INTERVIEW: Nigerians’ Reactions To Our Published Audited Accounts Give Us Energy To Do More – NNPC GMD
The Group Managing Director, Nigerian National Petroleum Corporation (NNPC) , Mele Kolo Kyari, with a strong backing from President Muhammadu Buhari and the Minister of State for Petroleum Resources, Timipre Sylva, has begun turning around the Corporation and refocusing it as a commercially-oriented company which strives to cut losses and raise profits. Within a year of his assumption of office, Kyari has achieved so many firsts and has put the Corporation on the path to profitability. He has started fixing the nation’s ailing refineries and under him, the FID for the Train 7 of the Nigeria LNG Limited has been taken. He is also the first GMD to publish the corporation’s audited accounts, which is in line with his TAPE agenda.
In this interview with THE WHISTLER, he talks about his vision for the NNPC and the challenge ahead.
Congrats on the flag-off of the construction of the AKK project; it is one of your key achievements since you became the Group Managing Director of the NNPC. The AKK and the Train 7 projects were two projects that had been in the limbo for long. How were you able to pull off the FID of Train 7 and the decision to construct the AKK project within 12 months?
I think it was a key issue of political will from the leadership of the country over the years. The advantage we had was that our shareholders trusted that we would do the right thing. What we saw is the opportunity that is there to deliver on these two key projects, the AKK and the NLNG Train 7, and the enabler that we had was the President who believed that these projects must take place. So, every condition precedent to getting this done, including the fiscal issues, the authorizations that we required from the President and the Minister of Petroleum Resources, and the support of parties across the value chain — from our investors to our financiers, to our technical partners and to our contractors –all were aligned because of the single reason that the President wanted this to be done. And I got all the support that anyone can get to close those gaps and those situations that kind of escaped every transition of governments that we have seen since 1999; and today we are able to get them closed. So, what really worked for me was the determination to deliver on the task that I was asked to deliver on; and, of course, the key support of the principal, who is the President, to get things done. So, I think that was what worked, and happily we are happy to deliver.
What are the key advantages the project will bring after completion, and are there other major gas projects in the pipeline after AKK?
This is the year of gas. It means that we will focus on gas, to deliver gas into the domestic market.There are a number of projects related to this, and, as I mentioned yesterday, the OB3 and the expansion of the Lagos Escravos Pipeline System 2, so that it can extend all the way to West Africa and potentially to Morocco at the end of the tunnel, and the combination of this with the delivery of the AKK –we will have a trans-Nigerian pipeline in place, and this will enable increased supply of gas into the network such that consumers in the East and in the West and in the West African sub-region and across the transnational pipeline into the North of the country will be energized.And the end result will be more industrial growth:more jobs will be created, power will be delivered to many moribund industries and, ultimately, it will bring in the required development that our country needs to have from our gas resources. We have never paid this much attention to it and getting this done within the calendar period that we have put out by ourselves, a maximum of 36 months and minimum of 34 months; and once this is delivered you will see the expansion in capacity. As a first step –I don’t know if you are aware — even before the AKK is completed, we are delivering the OB3 Line and the expansion of the ELPS 2. That means you can technically have increased supply into the West so that those factories which are in short supply of gas, which are not meeting demand, will now come back to life and operate at their installed capacities. So, things are working, and as soon as we are able to deliver the first steps and then continue with the AKK project, you will see the monumental change and the effect on our country.
The petroleum ministry is spearheading the campaign for associated gas utilisation through the gas flare commercialization programme. There is also a programme to deepen the use of LPG and CNG in Nigeria as alternative automotive fuels.What is the NNPC’s role in all of this?
Once you produce gas in this country, you will have to deal with the NNPC. We are the upstream partner to all the producing companies. Nearly 80% of the companies have something in partnership with us either as joint venture partners or PSC contractors. So, you require the gas, and the gas will come from NNPC assets. To that extent, we are completely linked to the process of making sure that the gas, either from flare sites or actual non-associated gas sources, is delivered to businesses. And of course we are a very, very widely exposed company in terms of our assets across the country, in terms of our retail outreach, in terms of our customer base, such that for a CNG project to succeed you need the NNPC to be part of it so that we can provide the skills, provide access to our customers and also ultimately link up the transmission network which we are constructing in the AKK and all other assets, bringing all to the table so that those gas resources will be available for expansion . So, we are everywhere, but we are critical in the sense that this won’t succeed without NNPC’s intervention, and we are completely committed to this.
The issue of gas demand, it is said, is connected to the issue of gas pricing. Are the NNPC and other stakeholders looking at how to review the prices to encourage more usage of gas in Nigeria?
What drives consumption is availability. So, that is what we are working on, to ensure availability by putting the infrastructure in place and processing the gas itself to be available in the network. Now, for pricing: there are issues around pricing that the Honourable Minister of Petroleum Resources is working on. We have a framework which we are participating in –NNPC is leading that process of making sure that we have the right gas pricing framework. Mind you, for you to have the right pricing you must be able to recover your cost, and every business deserves a margin out of that price. So, whatever pricing structure you have, you are not just bringing down prices so that people can buy, you must bring down prices to a level that you can recover your cost and have some margin. So, this is the framework that is being worked out to see the best pricing structure that we can put in place to guarantee investment, recovery of cost and a reasonable margin for investors.This is what we are working on. But the target is not just about bringing down the price; it is making sure the price can deliver its value.
The power sector is still in a very bad shape and the NNPC and its joint venture partners are involved in gas supply to power stations and in power generation. Huge indebtedness to gas suppliers and non-performing power purchase agreements are key issues. What is the NNPC doing with other key stakeholders to solve these problems with a view to moving the power sector forward?
The power sector is about cost recovery;this is the key challenge the power sector has. When people take power, they don’t pay for it; maximum recovery is about 50% of the revenue that should come. So, the net effect is that, walking backwards, the DisCos are not able to pay the GenCos, they are not able to pay the Transmission Company of Nigeria and, ultimately, the gas producers become unpaid. It is a chain of issues, but I am aware and I am involved in a process where we are straightening this out so that the DisCos will be able to recover their costs from the sales, so that they will be able to meet their own obligation. The NBET structure is put in place precisely to compensate for this, but it is not a sustainable framework. You do need the market to pay for itself, and the only way you can do this is to expand the network and remove all the bottlenecks, which is what the Siemens project is doing, so that once the de-bottlenecking is completed,and you are able to have power taken to the right people at the right location, and you are able to do proper metering and, ultimately, you will expand the scope of the cost recovery from the current less than 50% to somewhere around 70 or75%. That way, everybody along the value chain will get paid and then of course you will see massive investment in the upstream all the way along the value chain. That is where the power sector is.
Reduction of production cost per barrel is one of the key cardinal objectives of your management. Recently, you talked tough about the determination to achieve the $10 unit operating cost by the last quarter of 2021. What steps have you taken right now to make this target a reality?
Yes, as a first principle we are able to engage our partners to accept that this condition is not acceptable, and we are working with them chiefly to determine the boundaries, what we need to do, how we can improve on our procurement processes, how we will determine our projects and how we will engage our suppliers so that, at the end of the day, you are able to bring down these costs. It is unacceptable and we have to bring down this cost per barrel to $10. Many countries have done it and we are not an exception. We know there will be a pushback on this, because there are a lot of vested interests, people who have been benefiting from this over the years that they cannot understand today that this value must be returned to the people of Nigeria; and returning this value to the people of Nigeria means more infrastructure for our countrymen, more resources are available to the states and the government to deliver on their tasks. And, ultimately, 80% of production comes from our major partners, and they are completely aligned with this process of bringing down the cost. That engagement , that understanding at all levels of the institutions within the NNPC and our partners including their head offices, that combination of this and aligning with the best practice in the industry which recognizes that many of the costs which we are incurring are avoidable, we don’t need to do them, you cannot continue to sustain this level of exposure — and that understanding has brought us to the fact that all our budgets are now streamlined, even for 2020, but of course for 2021 and going forward, every budget must recognize that it is tied around the ability to bring down cost. So, we are working from all fronts –from procurement, from budgeting to planning to engagements — to make sure that this works.
Under your management, NNPC discovered 1 billion barrels in the north-east. Is there a timeline for production to start from the oilfield?
We are still reviewing it. There is no deadline, but we are working on it.
PIB has been in the news recently: promises have been made by oil chiefs, including you, that the law will be in place by the last quarter of the year. Some Nigerians would probably say we have heard that before. What is happening differently now and what is giving you cause for optimism about the PIB? What are the steps being taken to ensure that there will be less rancour over the bill this time round?
Yes, first of all, there is a renewed commitment and engagement with the leadership of the National Assembly which was lacking in the past. Also, the key indicator of this situation is that it is unavoidable not to have this PIB in place. It has stalled development in the oil and gas sector for many, many years. There is a clear directive from the President that we should proceed and close on this, including the fiscal issues; and that engagement includes the leadership of the Minister of State for Petroleum Resources and the GMD of NNPC’s engagement with partners; and we’ll see that this close-loop approach, which involves the engagement of stakeholders prior to the introduction of the bill, engagement of the National Assembly, so that they understand where we are going and where we are coming from without waiting for the time for rancor,of course, more importantly, today you have a very clement National Assembly, very supportive of government and very realistic of the expectations from all of us, the combination of this will mean that we will be able to deliver on this task.That is my confidence and I also know that the President is focused on this and ready to deliver on this. So, I don’t see anything stopping it. In terms of timeline, yes, our hope and plan actually was to deliver by the end of July, except for this Covid-19. We still believe that we can deliver this within this year.
For the first time since the inception of the NNPC, you published audited accounts of the corporation, and I also gathered that you are about to publish the 2019 audited accounts too. This is unprecedented –it has never happened before. What motivated you to take this action?
First of all, it is a legal requirement for NNPC and companies registered under the Companies and Allied Matters Act (CAMA) that you are by law required to publish your audited financial account every year. We haven’t done that for over 43 years. The only time that was done was when this President was the Minister of Petroleum Resources. After that, everything stopped until this President came and gave us the clear directive that we must be transparent, accountable to the people of Nigeria and follow the rule of law, and to agree that this company cannot escape public scrutiny. Then, it should not escape public scrutiny. So, we also have our personal persuasion to make sure that we are accountable to the 200 million shareholders of this company, and we think this is the right thing to do:to tell them what we are doing. Yes, some of the businesses are not doing well, but except you expose this to public scrutiny you will not know that you are not doing well.And we are happy about the comments that we have received from our shareholders and the majority of Nigerians, which give us energy to do more, to work on it and also to ultimately publish the 2019 accounts. I know that by the time we come to the publication of the 2020 [accounts], Nigerians will be surprised that these companies’ fortunes have changed. We have learnt from the mistakes that we have made and we have also taken proactive measures to change the fortune of this corporation. Things are different and we are acting on a personal persuasion that we will get things done.
NNPC led its partners to support Nigeria in the fight against Covid-19, and you actually spearheaded this effort. NNPC and partners were able to raise about N21billion to support the government and people of Nigeria, and this has brought some stability to the fight against Covid-19. How were you able to achieve this?
It is a matter of doing the right thing. We are in business, and once your customers are impacted by such medical pandemic, you lose the market. And it did show when, during the lockdown, our customers stayed at home. The end result was a price crash and revenue crash for all of us. So, it is in our interest to make sure that we support our customers, the majority of Nigerians. Don’t forget also that these same customers are also the owners of this company and these businesses. Therefore, we saw it as a natural thing to do: to come forward, galvanise our partners and our relationships to make sure that we are on the same page to face this obvious task that we must do, which is to support the Nigerian people in this process. So, it is really nothing out of the box; it is not. It is the right thing to do and, ultimately, our partners believed in us; we worked together to make sure that the support came. We are very proud that many of the infrastructural development projects have all commenced. We have delivered nearly all the logistic support that we promised we were going to do, and we are going ahead to deliver all the major infrastructure intervention projects within the timeline that we have set. But, more importantly, the industry trusts that we will deliver on this. We did not take anyone’s money;we asked them to go and deliver on those projects and we would provide the assistance as planned.
In spite of the Covid-19 pandemic, we observed that you were able to achieve peak production at the oilfields in the heat of the crisis. How were you able to achieve that?
We had a clear line of sight to what would happen. When Covid-19 came, it was obvious that there would be a lockdown across the globe. We set up a business continuity plan to make sure that all our assets did operate –all our major facilities, construction sites, our drilling locations, our terminals are all protected from any possibility of disruption — and we were able to engage our government security agencies, state governments and the Federal Government to make sure that there was unfettered movement of oil and gas personnel.And the end result is that we were practically not impacted by the lockdowns. So, because of the less disruptions that you have seen, because many of the distractions that we normally have under normal circumstances vanished, we actually ended up becoming more efficient during that period.We have more reliance on technology to deliver on our tasks. There were more engagements that were ordinarily not possible under normal circumstances and the combination of all these was that we actually saw increase in our production during that period.
One of the things you are also doing differently again concerns the refineries. The state of the refineries has always been an issue, but you came in and you began taking steps to ensure that they are fully rehabilitated. When are we likely to have the three refineries back? And after they are back, what is the arrangement about getting O and M companies to run them?
We have a clear line of sight around the refinery rehabilitation project. First, we are starting with Port Harcourt and we have done everything possible to scope it properly – we changed our approach to getting it done by engaging EPC contractors to do it for us instead of the original refinery builders. That was a very bad concept. It is like you buy a car and you insist that Toyota must come and do the maintenance work for you. We are changing that concept and we are progressing with this. It is not a political deadline. I am optimistic that, with the change of approach, we will deliver the Port Harcourt refinery between now and 2023 latest. Also for Kaduna and Warri, we have a different approach to them:a BOT arrangement. BOT means that we will get partners to put their money, repair them and take back their money from the production of those assets.And we have significant interests indicated in that process, and they all fit into this same schedule in the sense that we are completing the tender process to select the partners who will do it for us within this year.And once that is done, because they do not have as much level of intervention as Port Harcourt needs, the end result is that they will also merge to the schedule of the Port Harcourt refinery, and we will deliver all of them at the same time; and fortunately we can do it.
Are there plans to extend NNPC Retail operations to the neighbouring West African countries, to at least address the issue of smuggling once and for all?
It is not just about smuggling, it is about business.The market is today fully deregulated. PMS is sold at the market price today and, therefore, every West African country is now a market opportunity.So, obviously, it has been a dream of the NNPC to extend our tentacles across our borders, to take advantage of commercial activities. Now is the time for us to implement this.NNPC Retail will be pushed to make sure that, apart from expanding our market share in our country, which is a huge market on its own, we also take advantage of market across our borders. So, it is not really about managing smuggling anymore, it is business; it is a commercial interest that will work for us.
What is the NNPC’s plan for its loss-making subsidiaries, going forward?
We will cut cost, produce more. That is a very simple relationship. That is what we are doing: we will cut our cost, increase our efficiency and productivity, and then the combination of the two just gives you more money and then the loss is gone.
On July 8 you will be one year old in your position as the GMD of NNPC, and July 8 is the birthday of your late predecessor, DrMaikanti Baru. Share with us some of your memories of Dr Maikanti Baru.
Dr. Maikanti was a very good man, a very good leader. He was our mentor – he supported and helped us, he stood by us all through his retirement, until God took his life. It is a huge loss for us, but it also gives us the energy to continue to strive to do better, and, as he had always said, ‘Do your best, do your utmost best, don’t turn back.’ For us here, that is the biggest incentive he had left behind for us to perform. It is unfortunate that we lost him.
We observe that, under your management, there is peace and calm in the NNPC, no restiveness from labour unions. How have you been able to achieve that?
We are able to share our thoughts and our beliefs and the need to support the common good for all, because unions and workers don’t exist if the organisations don’t exist. So, what the unions have also come to see is that we are much focused on making sure that this organization survives so that we can also keep the membership of the unions at work.The combination of this is sharing common thoughts, common beliefs that we do need to work together to deliver on the task.And that it is really not magic; it is for people to understand their interest, to see that what we are doing serves the interest of all of us.