Global Insight Perspective | |
Significance | The NNPC is to be scrapped as President Yar'Adua attempts to make the national oil company more efficient and cut corruption. |
Implications | Yar Adua has appointed a National Energy Council that, over the next six months, will oversee an unbundling and restructuring of Nigeria’s oil sector into five new organisations. |
Outlook | This is a brave and encouraging strategy from Yar'Adua and the overhaul should be complete by February 2008. |
President Scraps NNPC
It comes as no surprise that Nigeria's President Umaru Yar'Adua announced yesterday (29 August) that the Nigerian National Petroleum Corp. (NNPC) is to be scrapped. There had been mounting speculation in recent weeks that the country's national oil company would undergo heavy change, with Yar'Adua stating that it NNPC needed to become far more competitive and less corrupt and that he wanted it to compete with other upstream and downstream operators. Yar'Adua announced in July that he would take the vital position of Energy Minister himself, a role that means the head of state now oversees the petroleum, power, and gas industries.
Yar Adua has appointed a National Energy Council that over the next six months will manage an unbundling and restructuring of Nigeria oil sector into five new organisations. The NNPC will be replaced by the National Petroleum Company of Nigeria (NAPCON), and the Ministry of Energy will shortly be known as the National Petroleum Directorate.
The reorganising of the country's oil sector, according to local newspaper ThisDay, should be complete by February 2008. The National Council on Energy (NCE) is to be headed by President Yar'Adua and Vice-President Goodluck Jonathan as chairman and vice-chairman, respectively. Odein Ajumogobia, who was appointed Minister of State Responsible for Petroleum in July, will be a member of the Council along with Dr Rilwanu Lukman, who Yar'Adua appointed as Honorary Adviser on Energy and Strategic Matters. Dr Lukman has previously served as minister of petroleum resources, special adviser to the president for oil and gas, minister of foreign affairs, minister of mines, secretary-general of OPEC (for six years), and president of OPEC (for nine sessions). Other members of the committee are Michael Aodoakaa, the Attorney-General; Shamsudeen Usman, Minister of Finance; Senator Sanusi Daggash, Minister of National Planning; Fatima Ibrahim, Minister of State Responsible for Power; Olatunde Odusina, Minister of State Responsible for Gas; Ibrahim Mukhtar, National Security Adviser; and four other members to be named by the president. Local newspaper Vanguard speculates that Dr Emmanuel Egbogah, the new Financial Adviser on Petroleum to the President, could also be a member.
Unbundling and Restructuring
Ajumogobia spoke to the media after the announcement about the restructuring was made at the Federal Executive Council meeting. He stated that the Petroleum Inspectorate Commission would replace the current Department of Petroleum Resources, while the Petroleum Products Distribution Authority would replace the Petroleum Products Prices Regulatory Agency, which fixes fuel prices. The Pipeline Products Marketing Co. will be replaced by a new body to be called the Products Distribution Authority and the National Oil and Gas Assets Holding Co. will replace the National Petroleum Investment Management Services.
ThisDay reported group general manager of public affairs at the NNPC, Dr Levi Ajuonuma, as saying: "A new national oil company, to be known as [NAPCON], which will have seven directorates including Upstream, Refinery & Petrochemical, Marketing & Investments, Gas & Power, Engineering & Technology, Finance & Accounts, and Corporate Services, will replace the current NNPC".
Outlook and Implications
The changes to the country's oil sector announced by President Yar'Adua appear to be far reaching and are much needed. The root and branch reform is exactly the type of overhaul the petroleum sector needs and this should lead to a more efficient and effective national oil company. It is likely that many employees will lose their jobs or be encouraged to retire, which should result in a vast reduction in corruption.
The most significant aspect of the forthcoming changes seems to be that President Yar'Adua has decided to listen to his advisers and the petroleum experts. The restructuring was first recommended in the harmonised reports of the Oil and Gas Reform Committee set up in 2000 and another committee set up by the National Council on Privatisation, and marks a huge departure from the style of previous president Olusegun Obasanjo, who rejected the recommendations. Under Obasanjo's watch, corruption grew in the oil sector and despite the increase in production capacity a series of other problems emerged such as the complete breakdown of the country's refineries and the decision to send the military to the Niger Delta to quell the rising militancy.
Earlier this month, Yar'Adua removed the managing director of the NNPC Funso Kupolokun, who had been appointed by Obasanjo and was known to be close to the former president. Abubakar Yar'Adua, no relation to the Nigerian president and previously the group's executive director for refineries and petrochemicals, was appointed as Kupolokun’s interim replacement.
Global Insight is encouraged by the early signs of the overhaul of the country's oil sector. Yar'Adua has staked his presidency on turning around the country's energy sector by taking on responsibility for the Energy Ministry. We believe that Yar'Adua will shortly announce a new plan to encourage the monetisation of the country's gas resources and it is also likely the president will call a state of emergency in the power sector.