Business
FG approves review of NNPC Joint ventures
Nigerian President Muhammadu Buhari has taken his first steps towards overhauling the state owned oil firm by giving its exploration joint ventures control over their own budgets as a way to overcome chronic cash shortages.
To speed up an often glacial decision making process at the Nigerian National Petroleum Corporation (NNPC) Buhari has given the green light to revamping several joint ventures involving its poorly managed production and exploration arm, according to a letter by NNPC head Emmanuel Kachikwu signed by Buhari, a copy of which was reviewed by Reuters.
NNPC did not respond to a request for comment but several oil sources confirmed the authenticity of the letter.
Nigeria produces about 2.2 million barrels per day of oil with foreign and local companies through production sharing contracts and joint ventures (JVs).
But projects have been held up because NNPC needs parliamentary and regulatory approval to spend anything. Officials and lawmakers are often six months late in giving their nod, making proposals irrelevant as costs exceed the original budgets. As a result, unpaid bills have been piling up.
According to the letter, the JVs will be turned into firms that control their own budgets. This will be similar to gas firm Nigeria LNG (NLNG), which finds “sources for its own funding, pays taxes and royalties and also pays dividends,” the letter said.
NLNG, in which Shell, Eni and Total have stakes along with NNPC, is one of the few efficient oil operations in Africa’s top crude producer.
There won’t be any immediate impact on oil exploration and production from the new model, so-called incorporated joint-ventures, as it will be tested on a few blocks first. If successful, it could be expanded to other arms of NNPC, an industry source said.
But analysts see the new joint-venture structure as a sign that reforms are finally underway.
“This could be an important early indicator for a key aspect of reformed oil sector policy – how to incentivise and maintain upstream investment by local private companies, and resolve operational issues between them and NNPC,” said Roderick Bruce, West Africa energy analyst at IHS.
Read also: NNPC moves to plug leakages, reviews PSC, JVs
To bypass time-consuming parliamentary approval, NNPC is expected to reduce its stake in joint ventures to below 50 per cent from 55 per cent by selling assets to local firms.
“Now the incorporated JV can raise funding more easily as it’s a model international investors will understand and there will be a balance sheet behind the IJV,” said Kola Karim, chairman of energy company Shoreline.
The letter states that this plan will apply to five oil blocks sold by Shell in 2011-2012 to local companies Shoreline Natural Resources Nigeria Ltd, First Hydrocarbon Nigeria Ltd, ND-Western Ltd, Elcrest E&P Nigeria Ltd and Neconde Energy Ltd.
It also covers West African Exploration and Production Co, which bought two licenses in 2015 from Shell.
The exploration overhaul is seen as a start to further changes at NNPC after years of relative standstill under Diezani Alison-Madueke, the former oil minister under Buhari’s predecessor, Goodluck Jonathan. She is being investigated by Britain for money laundering but has denied any wrongdoing.
With oil exploration firms working more efficiently under the new model, NNPC hopes to make a small step towards reducing its pile of unpaid bills.
But uncomfortable talks loom as oil firms say they are owed as much as $7.5 billion from the past few years, while NNPC puts the amount at $6 billion.
Credit: Reuters
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