NNRC Calls for a More Commercially Focused NOC

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The Nigeria Natural Resource Charter Logo

The Nigeria Natural Resource Charter (NNRC), a non-profit policy institute, committed to effective natural resource governance in Nigeria calls on the Federal Government to use the opportunity provided by the prevailing socio-economic situation nationally and globally to embark on complete overhaul of the country’s oil and gas sector, in particular the national oil company (NNPC) to make it both competitive and productive in line with international best practices.

Over the years, NNPC has consistently underperformed against the NNRC’s global best practice benchmark for optimal national oil company performance which prescribes that national oil companies be ‘accountable’ to their citizens and government, with ‘well-defined mandates and an objective of commercial efficiency’.

However, the NNRC commends NNPC for its commitment to its TAPE agenda and its recent efforts to it by publishing the 2018 audited reports of its subsidiaries. Still, there remains a need for greater transparency and accountability. It is expected that these practices will survive the present administration and going forward become part of the corporate culture.

Holistic improvements across the NOC will ‘require clear and appropriate decisions and role of the NOC and how it is financed, corporate governance systems that limit political interference and allow for efficient oversight, and a commitment to transparency and accountability’. It is expected that the NOCs that will succeed in maximizing their potential enterprise value, and thus maximize their revenue contribution to the nation, will be those who succeed at building strong governance along with capital and operational excellence into their culture.

Comparing Norway’s Equinor and NNPC, performance records show that Equinor’s three refineries averaged 92.8% capacity utilisation in 2018 while NNPC’s three refineries recorded 11.21%. A 2015 comparison of average refinery capacity utilisation in the USA of 90.98% and Nigeria of 4.88% is even worse. Unless NNPC’s refineries can operate at minimum 90% capacity they will continue to lose money.

In the area of revenues accruing to government, NNPC’s performance compared to Petrobras (of Brazil), or Petronas (of Malaysia) shows gross inefficiency. Even when benchmarked with similar national oil companies in Africa such as Sonatrach of Algeria and Sonagol of Angola, the NNPC still falls short on different counts.

Another area highlighted by the NNRC as a big challenge to the growth of the NNPC is the issue of corporate governance. It is noteworthy that peer group companies that are wholly government owned like the NNPC do have strong governing boards constituted by competent professionals, instead of preference for political representation. The NNPC is the only NOC with a serving government minister on its board. This brings unintended political baggage which impacts negatively on the smooth running of the organization. 

Closely linked to governance, management and delivery is the concern for organizational flux. Compared to other NOC’s the NNPC has had far more executive turnover.  Unlike Petronas where the average tenure of a CEO is 6 years, and 9 years in Saudi Aramco NNPC by contrast has had 20 GMDs in 42 years, an average tenure of 2 years per chief executive.

Reforming the Corporation, according to the NNRC requires new thinking and new strategies. It starts with the recognition that NNPC is not and was never designed, from the beginning, to be a commercially driven enterprise. Had it been so, it would have been capitalised, granted more operational autonomy and burdened with fewer regulatory functions as in the NNPC Act. Its governing board would reflect that of a commercial enterprise, even if government owned like Saudi Aramco, with fewer ‘political appointees’.

No doubt the Petroleum Industry Bill will be a good platform to remedy the deficiencies in particular as it goes to greater lengths to separate commercial entities from regulatory authorities, leaving the national oil company to focus on finding, producing and commercializing petroleum resources.

The Nigeria Natural Resource Charter (NNRC) is a non-profit policy institute that implements the Natural Resource Charter (NRC), a set of principles intended for use by governments, civil societies and the international community to determine how best to manage natural resource wealth for the benefit of current and future generations of citizens.  It is led by an esteemed panel of experts on natural resource governance that convenes on a biannual basis to analyse the governance issues relating to the petroleum sector in the country.

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