NNPC: Achievements and Contributions to the Nigerian Economy

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The Nigerian National Petroleum Corporation (NNPC) announced in October last year that the much-anticipated Okpai Power Plant in Delta State, the largest gas-power initiative in the African continent, is on the verge of becoming operational. The two phases of the project that would together generate 1,000 MW of electricity on completion is being implemented under the Clean Development Mechanism Protocol of the UN Framework Convention on Climate Change. The rare achievement, which marks a significant milestone in the country’s infrastructure development, reconfirms NNPC’s position as a principal driving force behind the Nigerian economy.

The state-owned NNPC provides fuel to industrial facilities, commercial enterprises and individuals, with operations that cover the extended spectrum of the Nigerian petroleum industry. An extensive brief tasks it with all aspects of production, distribution and marketing, besides training workers, managing oil leases, encouraging indigenous participation, ensuring uniform pricing in local markets and exploring allied industries, among other things. With sales totalling $2.6 billion in 2005, it is a major revenue earner for the government that additionally provides employment to over 15,000 people. The company’s history goes back to 1971, when the Nigerian National Oil Corporation (NNOC) was created after the country signed on to be a member of the OPEC.

Six years into its existence the company was renamed to its present avatar, while the government went on to decentralise it into nine subsidiaries in 1981. Over the next two decades, the NNPC significantly augmented its holdings in multiple oil ventures amid sustained attempts to make it a financially autonomous and commercially integrated entity. However, even as foreign oil companies clamoured to invest in Nigeria, the NNPC faced severe challenges due to political instability, inept governance and massive corruption.

The evolution of NNPC into present day is also a story of grave mismanagement, severe operational failures and frequent scandals. Investigations by the 1980 Crude Oil Sales Tribunal found widespread irregularities that cost the government over $2 billion in revenue losses. The company was the subject of international censure the same year when one of its offshore wells was involved in an oil spill that resulted in the deaths of 180 people. Relations with international oil companies soured over disputes that saw the incarceration of the then Nigerian minister of petroleum resources in 1990. The oil and gas sector was understandably the focus of reforms unveiled at the beginning of the new millennium, by which time the company’s frequently exposed malpractices caused it to be viewed with widespread popular disdain. A series of layoffs ensued between 2003 and 2005 when several thousand employees were let go. Around the same time, the NNPC enthusiastically started out several joint ventures in offshore drilling and gas production.

Despite its chequered past, the company has been responsible for significant achievements in Nigeria’s economic development:

* NNPC oversaw the country’s first equity stake in oil production with the Agip Oil Company in the mid-60s to better exploit resources for national development.

* It spearheaded oil exploration to confirm Nigeria’s position as the top crude exporter in Africa in the 1970s, boosting oil revenue from N200 million to N10 billion through the decade.

* In 2004, the NNPC unveiled plans to launch the ambitious West African Gas Pipeline to supply Nigerian natural gas to several neighbouring countries.

* Nigeria emerged as an important exporter of natural gas with the establishment of the liquefied natural gas plant in Bonny in 2005 as part of efforts to end gas flaring by the end of this year.

* NNPC entered into a $1 billion joint-venture in the offshore Agbami fields to increase national crude production capacity by a further 250,000 barrels per day.

* Through its recent Okapi Power Plant, the NNPC will generate the first carbon credit in compliance with the Kyoto Protocol and related UN resolutions.

While the NNPC looks set to achieve more significant landmarks in the years ahead, its performance faces tremendous pressures from both within and without. The company’s future hinges on its ability to identify and capitalise on new opportunities that are in line with Nigeria’s plans for accelerated development. Its sphere of influence on almost every aspect of growth bestows on it critical significance in the context of Nigeria’s goals for universal basic human rights. Although much government effort in recent years has been devoted to reversing the country’s traditional dependence on non-renewables, the oil and gas industry is predicted to grow exponentially over the next few years. With oil accounting for 81% of present government revenue, the NNPC has a major role to play in reversing decades of economic stagnation and driving massive entrepreneurial growth. Curious as it may seem, it is oil revenue that funds Nigerian government initiatives to diversify the economy and achieve rapid enterprise revolution across non-oil sectors. With NNPC confident of improving known crude reserves from 36 billion barrels to 50 billion barrels by 2015, the sector assumes all the more importance.

Revamping the oil and gas industry into an engine for job creation, poverty alleviation and rapid national growth has to be one of the fundamental objectives of the NNPC in coming years. Optimising its performance over the next decade calls for detailed review of several considerations:

* Enhancing access to capital and technology and promoting independent control of joint-venture investments.

* Multiplying gas production and improving transmission to both domestic and regional gas markets.

* Establishing strategic partnerships with global gas companies to secure presence in international markets.

* Achieving production efficiency and selective growth to improve capacity in joint-venture operations.

* Rationalising the NNPC portfolio to ensure focus on high-growth potential assets.

* Extending refineries and gas-based industries to help turn Nigeria into a regional hub for petroleum products.

* Reducing operational constraints and production suspensions resulting out of vandalism and violence.

* Implementing further reforms in the oil and gas sector to improve transparency and boost investor confidence.

One of NNPC’s biggest challenges is providing a level-playing field for investors in Nigeria, both existing and new. In this connection, the proposed Petroleum Industry bill and amendments to the country’s tax regime are expected to go a long way in further opening up the sector to foreign investors.

Reforming the NNPC into a commercially aggressive entity will require further reforms, especially to improve internal regulatory authority and deter corruption. Political instability has obviously been one of the major hurdles in the company’s performance, and Nigeria must ensure its independence from partisan or bureaucratic interference. That NNPC has a critical role to play in furthering Nigeria’s economic interests is without question. What remains to be seen is how far it is able to deliver on this promise!

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Source by Peter O Osalor