Nigeria Steps Up Reforms in Oil Sector
LAGOS (Dow Jones Newswires), Feb. 4, 2009
With two former OPEC heads on board, the Nigerian administration seems decided to clean up the national oil company despite falling crude prices and stagnant production, industry insiders say.
The Nigerian National Petroleum Corporation, or NNPC, for decades served as a gravy train for successive corrupt regimes that helped themselves from its coffers.
The new oil minister Rilwanu Lukman and Mohammed Barkindo, the newly appointed head of the NNPC, appear to have received orders from President Umaru Yar'Adua to step up reforms of the national oil company.
"They are really determined to take action, but they'll definitely meet resistance," the head of one oil major in Nigeria said.
The big cleanup started Jan. 13, when Yar'Adua fired the then-NNPC boss, Abubakar Yar'Adua, and replaced him with Barkindo, without any explanation.
Then it was the turn of the Department of Petroleum Resources, or DPR, the body that regulates Nigeria's oil concessions.
Days after appointing Barkindo, Yar'Adua put Billy Agha, a geologist and former NNPC executive, at the head of DPR, replacing Tony Chukwueke - who was suspended last year over alleged irregularities in the sale of oil concessions.
A parliamentary inquiry is looking into the sale of concessions in 2005, 2006 and 2007, as some concessions were sold off to front companies.
Shortly after taking office at the end of May 2007, Yar'Adua announced his intention to split NNPC, set up in 1977, into five separate entities.
This transformation should be completed by the end of 2009, he said last year.
"Massive purges coming up" was a recent headline in a local newspaper, National Daily. The various investigations launched last year, and the firing of some top officials, lend credence to the idea.
"The new minister wants to surround himself with people who are loyal and competent, not leftovers from the Obasanjo (president and oil minister from 1999 to 2007) administration," one oil industry source said.
He nevertheless noted that lower down the ladder at NNPC "everyone is still there."
If NNPC is to become a commercially-orientated and quasi-autonomous company, parliament will have to provide it with a new legal status.
Up until now, NNPC has depended on the state budget to finance its joint venture operations with the oil majors such as Shell, Exxon, Total and Chevron.
Input of state funds into the joint ventures via NNPC is always too little and often too late as any delay in the adoption of the budget affects the release of such funds, critics say.
In 2008, NNPC needed $8.3 billion for its joint ventures, but only $4.9 billion was budgeted for.
There is the same scenario in the 2009 budget in which $5 billion have been penciled in, while the amount needed is $11 billion.
Since NNPC is constantly strapped for cash, the multinationals complain that they have to contribute more than their fair share.
The latest idea is to transform the existing joint ventures into "integrated joint ventures," which will, according to Barkindo, be financially autonomous entities able to raise money on financial markets.
For the moment he hasn't said which party will have the majority stake in the new integrated joint ventures, nor who will have technical control.
The oil majors, who continue to inject huge sums into costly offshore projects despite the global economic slowdown, say they are waiting to know more.
Yar'Adua's oil advisor Emmanuel Egbogahn says everything will be done through negotiation.
"Whatever happens we are not in a position to continue to accept NNPC not paying its share," said the head of one multinational.
A deteriorating global economy has dented demand and sent prices plunging since crude struck record peaks above $147 in July.
In Nigeria, unrest in the oil-producing Niger Delta region continues to curb production, which hovered at just over 2 million barrels a day at the start of the year, down from 2.6 million barrels a day three years earlier.
Copyright (c) 2009 Dow Jones & Company, Inc.
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