NNPC and NLNG: Same parents, different outcomes, By Nick Agule

I was moved to change this week’s focus to the statement by Nigeria’s Senate President Ahmad Lawan that Nigeria is currently poor and has no other option but to borrow to finance infrastructure, but I am persuaded to leave it for subsequent weeks so that we can stay with the topic earlier slated for this week, which is on the Nigerian National Petroleum Corporation (NNPC) and the Nigeria Liquified Natural Gas (NLNG).

On Tuesday, 15 June 2021, on the Island town of Finima in Bonny at the shores of the Atlantic Ocean in Rivers State, Nigeria, a significant and historic event took place: it was the ground-breaking ceremony to mark the commencement of the construction of Train 7 project of the NLNG Limited. The project, according to the company’s Managing Director, Tony Attah, is expected to attract an investment of $10 billion and will boost the production capacity of the plant by 35% about 8 million tonnes a year of liquefied natural gas to take the total annual production capacity to around 30 million tonnes per year and total Foreign Direct Investment (FDI) in excess of $30 billion. The project will create 12,000 direct jobs and indirect jobs in multiples of the direct jobs count.

President Muhammadu Buhari, who also spoke at the flag-off of construction, noted that the NLNG has generated revenues of $114 billion over the years, paying $9 billion in taxes and $18 billion in dividends to the federal government and $15 billion in gas feed purchase. The President sought for an on-time completion of the project so that train 8 project can commence.

The puzzling thing is that both the NLNG and its sister company, the NNPC, are owned by the Federal Government of Nigeria (FGN). But while the NLNG is posting fantastic performances over the years, the NNPC on the other hand has constituted a drainpipe on national resources and is continuously posting losses. To rub salt into the wounds of the nation, the NNPC recently said they were contributing zero remittance to the federation account!

The focus for this week is to X-ray the reasons two companies owned by the FGN and operating in the same industry in the same geography are at the extreme ends when it comes to performance. Solutions to correct the anomaly will also be proffered. But before this, let us do a brief on the two companies.

NNPC

The NNPC, according to its website, is the state oil corporation which was established on April 1, 1977. In addition to its exploration activities, the Corporation was given powers and operational interests in refining, petrochemicals and products transportation as well as marketing. Between 1978 and 1989, NNPC constructed refineries in Warri, Kaduna and Port Harcourt and took over the 35,000-barrel Shell Refinery established in Port Harcourt in 1965. In 1988, the NNPC was commercialised into Strategic Business Units, covering the entire spectrum of oil industry operations: exploration and production, gas development, refining, distribution, petrochemicals, engineering, and commercial investments.

The performance of the NNPC has been abysmal over the years. From the published audited financial statements, the NNPC made total losses as a group of N803 billion in 2018 while the 2019 losses stand at N1.7 billion. Tragically, the NNPC business, which touches on the everyday lives of Nigerians – the refineries – is where the most shambolic performance was posted. In the last 2 years (2018 and 2019), the 4 refineries generated revenues of N4.4 billion only but spent N320.3 billion to refine zero barrels of crude oil. The absence of local refining of Nigeria’s crude has led the nation to continue importation of petrol at exceedingly high costs thus necessitating the haemorrhaging of the FGN revenues through the payment of trillions of Naira in the notorious subsidies.

NLNG

Nigeria LNG Limited (NLNG), as contained on its website, was incorporated as a Limited Liability company on May 17, 1989, to harness Nigeria’s vast natural gas resources and produce Liquefied Natural Gas (LNG) and Natural Gas Liquids (NGLs) for export. The company is an Incorporated Joint Venture owned in the following proportions: Nigerian National Petroleum Corporation (NNPC) (49%), Shell Gas B.V. (25.6%), Total Gaz Electricite Holdings France (15%), and Eni International N.A. N.V. S.àr.l (10.4%).

Today, NLNG has a total production capacity of 22 million Tons Per Annum (mtpa) of LNG and 5mtpa of Natural Gas Liquids (NGLs) from its six-train plant complex and thus has become a major player in the global LNG business and is touted as the fastest growing LNG company in the world by growing from 1-6 trains in record time. The company has 16 long-term Sale and Purchase Agreements (SPAs) with 10 buyers and controls about 6 per cent of global LNG trade. NLNG began its intervention in the supply of Liquefied Petroleum Gas (LPG), otherwise known as cooking gas, to the domestic market in 2007 under the NLNG DLPG Scheme. The supply has stimulated growth in the industry, guaranteeing LPG supply, availability and affordability. This has also inspired the development of different parts of the DLPG value chain. NLNG has a proven track record of resilient performance (Operational Excellence, HSE, etc.) and unswerving profitability.

Factors Accounting for The Differing Performances

We will now examine the factors contributing to the performances of the two companies to be worlds apart:

Ownership – the NNPC is owned 100% by the FGN while the NLNG is owned 49% by the FGN and the rest shareholding is held by International Oil Companies (IOCs). It is therefore clear that government can own a profitable business, so ownership is less of a factor.

Business – both companies are operating in the oil and gas industry thus the business sector is also less of a factor. Many people confuse the NNPC as the regulator of the oil and gas industry whereas the corporation is an oil company in the same mould as Shell, Mobil, Chevron etc.

Management – the NNPC is managed by a government appointed Board and Management team. The NLNG on the other hand has an independent Board of Directors at the pinnacle of its governance structure, which enables effective business decision making for the company. The Management is also constituted by the shareholders with Shell always seconding one of its employees as the MD/CEO. This structure has supported the achievement of the company’s vision of being a global company, helping to build a better Nigeria, as well as other critical success factors such as funding, transparency, accountability, sustainability, reliability and growth in the company – making NLNG arguably the most efficiently run Nigerian business in the industry.

From the above, we can safely conclude that Management is everything! It is fine for the FGN to own businesses in any sector, but the FGN has proved that it cannot manage business! Business is better left to be managed by the Business community to deliver the best results while Government retains regulation to ensure standards are not compromised and consumers are always protected from sharp practices.

Recommendations

Having X-rayed the factors responsible for the differing performances of the NNPC and the NLNG, the following recommendations are made which, if implemented by the FGN, will bring the NNPC to the level of performance of the NLNG and even surpass it because unlike the NLNG which is dealing solely in gas, the NNPC is an integrated oil and gas company which positions it for superior performance to the NLNG.

The FGN to excise from the NNPC the crude produced by the IOCs operating Joint Ventures (JVs) which the FGN has participating shares. Currently, the NNPC takes this crude, which is not produced by it, sells it, spends the money as much as they want, and only remits to the FGN any balance left! This encourages laziness and profligacy on the part of the NNPC as there is no motivation to make their own money, knowing that the crude that belongs to the FGN is there for them to sell and spend from the proceeds! The NNPC is to be left with the crude they produce via their upstream (exploration and production) company – the Nigerian Petroleum Development Company (NPDC) Limited.

The FGN to privatise the NNPC by selling at least 50% of the shares to Nigerian citizens and IOCs to pave the way for injection of fresh capital and Management to reposition the company for profitability under the same operating structure as the NLNG.

Currently, both the mission and vision statements of the NNPC do not contain the word profit or profitability! A business-like NNPC must be focused on delivering value and profitability to all the stakeholders. The name of the NNPC should thus be changed by removing “corporation” (which paints it as a government entity) and replacing it with “limited” (which connotes an entity geared up for profitability). The confusion about the NNPC being a regulator will also be removed.

The NNPC to be repositioned as the energy company for the future to transition into a global giant in renewable energy.

Nigeria is keeping her best brains in the private sector, and it is time to begin transitioning our competent and capable hands from the private sector to the public sector because it is the public sector that creates the enabling environment for the private sector to thrive. The current MD/CEO of NLNG Tony Attah, who received glowing tributes at the Train 7 ground-breaking ceremony is a Nigerian who incidentally is very well known to me as we worked together in the same team – Corporate Planning and Economics – for Shell Nigeria where he was Head of Department, and I was a team member. I believe that if I whisper into his ears to consider contesting for the governorship of Kogi State (his home state) so that he will replicate for the people of Kogi the monumental achievements he has posted at the NLNG, I will most likely receive a negative response. This must change! We must get our best people into the public sector too if we hope for a change in the trajectory of our nationhood.

Conclusion

If the FGN shows courage, political will, and foresightedness to implement the recommendations as above, it will transform the NNPC from a loss-making business entity to a profit-making cash cow. This is exactly what the FGN needs at this time of dwindling revenues as lamented recently by the Senate President. A privatised and repositioned NNPC will occlude the haemorrhaging of government’s revenues thus vitiating the need for borrowings but instead shore up government’s coffers with humongous dividends and taxes paid.

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