The Nigerian National Petroleum Corporation, NNPC, said,
weekend, that despite losing N230billion annually from marketing and refining
operations, the Corporation was not broke. It also disclosed that it owes over
$6billion in cash call arrears.
NNPC insisted that there was no way the Corporation can be
broke, given its assets base and equity holding in the petroleum industry.
The Group Managing Director, NNPC, Dr. Emmanuel Ibe
Kachikwu, who reassured of the Corporation’s solvency in Lagos, during a
question and answer session with journalists, said what was wrong with the
establishment was cash flow management.
Specifically, while admitting that the Corporation owes
about $6billion in Joint Venture, JV cash call obligations, he also disclosed
that NNPC was losing annually over N200 billion through the Pipeline and
Products Marketing Company, PPMC and additional N10billion from each of the
nation’s refineries. This brings the yearly losses to more than N230billion.
Kachikwu, who was responding to the constant speculations
that NNPC is broke, and as the main purse of the Federal Government that by
extension, Nigeria too is broke, maintained that such assertions are not true.
NNPC not broke
He said: “No, I don’t think we are broke. We can never be
broke because our assets base is so strong. You know that about 60 per cent of
1.2million barrels of oil a day, plus another almost 100 per cent ownership of
NPDC assets; oil on ground not even allocated and gas resources, we really
could never be broke.
It is a cash flow issue as opposed to asset resource. We are
not broke, we’re going to manage our cash flow better, we are going to see what
falls in to enable us to inject money into the economy and do the things that
we need to do. We are going to be more efficient.”
Explaining the pile up of the Joint Venture, JV cash call
arrears of about $6billion, Kachikwu said: “The $6billion arose from very many
factors; one is for PSCs (Production Sharing Contracts). There you don’t have
these issues, but for the JVs, you have them because every year the Assembly
comes out and says, you need $4billion and they give you $1.5billion. So the
gaps have been accumulating over time and that is the arrears, and when those
gaps came, we did not get aggressive with trying to look for alternative
funding to cover those gaps.
“At some point we became even so suspicious of these
alternative funding. How much are we really making from them? And so they
preferred to hold back. But if we were addressing it from year to year, those
gaps really shouldn’t be there. What is key is ensuring that whatever it is
that you can alternatively fund has a real time value addition to national
income stream. So we are not broke, we are just going to manage our systems
better.”
The NNPC boss also said managing the system better
characterises the ongoing reform of the Corporation, which is already yielding
positive results with huge savings of about $150million monthly through
contract cancellations.
Contract cancellations yield $150m
Kachikwu said that the contract cancellations was not about
calling a dog a bad name in order to kill it, but ones that fell short of
procedures and did not have the best yield.
According to him, “If a contract does not give a good
financial yield for the country and for the company, I cancel it. It is not to
say that the individual who is operating that contract is bad. What it simply
calls for is you open it up and ask others to give you an alternative. If an
individual comes up and he is the best alternative, so be it.
“So the first bullish effort that we did was to cancel all
the former contracts we felt had challenges or issues. That is not to say that
the contracting parties were bad. Again, I pay less emphasis on individuals and
institutions. I pay more attention on processes and outcomes. It is not for me
to say a company is bad or good. I am not a judge.
“If you look at the contracts we have cancelled, we have
saved an average of $150 million a month, just that some of those contracts
were cancelled and were being given new models, even for the interim period. In
December, obviously we are going to have the crude bids. We are going to have
the coastal bids. We are going to have the OPA bids. They will be thrown out to
the entire world. Hopefully, we end up with a sequence of results that will
only save money, improve efficiency and be seen as transparent.”
Reiterating the essence of systems transparency, Kachikwu
noted that NNPC, had hitherto been perceived as being very opaque, and as such
needed to do away with such negative perceptions and open up its operations to
public scrutiny.
In his opinion, “If NNPC must get back its credibility; it
must be on the altar of transparency,” adding, “it is an entitlement of the
country. It is not a privilege for people to know how their oil money is
obtained, how contracts are done, how the income is spent. NNPC, not being a
private company, we must be very open.”
PPMC losses
Kachikwu disclosed that to improve systemic efficiency, the
PPMC is being unbundled into three companies because as it is, the marketing
company records the highest losses in the NNPC system.
According to him: “My greatest loss historical from the
system that I have seen is PPMC; we’re losing about N200+billion a year. So
PPMC contributes 87% of my loss factor. So any CEO must sit down and say, if I
want to be profitable, all I need to do is to yank off PPMC and say I don’t
want that business. But if we sit down with PPMC, we will see that part of what
is coming from pipeline vandalism, subsidy, obviously from lack of efficiency,
assets that have become dilapidated, all kinds of stuff. But, of the elements
is also fraud. No doubt about it.”
Against this background, he continued: “First, you take the
pipelines, and like I said, we are creating a pipeline company. It’s going to
function like a pipeline ownership company like any other in the world. So it
is in their interest to be profitable and to make the pipelines work. While
security is a key issue, security is only one of the impediments that we are
going to solve. We will obviously move people to focus on that away from the
head office.
“Then you will have a storage company, there are lots of
indigenous operators who are doing throughput today, and they survive by their
throughput arrangement. So why should I not run probably one of the depots that
is maybe the largest facility in the country profitably? So there is a company
that is focusing on that. And if I need to do a joint venture, in terms of
having a storage on the deep sea port somewhere, so I don’t have to be lighting
vessels and paying demurrage, then I need to do that. Again, the storage
company will focus on that.
“Then there is the marketing company, I give you an example,
AGO that is produced by one of the refineries was locked up in the refinery for
so long because somebody had fixed a price for the AGO during the time when AGO
hadn’t become deregulated that was very high.
“So we had a very expensive AGO sitting in the tanks, and
people were bringing AGO cheaper to sell, and we just left it there. I don’t
think it requires a Ph.D. in Harvard to know that you need to reduce the price
and sell the damn stuff and move on.”
Refining losses
Kachikwu further said that management has also been the
biggest problem with the nation’s refineries, as they were not being run as
profitable business models but on sentiments, which is resulting in huge
losses.
Notwithstanding that the engineers at the refineries are
doing a yeoman’s job by running facilities of over 30 years, without proper
maintenance and spare parts, which he described as a “ miracle,” the NNPC boss
insisted that the refinery models were faulty.
He said: “The reality is, if you give me 450,000 barrels of
allocation, the models must be straight forward. I go out and process them and
get a better yield and the government makes profit out of that yield and I keep
back what I will use to run the refineries. It is a straight forward deal.
“But the model we have been running is you throw in the
barrels, either for reasons of pipeline issues or for reasons of aging
facilities in the refineries, I throw in a $40 barrel oil and get $50 result.
You are dead before you start, because you are already unprofitable.
“As at last Monday, my records showed that we are losing
about N10 billion annually for each of those refineries. That is why we need to
move from the areas of emotion to the areas of the business.
“Sometimes people say that I am a lot of business, instead
of social services, no, not as a Corporation. The day NNPC is called NNPC
Social Services, then I would not have to have this conversation. But if it is
called a Corporation, it means that the country expects them to make a yield,
make profit and manage the company profitably so that people can benefit.
“What we need to do to have is some level of independence,
be able to shut down and do our TAM (turn around maintenance) when they are
due, be able to fund the refineries, and be able to create a contractual model
that makes the business profitable. Right now we are losing quite a lot.”
In terms of capacity, Kachikwu admitted, “There are lots of
skilled people in NNPC. Some of the best engineers in Nigeria are found in
NNPC. The fact they have continued to maintain refineries that are about 30
years old, some with no spare parts, no turn around maintenance for over 15
years, is share miracle. It is unbelievable. Every international team you call
tells to scrap them, but our people continue to maintain the refineries. So, we
must respect their intelligence.”
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