NNPC Value Creation Potential High With Right Sector Governance, Fiscal Regime – Dr. Akinpelu

Dr. Akinpelu

Dr. Lateef Akinpelu of the Centre for Petroleum, Energy Economics and Law (CPEEL) and lecturer at the University of Ibadan, is the Lead Researcher on a study funded by the Nigeria Natural Resource Charter (NNRC) to access the Nigerian National Petroleum Corporation (NNPC) contribution to the Nigerian economy. In this interview with e360 in Ibadan, he speaks on the outcomes of the research. Excerpts



What methodology was applied in conducting this research and what are the major outcomes?

What we did was to start from a premise of NNRC precept six, which is that does the National Oil Company (NOC) have clearly defined roles by government, and is it provided the funding to do its job very well? We also did an overview of the Nigerian oil and gas industry as to the scale of how much oil and gas is produced and we looked for a theoretical framework of value creation for NOCs. We also did a benchmarking of NNPC with some selected NOCs and we used the performance data for 2016 to do an econometric survey. The major outcome is that the value creation potential for NNPC is very high, the resource endowment is extensive. If the sector governance is right, if the fiscal regime is there we can begin to realise that value. One of the first things that has happened which is the passage of the Petroleum Industry Governance Bill (PIGB) is a step in the right direction. It has removed a major uncertainty, because if we don’t have this uncertainty investors can come in and fund the industry such that the reserve base will improve, production capacity will improve, and if something can be done as to improve the capacity utilization of the refineries too, we would be capturing more and more of the value chain

To what extent will a change in NNPC ownership structure help improve its value creation?

Like the research suggest, ownership is one of the variables in terms of any organisations performance. Private sector organisations ownership tend to outperform wholly government sector ownership. We found in the research too that a wholly owned NOC like Petronas have very strong backward and forward linkages, so ownership is not everything. In addition to private ownership of the NOC, you want the systems and the processes to be in place to support that, so it’s a whole basket of ownership, systems/processes, management as well as the independence from political interference of the organisation

Will strengthening the institutions as against the personalities will help improve the sector?

That’s what we call the systems and processes, in actual sense we are referring to the institutions. The institutions have to be very strong, they have to be empowered so that regardless of who is there, things will work normally. That’s what’s happening in the other sectors in which performance are on the high side. The institutions are very strong and they serve as a reality check and a benchmark to do better in terms of organisational performance

In terms of value creation, a lot is being said of how well local content has improved in the sector, did your findings substantiate this?

What we found is that in terms of local content development we still have a lot to do because the oil industry depends on hundreds of services and all of these are specialised services in terms of logistics, reservoir management and production management. They are so many that it’s going to take quite a long time and sustained disciplined actualization of the vision towards a very strong local content development. That’s what going to make the effort sustainable in the long run. You need technology acquisition, skills and competencies development and that’s going to translate into employment generation and sustainable development of the local content sector. And that is also what provides you with a linkage to the rest of the economy because when all of this starts to make an impact into the rest of the economy you have very strong linkages which now goes beyond mere revenue generation

Give more insight as to how the LNLG management model can possibly be adopted to manage the poor performing refineries

The LNLG model seems to be similar to the other NOCs we looked at, in that if you look at the management of the LNLG you have different people who came together, the IOCs, the NOC, and NNPC have some share in it too. You also have this management and systems/processes that make NLNG as an institution work. NLNG is so market driven that it has to perform just like any similar organization anywhere in the world and that why it’s been able to capture 10percent of the NLNG market for Nigeria, and has been able to contribute so much to the economy. So it’s not just ownership, it’s also the systems and the processes, the management, the independence of the Board to make the right decisions on behalf of the company. That’s the NLNG model, they keep working at it, now they are up to 8train.  It is a commercial orientation

Is there any NOC that you think the NNPC can model after to improve its performance?

Most NOCs we think are doing well now did not get there overnight, it’s a journey, its’ never a destination. Somethings work for Statoil and they are where they are now, they are strongly technology focused. Somethings are working for Petronas; although Petronas is wholly government owned it has very strong backward and forward linkages and that’s working very well there which you don’t find in Statoil. Statoil is technology competence and skills acquisition focused. Also Brazil’s Petrobras is focused on deepwater technology excellence, so I think the NNPC needs to look at what is working in several NOCs and develop a hybrid on its own, taking into consideration its own peculiar environment. Probably, maybe the NNPC can look at the NLNG and see what’s working for them because NLNG is in our own environment and must be experiencing the unique characteristics of this environment. So let charity begin at home

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