Get Refineries to Work at all Cost — Prof. Ibe Kachikwu
Prof. Emmanuel Ibe Kachikwu is a former Nigerian Minister of State for Petroleum Resources, and former Group Managing Director (GMD) of the Nigerian National Petroleum Corporation (NNPC). In this interview with Yange Ikyaa, he narrates the story of his stewardship of NNPC and the Nigerian Petroleum Ministry, whilst also commenting on the prospects and limitations of the Petroleum Industry Act (PIA), and his assessment of the privatization speed of NNPC Ltd. Excerpts:
The NNPC was first unbundled during your time as Minister, but now it has been privatized at the instance of the PIA. What is your assessment of post-PIA NNPC, especially when some people still hold the opinion that the law contains some inadequacies?
We – myself and my NNPC team – worked very hard towards the unbundling of NNPC. Under the said unbundling, the corporation was broken into new profit centres and the independent tracking of profit performance of each unit was emplaced. For example, PPMC was split into two departments, NGC was split into two, NPDC was made more independent with its own internal board, refineries were split into individual profit centres, head office overhang over the monetary control of units was restricted, and so on and of course the monthly publishing of our corporate performance was introduced and remained till I left the position of GMD.
Of course, a lot of these dramatic changes many of which are still there today, thanks to my successors, were made possible by two factors. First was the magnanimity of President Buhari who whilst I was NNPC GMD, gave me a lot of latitude to push reforms and supported my wholesome speed in doing this. Second was that the President very unprecedentedly allowed me to hold the positions of GMD and Minister of State Petroleum Resources for the period of 9 months. This merger of oversight and authority allowed fast paced and bold reforms. And it paid handsome dividend as we published a first month of profit for the Organisation in May of 2016, shortly before I was relieved of the position of GMD and continued as Minister of state for Petroleum and Chairman of NNPC board.
Needless to say that the unbundling framework came out of the identification of the gaps and problems that were militating against the ability of NNPC to achieve its desired growth and performance trajectory. We called it the 20 fixes, representing the 20 focus areas and problem diagnostics that if handled would allow NNPC to reach its full potentials.
As to your second question relating to the PIA, let me say unequivocally that the passage of the Act was a milestone long overdue. Many experts before me worked on the multiple drafts and my team expended a lot of effort working with the various Senate committees under the Saraki led Senate to fine tune the final draft bill that was passed by that assembly.
Unfortunately, that draft bill was rejected. An amended draft that made some changes to the rejected bill was then passed after I had ceased being the Minister of State and that draft was finally assented to by The President in 2021. In my speech at the NIPS conference in 2022, I gave kudos to my successor Timipre Sylvia for taking the law past the finish line. I joked then that he was a better politician than I was. And truly so and deserved the credit. Whilst the delays in passing the PIA lasted, I had done a book titled ‘Petroleum industry Bill; getting to yes’. I am following up with another book ‘petroleum industry Act; the missing link’, which should highlight the areas of the Act still needing a second look and possibly further amendment work by the National Assembly. I can only say that my personal opinion was and still is that the earlier draft Bill which was not assented to by Mr. President was more revolutionary and would have addressed amongst many others the issue of NNPC’s supervisory control of JV assets, the organizational framework for the new NNPC Ltd.
I remember very well that you championed the concept of colocation of refineries, meaning that new refineries should be licensed to be built around the older ones to share facilities and that could make them viable; that advice was not taken and 8 years later, those refineries are not refining a liter. How do you feel about this and what do you think is the best way forward?
Like many people, I obviously feel frustrated that the refineries are not working. In my time, we did all we could but were limited by the politics of the moment. When we looked at the refineries, we started from the basics which was, how do we without spending too much money to get any of the refineries to offer partial production restart to help the then lingering fuel scarcity crises that we met upon assuming office?
For this, we charged NNPC skilful engineers to do their bit and they did, and Port Harcourt was streamlined in December of 2015, with minimal expenditure and the work of internal NNPC team. We also looked at what was the main handicap of Port Harcourt, which was crude oil delivery limitations in the absence of a functional sabotaged Escravos pipeline. I cancelled the marine delivery of crude which was too expensive and convinced the contractor to direct his attention to reactivating the pipeline. He did a good job at his own cost and once the crude began to flow, he was then paid. This contractor now later turned out to be a very innovative and creative private sector contractor that was later to be patronized by my successors.
Our second approach was to seek foreign investors who were willing to invest in refinery revamp and management. Given the scandals associated with past TAMs, whether true or false, as I had no empirical data to judge, I decided to stay away from using further government funds for the rehabilitation of the refineries. We got positive pledges from China and Saudi Arabia, but these were not approved. The problem usually is the rather emotional but illogical patrimony protectionism of many that keeps the refineries hostage. The fear each time that investors would take over a prized national asset, the refineries, even when they had been lying comatose for years. The protagonists of this position won the day and so we could not push through the offers by these investors.
The third approach then was to give Nigerian investors in joint venture with foreign investors opportunity to revamp and manage at their cost the refineries on a business model that did not pass on any equity in same to them but granted them long 10-year leases to recoup their investments. In 2017 and 2018, a lot of efforts were expended on that and surprisingly many bids were received by NNPC, and successful bids were chosen for the three refineries. I was not involved in the bid process as I was no longer the GMD, but I believe they were transparent, but again those were jettisoned as the management of NNPC decided to go with a preferred internally supervised turn around revamp at the corporation’s cost. Unfortunately, as per the time I left the portfolio, that turn around had not brought back the refineries and was one of my sad frustrations upon exit. I want to believe that the present
Management is fully focused on achieving this goal for Nigerians. Our last focus approach was to liberalize the refining opportunities and so we encouraged whole heartedly the Dangote refinery and the modular refineries, some of which are operating today, with the Dangote refinery still in focus. My attitude was to push private sector players to be another parallel engine for refinery capacity building. I am glad that at least on this front we made some progress.
But do you believe they can ever work?
Now on collocation model, the idea was to encourage some investors interested in modular refineries to collocate within NNPC refineries under an asset lease arrangement so they could share use of idle infrastructure and cut cost of starting their businesses. This would then generate income for our unprofitable refineries with which they could jumpstart the rehabilitation of our refineries free of government funding. We did not get to have this take off before I left the GMD portfolio and I believe the idea was shelved thereafter. As to you question whether same is relevant still today, I do not know, as I do not have the requisite data or current business modelling to comment on this. But again, the situation has changed as NNPC is now privatized and only the shareholders, the government that is, and the board would determine if this model needs to be revisited.
The removal of fuel subsidy is really causing a lot of hardship for Nigerians and it is assumed that the fuel prices wouldn’t have been this high if refineries were working . How do you look at this?
I believe despite the emotional issues associated with fuel subsidy removal that it is the right thing to do and was long overdue. You will recall that in 2016 against the usual popular opinion, I championed and executed the repricing of refined petroleum product and indeed as at then removed the subsidy. The Nigerian populace were very accommodating of my steps then because it stopped the fuel shortages almost instantly and I never had that issue till I left my office. More important, it dramatically transformed the balance sheet of federal income returns and probably was the singular act that saved the country from the looming financial crises the Government faced in 2015. However, we are here again because the price modulation policy that was part of the product repricing that we introduced that would have seen prices do a pendulum swing according to world crude pricing and the liberalization of the importation of petroleum products away from the monopoly of NNPC, that was to force price drop from competition were not adhered to. I think what the current government is doing on this is the right thing. However, I would have counselled a co terminus and collective process that would have taken along sustainable palliatives along with the measure. Our palliative approach when this happened in 2016 were founded on three platforms.
1. Focus on getting the refineries to work at all cost because that will ensure long term product delivery and stable pricing sustainability. In this it was and still will be important that government refineries are positioned to compete with private refineries and provide regulatory agencies with pricing data to check profiteering.
2. Liberalize the importation of refined product and allow NNPC compete with private sector for the supply and distribution market without any special preferences to NNPC that distorts the market and;
3. Provide soft palliative through the established unions and associations that reach the truly subsidy impacted people not the wealthy. Where necessary, a fingerprinted or coupon model at designated supervised end points of pick up for road transporters for a very minimal period can be set up so there is transition softening. There are many possible models of cushioning the possible pains and the pains will be temporary and ultimately the resultant predictive pricing will become helpful if the savings from subsidy are channelled to identifiable infrastructure development that the populace can see.
There is this belief among certain experts within the Nigerian oil and gas industry, some very experienced, that ministerial powers should be delegated to a Minister and not held by the President; that has not happened now, just as it didn’t happen during your own time. How good is this for the country?
On this, my views are influenced by my private sector leaning. Understandably therefore I have a different view with politicians.
First let me say that the issue here is not one of legality but adequacy. The President under an executive presidency is entitled and empowered by the constitution and practice to structure the government whichever way he wants and believes reflects his own focus and concerns so If a President decides to be a minister of petroleum in addition it is his call. But that is where that argument ends. If you take the moral and efficiency compass, I would not advice a President to hold both portfolios or for that matter that of any other ministry either.
The President is the primus interpares and under an executive presidency the Omega of his government. Petroleum is simply a commodity and I believe the supreme focus given it so far has been the problem with the sector. It is not different from other commodities, agricultural produce, minerals, and services. I believe that ultimately the President is the fulcrum of all powers and approvals and holding on to Petroleum ministerial portfolio does disservice to the authority he has.
First, it creates a distraction. Second, it prevents the minister of state from being able to run the sector. Three, it creates room for presidential favouritism for close associates. And prevents a fair playing ground in the industry. Fourth, it prevents the President from being the needed appellate point if a minister reaches a wrong decision. Fifth, it chases away genuine global investors who see alarm bells in those arrangement. Finally, it creates sectoral rascality and the agency heads who need to report out through the minister of state with day-to-day oversight of the ministry, prefer to bypass that channel. Ultimately t experience has shown in the many decades of Nigeria’s experimentation with this model that the power gets usurped by presidential senior aides As the President cannot have the time for this role nor the supervision of the Ministry that goes with it. Interestingly at the time I was invited to serve I also pointed this out to my boss. In his own case his initial intent of protecting the Ministry and me from the intrusion of politicians since I held a dual portfolio then as well intended as it was later to become a major problem for the sector. These are my personal views from many years of observation and participation but may not necessarily be a panacea for solution.
You will be speaking at the African Energy Week in Cape Town where energy transition will be an important theme of discussion. What important lessons will you be taking from Nigeria to South Africa?
A just energy transition for Africa. The whole strong movement towards transition energy, clean energy, and zero carbon is becoming more important than any other thing, even for those in research. Africa needs to achieve a just energy transition.
So, in the very apprehensive bend towards transitional energy, we must also be very purposeful about the African market protection, and we must begin to look for how to reap the benefits of Africa from Africa first and foremost before we create external opportunities.
We need to figure out how to use regulatory experiences, most especially from a country like Nigeria, and national content policies from countries like Nigeria, to help harness the advantages of this for the rest of the other parts of Africa.
Nigeria stands in a position where we have such a huge solid market in front of us. We have such massive opportunities in front of us and we have the technical knowhow to be able to drive the African dream of tomorrow. But we need to hold hands, and so we need a new kind of aggregation in the new diaspora movement for Africa. These are the kind of things that I will be looking to push forward at that conference.
During your time as Minister, Egina sailed from LADOL to its location offshore and local content mainstreaming began to move up seriously and many other things too numerous to mention. When you look at these legacies, who do you think are the people doing great and what exactly are they doing to keep these legacies alive?
Yes, I remain proud of those many legacies. I am grateful to President Buhari for the opportunity to serve and his magnanimity in inviting someone from the private sector who was not part of his campaign foot soldiers at the time and entrusting such portfolio to him. In terms of identifying those who have kept the legacies on there are many.
The truth is that there are many talented people in the very rings of NNPC and the regulatory arms who carry multi decades of experience, training, and commitment to hard work. Many times, they sing and only the sensational items make the headlines. Working in these ministries and parastatals can be arduous, stressful, and thankless, and sometimes, politics of hierarchical struggles does not ensure that the best make it to the top. But there are good people at all levels and in all the agencies. From the many at the leadership heights of NNPC its mid-level Managers, the policy wonks of the regulatory and enforcement agencies, to the local Content policy drivers, I see many of them who have continued to carrying forward the legacies I left. If there was one area that stands out in my work during my four years, it is in the push to refocus NNPC and the regulators to begin modernizing to private sector principles and efficiency levels. In my time I recorded and played over 30 Issues podcasts for transformation. I see that urgency of now taking hold. There is still a lot of work to be done but there is a lot to be hopeful for.
On assumption of office, President Tinubu set up a committee to look into the issue of the petroleum industry regulators, NMDPRA, NCDMB and NUPRC, with the possibility of merging them into one regulatory body; what will be the implication of that option?
I don’t want to comment on that because, to be honest with you, I have not seen the policy paper. One of the things I never do is just make sensational commentaries. I have not read the full policy statement to understand the objectives, so till I see it, I really cannot comment on that.
