FG Breaks NNPC Into Five Operating Zones-Ibe Kachukwu

Chineme Okafor in Abuja

The Minister of States for Petroleum Resources, Dr. Ibe Kachikwu on Thursday disclosed that the federal government will next week announce the final outcome of its planned major overhaul of the entire structures of the Nigerian National Petroleum Corporation (NNPC).

Kachikwu in Abuja said that the structural overhaul would see the national oil company broken into five major operational zones and about 30 independent companies with their chief executive officers given measurable targets to achieve.

According to him, the structural shift will also see these new players competing for business opportunities across the global oil and gas industry with sustainable profits expected from them.

“We are starting first with simple governance issues, those that are not contentious and the way that we are going, that is very rapid and that deals a lot with the transformation of the National Oil Company,” said Kachikwu.

He made this disclosure while speaking at the 25th Annual Oloibiri Lecture Series and Energy Forum (OLEF) of the Society of Petroleum Engineers, Nigerian Council.

The focuses on this year’s OLEF lecture was on technological advances in hydrocarbon exploration and exploitation in a low oil price scenario.

Kachikwu said on the NNPC overhaul plan that: “For the National Oil Company, a lot of work is going on, I am sure some of you have seen the effects but within the next one week, we are going to be announcing some really major overhaul of the system, one that hasn’t been done in over 20 years.”

“The effect of that would be to quite frankly unbundle the huge company into four to five main operational zones; the upstream, downstream, midstream, refining and of course every other companies that is trending to the venture group.

“But what is more important is that at the same time, we are also unbundling the subsets of these companies to about 30 independent companies with their own Managing Directors and so titles like the Group Executive Directors which you have been used to in the last 30 years will disappear and in place of that, you are going to have Chief Executive Officers,” he added.

The minister explained that people who gets the job of heading the new companies would have to take responsibilities for the titles they would be assigned.

According to him: “They have to mean something, they are not administrative roles. So, at the end of the day, a CEO of an upstream company must deliver me upstream results and we are very focused on that.”

He said: “Along those chains, we are doing very dramatic things within the sector to bring the change and I am happy that we are gaining the cooperation of people within the industry because that is the only way we can guarantee sustainable career paths for those in the industry.”

He also announced that the NNPC has within the last seven months began to cut down on its loss bottom lines, adding that from N160 billion loss which the corporation last incurred, it recorded a downward loss of N3 billion in its January operations.

Kachikwu thus stated that he expects the corporation to soon turn around the corners and begin to record its first profit from June this year.

He added that further improvements in the operations of the company would be stimulated by its unbundling into the 30 new companies.

“We are potentially moving in a direction where quite frankly for the first time in about 15 years this company will be profitable but that is a tip of the iceberg because by the time these 30 companies are unbundled with their managing directors setting programmes, you are going to meet us in the active work space, we are going to be competing and we are going to make these things work,” said Kachikwu.

He also stated that there are key issues that he considered pertinent and which he would pursue within the year to improve the workings of the country’s oil sector.

These issues he said included cutting the production cost of the industry and firming up key policy positions on gas.

The minister equally announced that the country would shortly initiate a review of the terms in the Production Sharing Contract (PSC) and Joint Venture Agreements (JVA) it uses in its dealings with oil companies.

“The fact is that you have got to get the upstream working again. The reality is that if we continue at this rate, the natural curve declines that you see in the production terrains will be devastating over the next five years, and so I am very committed personally to try and do somethings that will move the oil industry back to working.

“We will definitely be working with the industry to try and get to a position that everybody is comfortable with but then we have no alternative today than giving more attention to what we need to do with gas.

“In terms of the value chain logistical dynamics, we got to begin to talk to ourselves because many times we have a polarized relationship between the oil companies and the government but the reality is that to succeed, we all have to play in the same box and so, I am having a lot of conversations with the oil companies and that is going to continue but the essence is that we have got to begin to define the contractual terms in this industry.

“PSC terms haven’t been revised for quite a while, we will be looking at those, JVs, we will be focusing more on how we can bring in the PSC-type terms into JV structures, so that way, we can begin to get them to work,” he said.

On gas, Kachikwu stated that: “We have spent so many years on which very dramatic policy positions that ought to have been taken were just neglected and when you look at gas that is really the problem. Because if we had a parallel income stream that is very sufficient like the crude oil, through policy development, if that was there, we would have a mix of income and that would have soften our difficulties.”

“So, again, focusing on gas policies for me is a key element and the target that I am setting for myself is a 12-month type agenda to try and arrive at some of these conclusions, some working with the assembly, and some working with policy makers,” he added.

The minister also took out time to provide an update on the diplomatic attempts he had initiated to get oil producers to halt the price slide of crude oil.

According to him, another round of meeting with member countries of the Organisation of Petroleum Exporting Countries (OPEC) and non-OPEC members would be hosted by Russia at its capital Moscow on March 20.

He said: “I don’t need to tell you about the price of oil despite the shuttle diplomacy here and there. It is still very challenging but at least we are inching up and for the first time we are beginning to have both the Saudis and the Russians come back on the table.”

“When I started that whole move, I was very criticised and told that it would not hold but I am happy that over the last few weeks we see that everybody has bought into that and we are beginning to see prices inch up very slowly.

“But hopefully, if the meeting that we are scheduling to happen in Russia between the OPEC and non-OPEC members happen on the 20th of March, we should see some dramatic movements and we are not likely going to see the prices of many years ago. I think we are very humbled today to accept that if we hit the price of $50 we will be celebrating and that is the target that we have,” he added.

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3 thoughts on “FG Breaks NNPC Into Five Operating Zones-Ibe Kachukwu

  1. For the first time in living memory,one is hearing the right things emanating from a petroleum minister.The hybrid model under which the NNPC has operated was a breeder of corruption,rent seeking and promotion of industrial lethargy. Complementary to this strategic policy shift is the passage of the petroleum Industry Bill,PIB,upon which all that has been said is hinged.I am a bit surprised the minister failed to mention this because without the complementary act of parliament all that has been planned will be wishing horses.The PIB must be passed expeditiously so that legal efficacy and fillip will be given to all these good intentions.I see in the long run an industry that is re-positioned to play in the international market like its counterpart from the Middle East,making profit for its owner,the people of Nigeria.It would be subjected to the discipline of the private sector;punished when it takes wrong decisions rewarded when it is well managed.We want to see a conglomerate that is operating in international oil and gas waters,putting truly Nigeria on the industrial map of the world,an emerging MNC from an emerging economy.Time to give Nigerians some respite from negativism.

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