in joint venture operations; reducing the industry’s contracting cycle to six months; and reengineering a profitable operational model for the country’s four refineries, would be his focus in the coming year.
He said: “For upstream, some key essentials: average production for this year was about 2.1 million barrels per day, but we think we ought to be able to move forward a little bit to about 2.4 million barrels per day in 2016.
“To do that, there are key things that need to be looked at. Oil majors have major issues in terms of funding; there are lots of cash call arrears which we need to look at. So a lot of financial engineering will be needed to enable us support that industry.
“Finance is key, cost is key. In an era of declining price of oil, it is going to be very essential that we are able to produce the most competitive oil in the market and that is the OPEC philosophy, we must be the least cost producers and so our energy is going to focus on working with NAPIMS and every other directorate here to bring down substantially the cost per barrel of oil in this country.
“Other than the cost element, obviously, is speed. One of the greatest problems we have in the upstream is the turnaround time for the approval of projects and on the average it is two-and-a- half years. We are committed to taking that to six months.”
In the downstream segment, he said: “Downstream problems obviously have been the systematic degradation of our ability to deliver services on time.
“That comes to the issue of pipeline ruptures; the issue of the inability of our refineries to perform; and not just being able to manage the entire infrastructure we have to be able to deliver services.
“We need to focus quite frankly on reengineering through investments in some of these facilities and some of the things we are looking at in 2016 would be joint ventures with technical partners to come and help us run some of these plants.”
While acknowledging that financing would be key to all his plans, Kachikwu said: “New models of financing will have to emerge. The country does not have the sort of resources to continue to finance the industry and as we go upstream, we will see a lot of innovative financing mechanisms to provide funding for the industry and I hope that by the end of 2016, we will completely exit the cash calls and be able to find our funds one way or the other to support our businesses.”
He said on the refineries and government’s plan to end the subsidy on petrol: “We have four refineries, none is in the best state but we can get them back because refineries never die as long as you do what you need to do.
“Ultimately, technical support, technical services, technical joint venturing will be models we are going to be looking at for the refineries. The whole idea is find the funds, find the right skills that you need and try and deliver above 90 per cent for the refineries.”
He also dispelled the misconception that the federal government has concluded plans to increase the pump price of fuel from N87 to N97 a litre from January 2016.
Kachikwu noted that the discourse has long left the realm of subsidy removal to a more scientific price modulation approach which entails an elastic price mechanism regime to be reviewed periodically to reflect the prevailing international price of crude oil.
He explained that when operational, the novel price modulation system would place a N97 per litre cap on the price of fuel to ensure that Nigerians are insulated from the vagaries of the global crude price.
“I did not say that refined petroleum products will sell for N97 per litre next year. I said that between a band of N87 and N97 we are going to be looking at prices and today the prices are largely close to N87, So there is no need to change the price,” he said.
The minister noted that to determine the price of petroleum products in future, the Petroleum Products Pricing Regulatory Authority (PPPRA) would undertake quarterly reviews of the crude market situation.
“I have not put a static figure. PPPRA will have to do the calculation to be able to announce at what price petrol will sell in January; but we do not anticipate any major shift because of the price of crude today.
“I think what you will find next year on pricing of petrol is a bit more flexible management of the pricing system so that we are as close to what the prices are today and reflective of what the price for crude is, but in a way to create an incentive for marketers to feel free to get out.
“What we hope to do, is to reduce the level of federal government’s subsidy, if any, to the industry so that the industry can grow on its own strengths and we can do that without the mechanism of saying that subsidy is being removed but have a benchmark approach to setting pricing.
“We are going to see a lot more of the quarterly-type analyses of what prices will be in the downstream industry relative to prices of crude oil,” he added.
NNPC also announced that it had appointed 21 firms to lift Nigeria’s crude under new one-year term contracts.
A statement by its spokesman, Mr. Ohi Alegbe, said: “The exercise witnessed the unprecedented public harvesting of 278 bids submitted by indigenous and foreign firms seeking to secure contracts for the sale and purchase of the 26 Nigerian crude oil grades on offer.
“A breakdown of the 2015/2016 crude oil term contract off-takers for the 991,661bpd Nigerian equity crude indicate that 240,000 bpd representing 24 per cent of the total volume on offer is awarded to four refiners classified as major current receivers of Nigerian crude with capacity to process all of Nigerian crude grades.
“The off-takers in this category include: Emirates National Oil Coy (ENOC) Indian Oil Corporation, CEPSA Refinery Madrid and Sara SPA Refinery. Each of the off-takers in this category was awarded 60,000 bpd.”
He added that three notable international trading companies, namely Trafigura PT Ltd, Mercuria Energy Trading SA and Vitol SA, won the bids to lift 32,000bpd of crude oil based on their pedigree as large-scale buyers of Nigerian crude with structure for short-term freight intervention and storage.
The off-takers in this category represent about 10 per cent of total crude volume on offer, Alegbe said.
Also, trading affiliates of international oil companies consisting of ENI Trading and Shipping SPA, TOTSA Total Oil Trading SA, Exxon Sale and Supply LLC and Shell Western Supply and Trading received term allocations of 32,000bpd each, representing about 13 per cent of total volume of crude oil on offer.
Nigerian downstream players with wide experience in crude trading and large asset bases accounted for 405,000bpd, representing about 41 per cent of total crude volume on offer.
In this category, Emo Oil & Petrochemical Coy/China Zhenhea – an NNPC long-term trader was allocated 45,000bpd. Other off-takers in this category included Forte Oil, 45,000bpd Northwest Petroleum and Gas Ltd, 45,000bpd, Oando Plc, 60,000bpd, Sahara Energy Resource Ltd, 60,000bpd, A.A. Rano Nig. Ltd, 45,000bpd, Eterna Oil, 45,000bpd and MRS Oil &Gas Coy Ltd 60,000bpd.
NNPC trading companies – Calson/Hyson with 32,000bpd and Duke Oil Incorporated, which got 90,000bpd – account for about 12 per cent of total volume on offer.