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Against the backdrop of the aspiration of the Nigerian National Petroleum Corporation, to become an intergrated oil company, Chairman, International Energy Services, Dr. Oladiran Fawibe, in an interview with Martin Ayankola, says the NNPC must strive to be successful locally before going global.

How would you assess the recently announced plan to transform the Nigerian National Petroleum Corporation into a strong local and global player?

The transformation is part of the oil industry reform already encapsulated in the Petroleum Industry Bill currently before the National Assembly, and is expected to be passed into law very soon.

The whole philosophy of oil industry reforms is to reposition the Nigerian oil and gas industry to galvanise the Nigerian economy, not only in terms of generating revenues and foreign exchange earnings to the Nigerian governments, but also to increase the level of economic growth and development, through infrastructural development, technical know-how, empowerment of Nigerian people in terms of effective participation in the oil and gas industry whereby Nigerians will not be mere 'hewers of wood' and 'carriers of water'. It will also involve Nigeria using its oil and gas resources to advance its national interest through enlightened foreign policies, by playing its role among the international communities, as well as maintaining better environment particularly in the oil producing areas. Nigeria is expected not only to maximise its economic benefits from the exploitation of its oil and gas resources, but also promote a healthy environment and maintain socio-political stability and cohesion within the country.

The transformation of NNPC is one of the instruments to achieve some of these goals. It is a set of reforms, as you may be aware, not confined merely to NNPC; but the transformation of NNPC into a strong and virile national oil company that is able to meet the aspirations of Nigerians is very fundamental.

In what way will the transformation affect the image and operations of NNPC?

As you may be aware, NNPC had a predecessor in the Nigerian National Oil Corporation, which was established by a Decree in 1971 by Yakubu Gowon Administration. This was about the same time that Nigeria joined OPEC. The corporation went into operation about the middle of 1972 when it started to recruit the first set of its employees, and immediately thereafter with the recruitment of more senior employees, it began to roll out its programmes to actualise the dreams of the founding fathers. This corporation at the time had the aim of a fully integrated national oil company that would engage in oil exploration, refining and marketing of petroleum products.

The NNOC was merged with the Ministry of Petroleum Resources in 1977 to form the NNPC, which we have today. But if you look at the history, the performance and the achievements of the NNOC during its life-span (1972 - 1977) in relation to the set goals, or NNPC since July 1, 1977, you will see serious limitations, or some lacklustre performance in relation to its main objectives. NNPC has not been made to focus on the basic functions that would have made it a fully integrated national oil company, or a commercial oriented organisation envisioned as a major player in the oil and gas industry. Its major role over the past decades has been more or less the supervisor of the IOCs activities being carried out by the international majors, and lately the indigenous oil companies. For example, as regards oil exploration and production, NNOC started well by taking some of the oil acreages vested into it and not being worked upon by the multinationals as its oil field territories. At the initial stage, it carried out series of exploration activities in the Anambra Basin, Chad Basin, and some blocks in the Niger Delta. Some of the initial efforts were not substantially rewarded, that is, the Chad Basin expedition, the Anambra Basin, which had predominantly gas reserve, which at that time was more or less an unwanted product. Some of the oil blocks worked upon in the core Niger Delta with some promise were later given to some Nigerian entrepreneurs with mixed background.

The only legacy from the various exploration efforts of either NNOC or NNPC has been the oil fields currently being exploited by the Nigerian Petroleum Development Company, a subsidiary of NNPC. The success achieved here in terms of oil production was partly due to its active collaboration or alliance with AGIP Energy Resources, its partner, in Edo, and some other areas of the Niger Delta. There is absolutely nothing wrong with the strategy of NNPC in this type of partnership as it is far better to partner to develop its field, grow its assets both in terms of reserve and production capacities, as well as enhance its competence, both technically and managerially. The end result has been that NNPC has not been able to become a dominant factor in the upstream sector of the industry as a major producer of oil and gas.

In the refining sector, the only refinery in existence before NNOC/NNPC was the old Port Harcourt Refinery, which was established in 1965, with installed capacity of about 35,000 barrels per day, which was expanded to 60,000 barrels per day in the 70's. This refinery itself was taken over by the government and handed over to NNPC, and became a subsidiary of the corporation. The other refineries - WRPC was commissioned in 1978, KRPC and the new Port Harcourt refinery with a capacity of 150,000 barrels per day were commissioned in 1980 and 1989 respectively. All these refineries were built, owned by Nigerian government, and operated by NNPC. We all know the problems of these refineries over the years with the situation as of today that they could not produce refined products to meet the needs of the Nigerian market. This has necessitated the massive importation of petroleum products with the end not readily in sight.

What about the aspiration of NNPC to be a global player?

The aspiration and ambition of being a global player is indeed very desirable if NNPC can be allowed and empowered to work towards achieving this. However, there are basic prerequisites or pre-conditions among which is that global companies usually start as strong national companies within their respective countries. It is this strength that they project and expand to foreign territories. We usually talk about Petrobras, Petronas, Statoil as global oil companies, but these state oil companies merely expanded their local strong status across their borders and became effective as international players. If you do not have a strong base in your country or you are not major local player, aspiring to go to foreign territories, to me will be a mirage and frustrating endeavour.

For example, the case of refining sectors, if NNPC cannot operate its domestic refineries to be able to supply products to the local markets, how we can reasonably expect it to be a major supplier of products to the international markets, or even say West Africa sub-region where there is demand for petroleum products? Afterall, this is one of the areas where you can be a global player, just like PDVSA of Venezuela. If we talk about the upstream sector, you must have a deep pocket for you to be able to go out there to foreign territories, bid and win oil blocks or acreages to explore for oil and produce. With the hand-to-mouth status or cap in hand and begging for fund from government, one can hardly see the prospect of being very proactive in foreign territories. And having a balance sheet to leverage for loan in the international capital market does not mean that you will be able to raise loan to pay high signature bonuses, purchase quality data and undertake serious exploration. You need focus, commitment, and tenacity, which are usually scarce commodities with government enterprises in this country.

Within the year, I quite appreciate that one of the strategies to be adopted by NNPC in promoting the upstream activities is by way of going to the international capital market to raise fund. I still find it intriguing that the Nigerian government takes its revenues either by way of royalties, tax payments, and surplus funds from NNPC crude sales, together with the revenues generated from the oil companies, and yet NNPC was never allowed to meet its cash-call obligations or not willing to put substantial fund back into the industry ostensibly on the basis that government requires these revenues for developments such as the provision of social services and infrastructures, which are hardly there. You could hardly depend on government funding to engage in serious upstream adventure in foreign lands and make significant impact. NNPC and the Nigerian government must do their own work properly before venturing into foreign territories.

Also take the case of provision of services, some years ago, Integrated Data Services Limited, a subsidiary of NNPC was bidding for jobs abroad with some remarkable success, which ought to have been pursued with focus and vigour. A situation where NNPC is breathing heavily on the IOCs to secure jobs for its subsidiaries at the expense of other Nigerian companies can hardly be helpful in enhancing the position of NNPC in project competitive market or international petroleum arena. In other words, its subsidiaries must be made to compete with other service companies to win jobs, fair and square, instead of goading the IOCs into awarding jobs to its subsidiaries, who would grudgingly go along out of fear of upsetting NNPC and cause problems for themselves in other business areas. NNPC must make its subsidiaries become entities with extremely high technical standards, open, and be comfortable to partner with.

So the transformation of NNPC therefore, while it is very desirable and a reflection of strategic thinking on the part of the architects of the policy, must ensure that it is pursued to meet all the conditions that will make it realisable. In the first place, NNPC must strengthen its position locally; afterall, it is often said that charity begins at home. If NNPC is abused and derided locally for incompetence and ineptitude, it will be difficult for it to gain respect and confidence in the international market, where it has to compete either to produce oil, or engage in the downstream sector. The national oil companies such as ARAMCO of Saudi Arabia, PVDSA of Venezuela, PEMEX of Mexico and Petrobras of Brazil have all strong national or local base, which earns them respect in the international markets.

We often talk of some national oil companies of foreign countries with admiration. It is simply because once they envision and chart the course of their programmes and strategies, they pursue them with focus and tenacity. Petrobras of Brazil and Petronas of Malaysia have pursued their aspirations and ambitions of being international oil companies. Taking Petrobras as an example, the Brazilian Federal Government took 56per cent equity in Petrobras after its partial privatisation programme in year 2000. Now, Petrobras is acknowledged and respected as global leader in deepwater exploration and development and won an award for this achievement some few years ago at the Offshore Technology Conference in Houston.

Again, Saudi Aramco is a fellow Organisation of Petroleum Exporting Countries' member national oil company. Aramco is widely recognised and respected around the world, not just because of the enormous resource base to which it has access, but also its overall competence. Saudi Aramco is generally regarded as a highly capable company, technically and managerially.

How do you think NNPC can strengthen its position as soon as possible to make it a global player?

In the first place, it is expected that the Petroleum Industry Bill will soon be passed into law to give a legal teeth and kick-start the transformation process. The inauguration of this arrangement should go along with the capitalisation of NNPC Limited using its balance sheet to be able to raise funds to carry out its operations. The local banks or financial institutions must be willing to support NNPC while the corporation in turn must quickly develop a corporate structure and governance that will engender confidence of both local and international financial institution.

It must transform from being mere custodians or managers of government assets in the IOCs to a full or total commercial entity that is able to compete head to head with the IOCs, albeit with government interest for access to resources and markets. NNPC must develop to the status of a major oil and gas producer in the country, and not through appropriation of equities of government in the IOCs. With this strong home base, it can seek the mandate to expand its operation to foreign territories.

Government on its side must be willing to let go. Yoruba people used to say that when you sell a goat, you must release it with the rope tied to its neck. If NNPC is still tied to the apron string of the government and operating under its shadow, it may cast a negative shadow over it, and may therefore not be taken too seriously when it gets to raising big money that will enable it to her make a difference either locally or even to partner with international oil and gas companies. NNPC must recognise that the rules of the game will change. It will now be under the scrutiny of the financial markets, and consequently always have to produce results.