For decades, Nigeria’s state oil company, the
Nigerian National Petroleum Corporation (NNPC) has been the leading
symbol of official corruption and a seemingly boundless source of
political patronage. Faced with plummeting global oil prices and
dwindling state coffers, president Muhammadu Buhari cannot afford to
allow the NNPC, under a veneer of reform, to operate much as it did
before. Yet nine months into his term, NNPC continues to do business
with several disreputable, politically-connected companies.
Last August, Buhari tasked Emmanuel Ibe Kachikwu,
a Harvard-trained lawyer and former general counsel for ExxonMobil
Africa, with fixing a broken NNPC. A few months later, Buhari
dual-hatted Kachikwu as minister of state (deputy minister) for
petroleum, giving him enormous power over Nigeria’s oil industry. While
Buhari kept the position of petroleum minister for himself, he is
unlikely to be able to concentrate on the role given his many other
responsibilities.
Besides
producing crude oil, NNPC makes petroleum policy, generates its own
budget, and regulates the industry: all clear conflicts of interest.
In a surprise announcement
last week, Kachikwu rolled out a plan to restructure NNPC into seven
independent business units. Though the business rationale behind this
move is unclear, Kachikwu’s previous decisions, such as shaking up the
senior management of NNPC and its subsidiaries and cutting the number of
short-term crude marketing contract recipients, have received
widespread praise. Under Kachikwu, fewer featherweight front companies
are being allowed to market NNPC crude. He has also promised to replace corruption-prone crude oil swaps and offshore processing agreements
with more transparent and cost-effective arrangements. While laudable,
these changes only partially address NNPC’s biggest flaws as outlined in
a comprehensive report
by the Natural Resource Governance Institute (NRGI) published last
year. They also disguise that NNPC maintains relationships with many of
the same companies and individuals accused of corruption under the 2012 Fuel Subsidy scandal and similar schemes.
Same old perennial contracts
The two most significant contract decisions made
by Kachikwu thus far suggest that it is business as usual at the NNPC—at
least for now. Looking at the list of companies he awarded crude oil lifting contracts or granted permission
to import refined petroleum products (e.g. gasoline and jet fuel), many
have clear links to political power brokers or have been connected to
fraud cases: They include:
- Matrix Energy. A 2012 investigation identified Matrix as one of several oil traders who fraudulently charged the government up to 23.1 billion naira ($11.5 million) in refined petroleum products it never delivered. The company’s CEO Abdulkabir Aliu was arrested for fraud, though the status of his case is unclear. In late 2015, Matrix nevertheless received a license to import refined products.
- Northwest Petroleum. Northwest CEO Winifred Akpani once served as comptroller and later executive director of Flame Petroleum, an oil trading company that Kachikwu operated from 1992 to 2001. One of Northwest’s three shareholders is Maria Katrina Investment Company, a mysterious corporate vehicle. Akpani, meanwhile, also serves on the board of a company controlled by Jide Omokore, an oil tycoon under investigation by the Economic and Financial Crimes Commission (EFCC). In December it received an NNPC contract for crude oil lifting.
- Eterna Oil and Gas. In 2012, Eterna was charged by the EFCC with cheating the government out of 1.8 billion naira ($9 million) in fuel subsidies. Eterna is run by Mahmud Tukur, son of Bamanga Tukur, chairman of the People’s Democratic Party under president Jonathan. Even as Eterna and Tukur’s trial was still ongoing, the NNPC in December granted Eterna a crude oil lifting contract.
- Emo Oil. Emo Oil belongs to Emmanuel Ojei, a veritable éminence grise whose entrepreneurial skills are matched only by his ability to cultivate contacts with Nigeria’s top elites. Insiders credit Ojei with helping many former heads of state and other senior officials manage their finances for more than three decades. Emo received many crude oil lifting contracts over the years, in some cases without a formal contract. Other Ojei-owned companies, meanwhile, control stakes in multiple oil blocks. In December Emo also received an NNPC contract for crude oil lifting.
- Shorelink Oil and Gas. Shorelink is managed by Obamarije Stanley, allegedly the cousin of Reginald Stanley, a longtime NNPC official who was head of the NNPC’s downstream regulatory body, the Petroleum Products Pricing and Regulatory Agency (PPPRA), from 2011 to 2014. On Kachikwu’s watch, PPPRA renewed a lucrative importation license Shorelink may have received due to nepotism.
Another toxic legacy inherited by the NNPC is the
Strategic Alliance Agreement its exploration arm, the Nigerian
Petroleum Development Company, concluded with Atlantic Energy Drilling
Concept Limited, a company allegedly linked to former petroleum minister Diezani Allison-Madueke.
Under the agreement, Atlantic helps fund the operating costs of eight
oil blocks in exchange for rights to lift a portion of the oil they
produce. Kachikwu could terminate this agreement, which reportedly disadvantages NNPC. He recently said
that NNPC soon expected to conclude a deal in which a new partner will
pay up to $1.3 billion to take over the Atlantic agreement. With oil
prices low relative to operating costs, however, Kachikwu may fail to
find a reputable buyer willing to renegotiate this deal on his terms.
Buhari’s Bigger Challenge
Although
Buhari undoubtedly wants to overhaul the country’s oil sector, NNPC
appears to be dragging its feet. With global oil prices low and
government finances under pressure, Buhari needs to carefully scrutinize
NNPC decision making, including the latest unbundling plan. He should
also ask his officials tough questions about shady arrangements
inherited from his predecessor, such as the Atlantic Energy agreement
and an opaque crude oil transportation contract criticized by industry experts.
But Buhari has a task greater than just stopping
NNPC from falling back into bad habits: transforming Nigeria’s national
oil company into a cost-effective, profit-driven, transparent
institution. Creating 30 separate companies out of NNPC will not
necessarily make them more profitable and could instead increase
operational costs and make oversight more difficult. As it stands, NNPC
receives far less government oversight than its global peers.
Besides producing crude oil, NNPC also makes
national petroleum policy, generates its own budget, and regulates the
petroleum industry: all clear conflicts of interest and practices
unheard of elsewhere in the world. Buhari must take these important
oversight roles away from NNPC (or its successor companies) and address
the their deeper ills before time, inertia, and powerful elites long
pampered by patronage conspire against him.