Nigerian oil: cutting out the middlemen

Changes at the top of Nigeria’s state-owned National Petroleum Corporation are signs the sector is starting to make bold reforms.


Follow a barrel of Nigerian crude from its origins in the southeastern Niger Delta to the international petrol pump, and there’s a strong chance you will end up in some unexpected places.

Whether it falls into the hands of unauthorised middlemen or racketeers siphoning off oil from pipelines, Nigeria’s state-owned National Petroleum Corporation (NNPC) has long failed to keep track of its oil – and the enormous profits it accrues.

But after decades of systemic failure and an organisational structure riddled with conflicts of interest and outright fraud, the appointment of private sector veteran Emmanuel Ibe Kachikwu as general managing director has sparked guarded optimism that the NNPC may finally submit to urgent reforms. 

“I think Mr Kachikwu is exactly the right kind of professional that is needed at the NNPC at this stage,” says Damilola Olawuyi, director of the Institute for Oil, Gas, Energy, Environment and Sustainable Development (OGEES), where Kachikwu serves as a board member.

“The NNPC has been seen as a very corrupt, non-transparent organisation…when you have this perception problem you need someone with a track record of success at a personal and professional level. That is what Dr Kachikwu represents.”

Kachikwu’s rise to the top of Nigeria’s crucial but chaotic industry began with studies at the University of Nigeria Nsukka and the Nigerian Law School. His formidable academic record led him to a doctorate at Harvard Law School before later serving in a senior legal role in Texaco’s Nigerian business.

Latterly serving as executive vice-chairman and general counsel for ExxonMobil Africa, Kachikwu’s appointment at NNPC represents the latest attempt to bolster the anti-corruption credentials of President Muhammadu Buhari. 

The scale of the task facing Kachikwu was made apparent during the week of his appointment, when the New York-based National Resources Governance Institute (NRGI) released a damning report on the NNPC that revealed a web of corrupt middlemen, hidden accounts and the widespread export of oil intended for the domestic market.

“The new head of the NNPC has a huge task ahead of him. The company loses money for the country in myriad ways, and with oil prices what they are, Nigeria cannot afford for these losses to remain in place,” Alexandra Gillies, director of governance programmes at the NRGI, told African Business.

A month into his leadership, signs abound that Kachikwu is beginning to get to grips with the scale of the task at hand. In a frantic burst of activity, the new chief cleared out the institution’s executive ranks, slashed senior managers by a third and dissolved the ineffective board. The NNPC raided the ranks of the private sector for new talent, attracting executives from Shell, Statoil, and other international companies.

Among the most egregious practices earmarked for urgent intervention was a series of crude-for-products swaps worth some $35bn between 2010 and 2014.

With the support of President Buhari, the newly emboldened NNPC cancelled a raft of such deals while trimming export contracts from 43 to 14 in a direct assault on the patronage networks that underpin the company. Yet analysts are far from convinced that Kachikwu’s initial moves amount to a fundamental overhaul of discredited practices.

“The early moves by the new GMD are uneven, and it is hard to discern a direction of travel so far. They have cancelled the problematic swap agreements, which is good news. But it looks like they will continue to use a type of swap that is poorly suited to Nigeria’s needs,” said Gillies.

Dolapo Oni, head of energy research at Ecobank, believes that the new leadership is proving “very focused and direct” – but that the initial reforms barely scratch the surface of the NNPC’s fundamental problem – a lack of modern infrastructure.

In particular, improving the productivity of Nigeria’s four state-owned refineries – a decrepit network responsible for processing a meagre 100,000 barrels per day – will be essential for turning around the NNPC’s fortunes. As a result of the long-term decline of the refineries, the NRGI estimates that some three quarters of domestic oil is shipped abroad. Yet observers have been surprised by Kachikwu’s decision to rule out privatisation, instead placing his faith in an engineering programme designed to rehabilitate the dated plants.

“Most of the things that function 100% in Nigeria are privately owned”, says OGEES’ Olawuyi. “If that is the case we should encourage the private sector to invest in and operate refineries.”

Kachikwu’s controversial stance on privatisation hints at a man unafraid to make the big calls – an attitude that will come in handy as the company moves further along the path of comprehensive reform.

As well as formulating strategies to deal with pipeline theft, environmentally costly gas flaring and the potential cancellation of crippling fuel subsidies, Kachikwu’s voice is likely to prove highly influential in the long-overdue debate over the crucial Petroleum Industries Bill. Mired in legislative debate for years, the Bill envisages a new legal framework for both the NNPC and private operators in the country.

“The NNPC needs to move fast to address the fiscal terms contained in the PIB and if possible push that through the senate or at least renew the licences for the IOCs whose licences are still yet to be renewed for the normal 20 years,” says Ecobank’s Oni.

That decision could be part of a wider recasting of the uncertain relationship between the private sector and the NNPC – an organisation caught between the roles of regulator and oil fields operator.

Yet with President Buhari seemingly dedicated to turning a new page on the NNPC, his support could prove crucial in pushing through painful but necessary reforms.

“With the strong and direct backing of the president. I expect them to be able to achieve more than previous heads of the NNPC,” said Oni.

An early test of that relationship will be the outcome of the president’s bid to track down billions in missing NNPC revenues. But given the scale of the task, no one is underestimating how long that, or the wider reform process, could take. 

David Thomas

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