The Chief Executive Officer, Seplat Plc, Mr. Austin Avuru, has dismissed the relevance of the Nigerian National Petroleum Corporation (NNPC) in the current oil and gas industry dispensation.
Avuru stated in Lagos that “When you look at the totality of their (NNPC) involvement in the industry today,downstream that is dead, the mid-stream that has been clogged until now that the private sector is trying to revive it and the upstream where cost has spiralled and characterised by project delay, can we see today that the NNPC is a net destroyer of value in the industry.”
Avuru noted that in 1971-72 when Nigeria joined the Organization of Petroleum Exporting Countries (OPEC) and Chief Marinho was busy with his colleagues constructing the industry before becoming the NNPC MD in 1977, “his colleagues in Kuwait, Norway, Saudi Arabia were also constructing their own industries.
“Indigenous participation was one of what OPEC charter demands. That member countries should develop the industry with indigenous capacity.”
He said the intention then was that indigenous participation will take over NNPC. “Over that period of time, NNPC’s contemporaries like Saudi Arammco and others have developed strong partnership with
the International Oil Companies (IOCs) to run their industry efficiently,” he said.
He said during same period of time was when the refineries showed signs of inefficiency. “In June 1992, Prof Aminu was relieved of his duty because queues started occurring in petrol stations. In those 23
years things have moved only downwards to a point now where we don’t remember if our refineries are working at all.
“In the upstream, two critical factors account for soaring cost. Remember that in the 1980s, normal cost for crude was just about $4 per barrel. Today, cost has gone up. If you are efficient, it will cost you about $16 per barrel. Otherwise, it may cost you up to $18-$30 per barrel.
“Critical factors account for these are security issues in the Niger Delta and also the bottlenecks in the NNPC. Project delay, delay in approval and $5billion of cash calls in arrears that have not been paid to the point now where you ask the question: Is NNPC really adding value to the industry today?
“When you look at the totality of their involvement in the industry today, downstream that is dead, the mid-stream that has been clogged until now that the private sector is trying to revive it and the upstream where cost has spiralled and characterised by project delay, can we see today that the NNPC is a net destroyer of value in the industry.
“All of these have been happening at the time as I have said when the Chief Marinho’s colleagues were efficient in managing their industries so that today, Norway which has a GDP of $512billion has a Sovereign Wealth Fund (SWF) of $893billion; Qatar with GDP of $203billion has SWF of $256billion and Saudi Arabia with GDP $748billion has SWF of $762billion.
“Why I have given these figures is because these same countries have managed their economy better. They saved for the rainy day and today they can play the game they are playing while Nigeria is watching.
“Which means Kuwait and Saudi Arabia can afford to derive zero revenue from crude oil production over the next three years and survive because of their SWF. That’s why they are playing with the US to see who blinks first. We are watching helplessly with the SWF of $500million only (half a billion dollars).
“So if this oil price subsist for the next nine months, be sure we will go back to 1998 when salary cannot be paid, teachers will be out of school because schools will close,” he said.
On the way forward, Avuru suggested that the government looks inward and accept responsibility.
“We should try and look inwards and accept the truth. Government and its agencies must withdraw from the industry. They must restrict themselves to proper revenue collection.
“Management of the revenue for the interest of this and future generations and hand over the management and operation of the industry to the private sector fortunately now being led by indigenous sector.
“The prediction to have 1million barrels per day refining capacity will be achieved by the indigenous sector. Dangote is starting with 500000bpd refinery.
“When the NNPC has the courage to sell the refineries, those that will buy them will expand the capacity and will probably have the one million bpd production all led by the private sector by 2020.
“The upstream if we are refining half of our production, we are best able to absorb the next shock from low oil prices when the next cycle comes. Its always in cycle and we will soon get out of this one.
“The downstream handed over, the midstream we are investing heavily in gas distribution for power. When the government/NNPC finishes the business of providing gas infrastructure, they must be handed over to the private sector otherwise we will suffer the fate of current crude oil distribution infrastructure which does not function today,” he posited.
He concluded by saying “the future that I see if we are serious is a future where NNPC contracts into an efficient revenue collector for government and government itself will have the courage to manage the resources efficiently.
“Recognising that the oil and gas industry and revenue from it are catalyst for re-development and not the cause of development itself. If we do this, then we can save part of those revenue for the rainy day and plan well. We can seethis in the manufacturing sector where dangote has shown with cement that its not a rocket science.
“We are now gradually beginning to show that indigenous participation in the upstream coupled with indigenous drive in the downstream will be the future catalyst for our industry so that we keep the revenue here keep the investment here and we will have a healthier country post 2020.”
In his keynote address, the former Foreign Affairs and Petroleum Minister (State), Mr. Odein Ajumogobia (SAN), stated that “lack of investment based on JV structure in particular and the inability of the NNPC to always meet its financial obligations to the JV is a risk factor that will continue to affect the efficiency and well being of the industry.
He said the bigger threat to Nigeria however is the constraint to new investment especially in deep offshore or in unexplored basins deriving from the uncertainty of the commercial and fiscal terms that would attend any such proposed new investments.