By Ediri Ejor
LAGOS—Political involvement in the management of Nigerian National Petroleum Corporation, NNPC, can lead to a rapid turnover in key staff, and create difficulties in the ability to execute strategic initiatives, a new report by PricewaterhouseCoopers has said.
The PwC report, entitled ‘The new nation builders: Creating the African national oil company of the future,’ said NNPC’s financial position had been a problem, given the low oil price environment, as with other national oil companies.
It said though NNPC obtained funds from diverse sources, including the government, financial institutions and dividends, low oil price had led to an inability to meet cash calls on a number of joint ventures.
“Issues relating to business irregularities (for example, sales of crude by non-approved entities) may have impacted the inflow of investment,” the report said.
The PwC analysts, however, said the corporation’s comprehensive business operations across the value chain had enabled it to develop strong technical and operational capabilities and mitigate operational costs and reduce dependence on third parties.
“This, and the NNPC’s commercial flexibility and understanding of local requirements, has supported the successful establishment of a range of product-sharing agreements.
”The NNPC maximises participation of locals through implementing the Nigerian content policy. Local content development has become a key strength.
“The NNPC wants to leverage its position in having the largest reserves in the region to becoming the pre-eminent oil and gas company in its technical and commercial capability and supply of hydrocarbons across Africa.
”The NNPC intends to reform refineries to improve margins and increase the volume of petrol being trucked out to fuel stations across major cities to ease distribution operations,” the report said.
Noting that a proposed new Petroleum Industry Bill was set to define the legal and regulatory framework for the Nigerian oil and gas industry, the PwC said, “This has been in the works for years, creating uncertainty. Passing it will create an enabling environment and encourage international oil companies to make additional investments in the sector, particularly in exploration.
The analysts said the Petroleum Industry Governance Bill, which was recently passed by the Senate, called for a restructuring of the business to split the NNPC’s regulatory and operational roles.
“This is an important governance step. The NNPC’s role will change further as the bill is finalised,” they said.
According to the report, regulatory bodies should also be separated from the NOC, and this will remove potential conflicts of interest and help encourage foreign investment through transparency.
It said, “The NOCs in Africa stand on the brink of significant disruption – and of substantial opportunity – as a new era of structurally lower oil prices challenges business models that have long relied largely on exploration and production of hydrocarbons, especially ‘black gold’ (oil).”
The PwC said African countries that had for decades depended on their NOC as a key source of government revenue would need to rethink business models to avoid being captive to a single energy source and to allow them to rebalance budgets.
It said, “This will become an increasing priority with the emergence of social and political challenges amid slowing regional economies: Sub-Saharan growth slowed sharply in 2016 and averaged 1.4 per cent – the lowest in two decades. This year has seen equally slow growth.
“Three factors mean that established the NOCs must seize the opportunity to diversify beyond historical reliance on oil: rapid moves globally towards an increasingly low-carbon energy industry; meeting burgeoning demand for domestic power; and a need to meet crude and refined product requirements through storage and transport in domestic African economies.”