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Multinationals can only ignore Nigeria at their peril, Barkindo

To describe Dr. Mohammed Sanusi Barkindo, Group Managing Director of the Nigeria National Petroleum Corporation (NNPC) as a very busy man would be stating the obvious even though this does not quite capture what I witnessed prior to my interview session with him.


I had been invited to his office on a Wednesday but we had to reschedule after I had waited all day because he had received the newly elected national executives of NUPENG and PENGASSAN, held a group executive council meeting, treated outstanding memos, only to be summoned by the Minister of Petroleum. Essentially, he just couldn’t find the time. The next day, I was ushered into his office at about 1:38 pm and after a perfunctory exchange of pleasantries, I sat down in the hope I could conduct the interview immediately and leave.

But each time I tried to engage him, we were interrupted by one phone call after the other and in between, he had to treat memos, hold short management meetings and receive one government official after the other. While waiting, I pondered the possibility of him being called away to the villa (Aso Rock), but my fear was allayed by one of his staff who volunteered they had been at the villa all morning. At about 5:23pm when he turned to me, it became all too obvious very little can be achieved by management of the corporation if the very same people who saddled him with this responsibility have to summon him at every turn to attend to their whims. In this interview with Hector Igbikiowubo, Editor, Sweet Crude, he speaks on the high points of his accomplishments one year after his appointment, a transition agenda at the NNPC, the PIB,  joint venture funding in 2010, outstanding work programmes and delay in contracting cycle, climate change, deregulation, gas supply for power generation and the delayed deregulation of the downstream sub-sector.

January the 12th marked your one year in office. Can you tell us the highpoints of your accomplishments during this period and what to expect in 2010?
Thank you very much Hector and happy New Year. I am pleased to have this opportunity to rub minds with you after this very eventful year. I saw my appointment on the 12th of January, 2009 by Mr. President as the preparation for the transformation of the NNPC in the context of the implementation of the Petroleum Industry Bill (PIB).

We therefore did not waste time in convening the first management retreat in Calabar with all our management staff. It included among other things the current state of the corporation as a cost centre, as an appendage of government, as a quasi government agency that has been operating since inception in 1977 to date and to prepare themselves for the transformation of the corporation into a full fledged commercial oil and gas company in the league of the most successful oil and gas companies in the world. The Calabar retreat produced among other things the 100 days initiative that sought to address some of the house keeping issues in order to prepare ourselves for the transition phase of the transformation and this lasted till the 23rd of December.

However, in the course of the year, we came across the real challenges as a result of the insurgency in the delta prior to the proclamation of amnesty. Unfortunately, as a result of those events most of our facilities, particularly the pipelines for crude, products as well as gas were almost completely vandalised and therefore hampered the smooth operations of our refineries as well as our gas operating facilities impacting heavily on the generation of power for electricity consumption.

Therefore, while proceeding with the transformation journey that kick-started in Tinapa with the embarking on the 100 days initiative, we were also battling with these challenges in order to stay afloat and continue to provide the services that we are supposed to provide as a national oil company. It was quite an eventful year.

Let’s look at going into 2010 with regard to implementation of the transformation agenda, we understand that in a few days the corporation will be unveiling a transformation agenda, what are we to expect?

Despite the challenges we are facing, we look forward to the unveiling of the transition phase of the transformation of the NNPC. We’ve been working with our consultants and we have set up an office with some capable hands working with the consultants and the rest of management in order to prepare ourselves for this programme and this programme was jointly designed by all of us in management being assisted by these consultants. The programme will commence with a transition phase and it covers the entire sectors from the upstream to the midstream and the downstream and it is corporate-wide.

It is expected to maximise the profit centres within the group of companies as well as corporate service units and at the same time, minimising the number of cost centres. And don’t forget that the whole corporation is currently a cost centre and one of the objectives of the transformation is to ultimately turn the corporation into a profit centre and that will entail; (a) maximising the number of the existing subsidiaries that can easily be transformed into profit centres (b) minimising as much as possible the number of cost centres, particularly at corporate headquarters and improving the level of efficiency of delivery of service of those cost centres.

The sum total of (a) and (b) will eventually transform the corporation into a fully capitalised, fully commercially run profit centre that will be governed by best practices, deploying technology to run its operations at headquarters as well as in the fields, both upstream as well as downstream and returning returns to our investors  the Federal Government of Nigeria who is holding this investment in trust for the people of this country.

I know that most of what you’ve said is either predicated or tied to the passage of the PIB. Does this programme you intend to unveil take that into consideration regarding timeliness of passage of the PIB?

That’s why if you heard the reference I made to the title of this programme  it is a transition phase of a transformation programme that will be implemented in phases. What we have been able to do in 2009 through the 100 days initiative is to prepare the entire corporation to radically streamline our cost.

For the first time in the history of this corporation, we have been able to record cost savings in excess of N27 billion within the 100 days initiative. You have to address the issues of rising high levels of cost in order to bring your book back to balance. By December of 2008 we had a corporation that was in the red to the tune of N326 billion. By all intents and purposes as an ongoing concern, the corporation was insolvent. So, going into a transformation, you have to first of all address this challenge.

And one way that we chose to do this was by looking at our cost profile in our operations, in our management, in our overheads we’ve been able to achieve N27 billion. The target that we had set for ourselves was N20 billion. So, we had even surpassed the target that we had set for ourselves and this is no mean achievement in a corporation that had been run as a cost centre that has sovereign guarantees from government, the cost was never a factor, we had managers who never heard of profit and loss. These are some of the prerequisites for transformation. Now going into this transition phase that will last till the middle of 2011, definitely the petroleum industry bill will be passed in due course hopefully and the entire transformation is within the context of the total reform agenda in the oil and gas sector.

How does this impact funding? I know that last year the NNPC was able to fund its joint venture cash call obligations through the modified carry agreement, this year, I recall having asked you this same question and you said hopefully we will be looking at the incorporated joint venture. But while that is still hanging in the balance, how will funding be determined? Will the corporation be limiting itself to the modified carry agreement and what budget are we looking at for this year?

We had submitted a budget proposal to government and we are awaiting appropriation by the National Assembly. In this transition phase, we thought we should at least maintain the current level of funding. From the treasury, $5 billion for JV cash call, $1.5 billion for domestic gas obligation, and the MCA commitment is in a rolling mode covering multi-year implementation of projects.

But because it is a transition phase, we also have to now begin to work out the modalities for the incorporation of the JVs and this we have already began discussing with the World Bank and the Minister of Petroleum Resources will be leading another delegation to the EU because these two institutions are major stakeholders and their participation in the incorporation of the joint ventures and their endorsement of the reforms in the oil and gas sector are also fundamental to the integrity of the entire reform agenda and they had already offered some technical assistance because to incorporate each of the six joint ventures, you will have to at the end of the day come up with a variety of models.

They may not look similar, depending on the participants involved. But during the transition phase, we will now begin to see the phasing out of the so-called joint venture cash calls because the independent joint ventures would have been in a position to raise funding from the capital and money market. And thereby save the economy from the high level of haemorrhage through cash calls.
You would recall that government had some years ago set a target that by 2010 the oil industry would achieve 4 million barrels per day production level and 40 billion barrels crude oil reserve. What do you see us accomplishing this year given current realities?

I think we are almost there despite the challenges we’ve had in the delta in terms of the high levels of insecurity that impacted on work programmes during the course of 2008 and 2009 because at the moment, our capacity is in the region of 3.6 million barrels per day and the reserve is in the region of 37 billion barrels. So, we are almost there despite the negative consequences of the insurgency which shut down operations for several months in the course of 2009. I believe we are on course.

Before your tenure and even throughout last year, the perception that projects had been unduly delayed persisted. I am talking about work programmes. Engineering firms and other Nigerian content companies continue to complain that the cycle of project conception to award phase takes as long as 36 months or more and this has a debilitating impact on their ability to remain in business and retain their workforce. What are you doing to address these concerns?

I fully agree with that assessment. At the core of our challenges is our ability to design and implement projects within time and cost specifications. Our performance has been very poor and I think it is across the country as you can see in the capital budget performance. There are a variety of factors that one can attribute to this  the issue of capacity is one and the issue of the process is another. On the process, particularly on the upstream, earlier in the year we had identified this as a serious problem and decided to set up a committee to review the contracting cycle and come up with a streamlined process that is compressed, that is flexible and simple, without compromising the integrity of internal control and in accordance with due process.

That is ongoing. The other factor that is a major militating factor against our ability to implement projects within the time frame is the issue of capacity. Project management is a specialised skill. It is not a skill that you can rely on theoretical credentials and people have to develop that capacity in the course of implementing those projects. Now because our joint ventures have been ventures in which the national oil company has been operating, our capacity has been limited to management, supervising and monitoring. This must change. For example, in the gas sector for the first time we have set up a gas and power directory.

We are exploring an avenue whereby we bring in tested hands from the industry to beef up the capacity of the gas and power directory. Because a number of the projects especially in power and gas to feed the power stations would be at risk if we are not able to get the right personnel and the right process to carry through these projects. So, we are hopeful that the combination of both will enable us to improve on the capital budget implementation in 2010 going into 2011.

Recently, the Shell Group managing director was quoted as saying that the group has decided to de-emphasise Nigeria as the country that will drive growth in its production and that ties into the company’s recent talk of asset sales in the country. Last year at the height of concerns expressed about the unfavourable terms contained in the PIB, we heard the multinational oil companies may have decided to starve Nigeria of investments until the picture is clearer. What are you doing to inspire confidence and get these our partners to continue to see Nigeria as a country that would drive growth?

In terms of below ground resources, hydrocarbon resources, if you take a survey of the global picture, you will see that the Gulf of Mexico has already matured, you will see that it is gradually and steadily diminishing because of aging reservoir. Russia is battling with its own internal and technical challenges, the Gulf as a matter of policy is not interested in addressing an accelerated programme because they look forward to the industry being the engine of growth not only for current generations but for future generations. The only region that has potential for growth is the Gulf of Guinea and nearly 50 per cent or more of the Gulf of Guinea is Nigeria. Therefore, for any multinational to as a matter of conscious policy, decide to ignore Nigeria will only do so at their own peril.

Now the issues of uncertainty raised is a result of the impending legislation and the changing fiscal regime in the upstream. That may be valid, but only to an extent – to an extent that the bill is in the National Assembly, it is awaiting passage. But until it is passed into law, you cannot say that this is the fiscal provision that is in the law.

But apart from that, we have had the opportunity to engage the joint venture partners and the entire industry on the most extensive consultation on the provisions of the bill that we can ever think of. So, they are fully involved and know all the details of what is being proposed to government. Therefore, to use the bill as a cause of uncertainty that impacts on their investment decision is very far fetched.

We look forward to the quick passage of this bill and we are confident that the National Assembly in due course will pass the bill despite the number of bills that are pending before them which are equally important. And as soon as that bill is passed, we will continue to work jointly with our joint venture partners because they are the same partners that will form these IJVs. And this is a framework that is designed with their full participation.

What can we expect regarding the development of some outstanding projects such as the Brass LNG, Olokola, Usan, Bonga SW, NW and a few others?

Despite all the sentiments and the propaganda on the petroleum industry bill, it is a bill that will radically change the constitutional, the fiscal and regulatory framework of the entire oil and gas industry that will position it on the path to growth and development. The opportunities that this bill will unlock from this industry are immense and Nigeria is a place to be at this time.

Recently, you were in Copenhagen for the World Climate Change summit. Issues surrounding the environment are subjects that you are passionate about. Either fortunately or unfortunately whichever side of the argument tickles your fancy, Nigeria still lacks a coherent policy on climate change, except for pockets of views expressed by people like you. How can you reconcile your position on climate change with constant gas flaring from your operations?

Thank you very much. The 15th conference of the parties to the UNFCC and the 5th conference of the parties to the Kyoto Protocol that took place in Copenhagen in December gave us yet another opportunity to interact with the international community in a more transparent manner not only to explain some of the issues and challenges we are facing particularly in the gas sector because of gas flaring. The bottom line is that government and industry are fully aligned to the eventual flare out in our operations.

Both government and industry are also conscious of the fact that to reach the desired flare out, you need a programme as projects that will monetise these gas resources. This cannot be done by executive fiat or legislative pronouncements. It is the project that you design and fund that will monetise this gas resource that will eventually lead to the flare out.

And the national gas master plan that was unveiled by government and industry has as its ultimate objective, a total flare out in Nigeria. We urge the international community to partner with us to participate in this emerging industry in Nigeria because the gas sector is an emerging industry of its own and the Nigerian gas master plan provides the international community a platform through which they can invest in this emerging sector. The future of this country lies more in gas than in oil.

Looking at gas, last year was dogged by epileptic power supply owing to gas supply constraints and this has been laid at the doorsteps of the Nigeria Gas Company, one of the corporation’s subsidiaries. How far has the NGC gone in addressing gas supply constraints to the thermal power stations across the country?

The NGC is not a gas producing company; it is a gas transmitting company. The domestic gas supply obligations as agreed with industry in 2008 was 1.2bcf (billion cubic feet) is the figure that would have enabled us achieve 5000 Megawatts of thermal generation of power. Out of this 1.2 bcf, as a result of this insurgency, we have lost about 485 million scf (standard cubic feet) which we are now working with our partners, particularly Chevron in order to restore.

Once we are able to restore this volume and secure our pipeline, particularly the ELPs (Escravos-Lagos-Pipeline), we will be able to secure and surpass this target. And from the reports that we have been receiving, I think we are almost there.  Within this quarter, all things being equal, we should be able to provide the required volume of gas at the right specification.

Let us shift attention to the downstream. Some of us in the media feel that government has exhibited an uncanny degree of lethargy regarding the implementation of the deregulation programme. How has this impacted the ability of the corporation to meet its obligations of fuel supply and distribution especially in the face of commercial challenges posed by regulation?

Well I think government in all fairness as far back as last year, had taken a conscious policy decision to deregulate the downstream sector. I have had the opportunity of participating in several of those meetings with government, where together we took a comprehensive and holistic review of the entire downstream sector. Just as we did in Lagos last week in a forum of the industry and we came to a common conclusion that the vast majority of the factors that are militating against the successful operations of the downstream sector are factors that are attributed to a regulated regime.

So long as you continue to have a regulated environment, you would continue to face these challenges. Therefore, the decision that government took in principle last year still stands.

What government directed agencies to do including ours was that because this is a policy decision that affects everybody, because deregulation is of strategic importance as well as commercial importance, we should engage on widespread consultation and this we have been doing over time and I think in due course, government will finally give us the go ahead. But I think we must give them the credit for trying to bring on board all interested parties, all stakeholders.

But I think they also know that in a plural society such as ours, it’s almost impossible to get everybody on board. But at the end of the day, I think everybody would have been consulted.

What is happening to one of your predecessors’ bio-fuels initiative? I had expected that it will be one of the things upper most on your agenda given your bias for protection of the environment.

The bio-fuels projects and initiative are ongoing. These were programmes which the government in their own responsibilities decided to get the national oil company to embark upon. Going into this transformation, into a commercially driven entity, these are some of the issues that the national oil company must decide on the funding because it is supposed to be a strategic intervention at the moment.


Comments expressed here do not reflect the opinions of vanguard newspapers or any employee thereof.