Strictly Personal

Nigeria and the new NNPC by Reuben Abati

Published

2 years ago

July 19, 2022

This day, July 19 should go down as a special moment in the economic history of Nigeria – the day when the country’s main vehicle for economic survival, the Nigerian National Petroleum Corporation (NNPC) is officially unveiled by the incumbent President as a commercial venture. The transition took effect on July 1, in line with the provisions of the Petroleum Industry Act (PIA), 2021. But by noon today, NNPC would have formally made that transition from being a corporation to become a limited liability company, a company limited by shares, to be known hereafter as NNPC Limited, that is a commercial venture. In some of our media platforms in the last few days, the NNPC hierarchy has been staging a song and a dance over the fact that the NNPC was indeed about to become a new entity. What does this mean in real terms for Nigerians? While we are all obsessed with politics, the Osun Gubernatorial election being the latest menu on the plate of the commentariat and the political elite, it seems to me that the transition that is to be unveiled today at the NNPC deserves some interest. Established in 1977, 45 years ago, the NNPC manages Nigeria’s crude oil, gas and petrochemical resources, the joint venture between Nigeria and oil multinationals, and also engages in petroleum exploration and production through the country’s four refineries.

Crude oil accounts for more than 80% of the country’s foreign exchange earnings. With Nigeria identified as the sixth largest oil producer in the world, and with the country blessed with the sweet, low-sulphur, top grade Brent Crude variety, crude oil was effectively Nigeria’s equivalent of manna from Heaven. In due course, we were told that Nigeria is even more of a gas producing country than an oil dependent country. Milk and honey practically flow under Nigeria’s soil. It has been NNPC’s business to manage all of that, and bring profit to the country. Nigeria is not the only country that has been so privileged. They have oil and gas in Saudi Arabia, Russia, Qatar, UAE, Venezuela (bad reference in the circumstance), Libya, Kuwait, the United States, Norway and quite a number of other countries. Whereas oil and gas resources have brought some countries power and glory, Nigeria’s experience has been mixed and problematic. From being a resource-rich country in the 70s and 80s, crude oil in particular has turned out to be a source of agony and pain for Nigeria. We squandered the riches. A terrible economy developed over the years around oil and gas. Politics, ethnicity, greed, corruption and all the other ailments that assail the country found a home in the oil and gas sector. This should not be surprising. The easiest way to make money in Nigeria is to get into the oily business. It was a matter of time before the people would begin to agitate for reforms and a change of regime. And it happened. Oil resource became the target of seething anger within the system. Those who believe that the oil and gas that come from their soil in the Niger Delta is theirs see no reason why anyone, any group or any region that does not produce oil and gas should benefit from other people’s endowments in a supposedly federal system. Oil became political. Politics became oily and gassy. Right at the centre of this conundrum was the NNPC, and the country’s Ministry of Petroleum Resources and everything attached thereto.

To address both the sentiments and the substance around this issue, there have been calls for resource control. From Adaka Boro to Ken Saro-Wiwa and beyond, there have been calls for true federalism, secession, respect for the rights of ethnic minorities, and counter arguments along geographical lines with the North pitched against the South on the question of who owns what, who should get what, and what share – Nigeria’s main revenue being oil and gas. In due course, the Petroleum Industry Bill was introduced to address many of the issues: governance, regulatory frameworks, community relations and management. When President Muhammadu Buhari unveils a new NNPC this morning, with a new brand, logo and identity, NNPC Limited emerging in place of the Nigerian National Petroleum Corporation, he would be giving effect to a major plank of the Petroleum Industry Act (PIA). President Buhari can comfortably claim the PIA as one of the achievements of his administration. For decades, Nigerians complained about the need for reform in the oil and gas sector. They asked for a review of joint venture frameworks. They wanted a new NNPC that would be organized for productivity and efficiency and not a mere government parastatal bogged down by politics and graft. Oil bearing communities also had their demands relating to justice, equity and fairness and how these have been treated shabbily within the larger Nigerian equation.

For decades, the Nigerian legislature toyed with the law. Under Buhari, the law was passed. It seeks to provide a new governance framework in the oil and gas sector. The law removes the subsidy in the downstream sector especially with regard to petrol. It decrees a transformation of the NNPC into a profit making, independent, commercial venture. Before now, the NNPC has been run as a cash cow for the Nigerian Government, as a dependent public sector agency. It manages the oil and gas resources of the country, makes money, transmits same to the Treasury. Every month, state governments carry bowls in hands, rush to Abuja and at what is called the Federation Accounts Allocation Committee meeting (FAAC), collect their own share of the national cake. Everyone got so greedy, everything got so mismanaged, NNPC got to a point it started protesting that there was very little to share or add again. For months, the NPPC using the excuse of under-recovery and subsidy has not been able to contribute as much as it should to the national purse. This is one reason why its reform is imperative. The PIA has offered a window but how open is that window?

The unveiling of a new NNPC should be seen correctly by industry watchers as a positive development. The need for the transition as proposed is justified by how Nigeria’s national oil company performs badly against its peers. In the wake of the Russia-Ukraine war, Russia has been using its energy resources as a weapon against Europe which depended on Russia for about 40% of its energy needs. Russia simply turned off the Nord Stream 1 pipeline for routine maintenance, and asked for payments in rouble, to push Europe into confusion, and energy prices to the roof. Countries with high demand for energy are groaning. Countries that are rich in oil and gas are smiling: Saudi Arabia and other countries of the Middle East are being wooed as the West looks for alternative sources of energy. The United States is wooing Saudi Arabia afresh. It has tried to soften a bit on Venezuela. Sri Lanka in the Indian sub-ocean is in trouble in part because it cannot provide fuel, food and medicines for the people. Pakistan is hanging on to the IMF to bail it out. Cost of living crisis is a major issue in Great Britain. While Europe is looking towards Algeria, Tunisia, and Angola for solutions and alternatives, Nigeria has been caught flat-footed. Rather than turn the current global crisis into an advantage, we are busy here lamenting that rising oil prices amount to a curse for Nigeria. We are not befitting because we are not ready. In today’s global energy mix, Nigeria pays a huge price for its own failures in managing its main resource and the plain view reason is this: the failure of leadership.

NNPC wears a new toga today. We have made that point. Restructuring of the public sector has been a recurring decimal in Nigeria’s economic history. The question has always been: how can public enterprises be made more profitable: commercialization, privatization or liberalization? Liberalization as in the telecommunication sector has resulted in growth and innovation and the end of the inefficiency of the old, state-owned NITEL. That is one good example. In a deregulated regime, the state has no control over price. It can only regulate quality. Under a privatization regime, the state can regulate, but the entity is controlled by its shareholders. The fundamental thing is: a private entity is after the maximization of profit and minimal cost. What has happened to the NNPC is commercialization, not privatization. But don’t get it twisted: NNPC still remains in the public sector. That is why it is still called Nigerian National… The only difference is that as a commercial entity, it will now have to pay more attention to its profit and cost centres. While there is a limit to which it can dictate price and profit, it must be noted that it can no longer do business as usual.

What is also new is that while the NNPC may still have a relationship with government, the same government can no longer have control over the staffing of the NNPC. The control of the Minister of Petroleum will be limited. As a commercial entity, the NNPC is beholden to its shareholders. Competence, quality will determine recruitment. The old practice of anyone in government sending notes for NNPC allocation or positions would be untenable under the new arrangement. Nobody can send in a note anyhow. The influence of rent collectors would be watered down, if not completely eliminated. It also means that the country can no longer depend mainly on NNPC for Federation Accounts returns (FAAC). The Federal Government would be entitled strictly to returns on its shares. In all of these regards, today’s development, NNPC’s transition into a commercial entity is a laudable development. The Group CEO of the new company, the erstwhile Group GMD of the NNPC whose title has thus changed, has alluded much to this when he made it clear in the past few days that (i) NNPC going forward is responsible to its shareholders as a limited liability company, (2) whatever service it provides for the Federal Government would be for a fee, (3) subsidy is not the responsibility of the NNPC, but that of the Federal Government and (iv) NNPC is committed to transparency and accountability, and accounting rules.

At the unveiling today, the Buhari government can commend itself for seeing through the PIA. But the skeptics are unrelenting and they have raised issues that we need to worry about. They argue for example that it is indeed a good and proper thing to seek to make the NNPC as efficient and as profitable as Saudi Arabia’s ARAMCO and other peers elsewhere but the problem is that NNPC is still tied to the apron strings of government. Most of the workers are still workers of the Nigerian government. As a commercial entity, it should be possible for the company to source its own expertise, consultants and staff from anywhere without the Nigerian government imposing the constraints of ethnicity and federal character. The NNPC of old ran a Nigerian-factor regime where some characters thought access to political power and influence granted them automatic control over the resource management company. Such a system would not be acceptable under the new mode of doing business. That has to change forthwith, to send the strong signal that it is indeed no longer business as usual. Second, the much-talked about NNPC shareholders are the Ministry of Finance Incorporated (MoFI) and the Nigerian Treasury, which are both government entities. NNPC says it will send debit and credit notes for services rendered to demonstrate its own accountability and commitment to EITI principles. MoFI can claim that it represents the Nigerian people. What will NNPC Ltd do if government fails to pay – this same government that does not pay electricity bills or ASUU salaries? And as things stand, it looks like NNPC truly can no longer be held responsible for monthly contributions to the Federation Account.

Nonetheless, the NNPC as a commercial entity can only succeed as much as the Federal Government wants it to. As long as the NNPC is government-linked, there will be issues. For the NNPC to succeed, it needs to function under a government that understands the meaning and implications of profit and loss. There is a need for deep reform, for the people’s overall benefit. The meaning of the new dispensation is that NNPC would have no option but to send debit notes to the Federal Government, because the company won’t be able to hide the gaps in its balance sheet. The Buhari government does not have this profit and loss orientation mindset that is required to birth a new NNPC. The responsibility for that would have to be taken up perhaps by a new government. We can only hope that the would-be next President of Nigeria, whoever he turns out to be, is thinking of this, from both an economic and national security perspective. A food for thought is the position that in the long run, the NNPC must be privatized. Its board must not be a political Board, it must be a commerce-oriented Board. The experts must be allowed to do their job, not politicians, seeking rent. NNPC shares must be sold directly to the public as a company under the Companies and Allied Matters Act (CAMA).

There is the unresolved issue of refineries. There is nothing wrong in Nigeria having a national oil company, but to save the NNPC, it is important to keep the fundamentals in mind. NNPC’s transformation comes at a time when the world faces an energy crisis, and a cost-of-living dilemma. It makes no sense that the country’s four refineries are grounded, or running at a loss. It is shameful that Nigeria cannot meet its OPEC quota. It is scandalous that it is only just now that we are beginning to talk more seriously about transparency and accountability in the management of the country’s most strategic resource. The emergence of a new NNPC is a good idea, but it seems to me that the best that the Mele Kyari-team can do, for now, is to lay the foundation for a more far-reaching process. Under Mele Kyari’s watch, the NNPC published its first audited accounts in 43 years in 2020! The new NNPC is expected to do things differently to attract investment, promote innovation, eliminate corruption and inefficiency, and ensure clarity. It must measure up like Saudi Arabia’s Aramco, and Brazil’s Petrobras. Its business model must work for the country’s benefit. The new NPPC must represent a transition in real terms into a new style and philosophy.

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Strictly Personal

Let’s merge EAC and Igad, By Nuur Mohamud Sheekh

Published

3 weeks ago

November 27, 2024

Ifeoluwa Dada

In an era of political and economic uncertainty, global crises and diminishing donor contributions, Africa’s regional economic communities (RECs) must reimagine their approach to regional integration.

The East African Community (EAC) and the Intergovernmental Authority on Development (Igad), two critical RECs in East Africa and the Horn of Africa have an unprecedented opportunity to join forces, leveraging their respective strengths to drive sustainable peace and development and advance regional economic integration and promote the African Continental Free Trade Area (AfCFTA).

Already, four of the eight Igad member states are also members of the EAC and, with Ethiopia and Sudan showing interest, the new unified bloc would be formidable.

Igad’s strength lies in regional peacemaking, preventive diplomacy, security, and resilience, especially in a region plagued by protracted conflicts, climate challenges, and humanitarian crises. The EAC, on the other hand, has made remarkable strides in economic integration, exemplified by its Customs Union, Common Market, and ongoing efforts toward a monetary union. Combining these comparative advantages would create a formidable entity capable of addressing complex challenges holistically.

Imagine a REC that pairs Igad’s conflict resolution strengths with the EAC’s diplomatic standing and robust economic framework. Member states of both are also contributing troops to peacekeeping missions. Such a fusion would streamline efforts to create a peaceful and economically prosperous region, addressing the root causes of instability while simultaneously promoting trade investment and regional cooperation.

These strengths will be harnessed to deal with inter-state tensions that we are currently witnessing, including between Ethiopia and Somalia over the Somaliland MoU, strained relations between Djibouti and Eritrea, and the continually deteriorating relations between Eritrea and Ethiopia.

The global economy experienced as a result of the COVID-19 pandemic, compounded by the Ukraine war and competing global crises, has strained donor countries and reduced financial contributions to multilateral organisations and African RECs. Member states, many of which are grappling with fiscal constraints, are increasingly unable to fill this gap, failing to make timely contributions, which is in turn affecting key mandate areas of Igad and EAC, and staff morale.

A merger between Igad and EAC would alleviate this financial pressure by eliminating redundancies. Shared administrative systems, integrated programmes, and a unified leadership structure would optimise resources, enabling the new REC to achieve more with less. Staff rationalisation, while sensitive, is a necessary step to ensure that limited funds are channelled toward impactful initiatives rather than duplicative overheads.

The African Union (AU) envisions a fully integrated Africa, with RECs serving as the building blocks of the AfCFTA. A unified EAC-Igad entity would become a powerhouse for regional integration, unlocking economies of scale and harmonising policies across a wider geographical and economic landscape.

This merger would enhance the implementation of the AfCFTA by creating a larger, more cohesive market that attracts investment, fosters innovation, and increases competitiveness. By aligning trade policies, infrastructure projects, and regulatory frameworks, the new REC could serve as a model for others, accelerating continental integration.

The road to integration is not without obstacles. Political will, divergent institutional mandates, and the complexity of harmonising systems pose significant challenges. However, these hurdles are surmountable through inclusive dialogue, strong leadership, and a phased approach to integration.

Member states must prioritise the long-term benefits of unity over short-term political considerations. Civil society, the private sector, the youth, and international partners also have a critical role to play in advocating for and supporting this transformative initiative.

The time for EAC and Igad to join forces is now. By merging into a single REC, they would pool their strengths, optimise resources, and position themselves as a driving force for regional and continental integration. In doing so, they would not only secure a prosperous future for their citizens and member states but also advance the broader vision of an integrated and thriving Africa.

As the world grapples with crises, Africa must look inward, embracing the power of unity to achieve its potential. A combined Igad-EAC is the bold step forward that the continent needs.

Nuur Mohamud Sheekh, a diplomatic and geopolitical analyst based in London, is a former spokesperson of the Igad Executive Secretary. X: @NuursViews

Strictly Personal

Budgets, budgeting and budget financing, By Sheriffdeen A. Tella, Ph.D.

Published

4 weeks ago

November 20, 2024

Ifeoluwa Dada

The budget season is here again. It is an institutional and desirable annual ritual. Revenue collection and spending at the federal, State and local government levels must be authorised and guided by law. That is what budget is all about. A document containing the estimates of projected revenues from identified sources and the proposed expenditure for different sectors in the appropriate level of government. The last two weeks have seen the delivery of budget drafts to various Houses of Assembly and the promise that the federal government would present its draft budget to the National Assembly.

Do people still look forward to the budget presentation and the contents therein? I am not sure. Citizens have realised that these days, governments often spend money without reference to the approved budget. A governor can just wake up and direct that a police station be built in a location. With no allocation in the budget, the station will be completed in three months. The President can direct from his bathroom that 72 trailers of maize be distributed to the 36 states as palliatives. No budget provision, and no discussion by relevant committee or group.

We still operate with the military mentality. We operated too long under the military and of the five Presidents we have in this democracy, two of them were retired military Heads of State. Between them, they spent 16 years of 25 years of democratic governance. Hopefully, we are done with them physically but not mentally. Most present governors grew up largely under military regimes with the command system. That is why some see themselves as emperor and act accordingly. Their direct staff and commissioners are “Yes” men and women. There is need for disorientation.

The importance of budget in the art of governance cannot be overemphasized. It is one of the major functions of the legislature because without the consideration and authorisation of spending of funds by this arm of government, the executive has no power to start spending money. There is what we refer to as a budget cycle or stages. The budget drafting stage within the purview of the executive arm is the first stage and, followed by the authorisation stage where the legislature discusses, evaluates and tinkers with the draft for approval before presenting it to the President for his signature.

Thereafter, the budget enters the execution phase or cycle where programmes and projects are executed by the executive arm with the legislature carrying out oversight functions. Finally, we enter the auditing phase when the federal and State Auditors verify and report on the execution of the budgets. The report would normally be submitted to the Legislature. Many Auditor Generals have fallen victim at this stage for daring to query the executives on some aspects of the execution in their reports.

A new budget should contain the objectives and achievements of the preceding budget in the introduction as the foundation for the budget. More appropriately, a current budget derives its strength from a medium-term framework which also derives its strength from a national Development Plan or a State Plan. An approved National Plan does not exist currently, although the Plan launched by the Muhammadu Buhari administration is in the cooler. President Tinubu, who is acclaimed to be the architect of the Lagos State long-term Plan seems curiously, disillusioned with a national Plan.

Some States like Oyo and Kaduna, have long-term Plans that serve as the source of their annual budgets. Economists and policymakers see development plans as instruments of salvation for developing countries. Mike Obadan, the former Director General of the moribund Nigeria Centre for Economic and Management Administration, opined that a Plan in a developing country serves as an instrument to eradicate poverty, achieve high rates of economic growth and promote economic and social development.

The Nigerian development plans were on course until the adoption of the World Bank/IMF-inspired Structural Adjustment Programme in 1986 when the country and others that adopted the programme were forced to abandon such plan for short-term stabilisation policies in the name of a rolling plan. We have been rolling in the mud since that time. One is not surprised that the Tinubu administration is not looking at the Buhari Development Plan since the government is World Bank/IMF compliant. It was in the news last week that our President is an American asset and by extension, Nigeria’s policies must be defined by America which controls the Bretton Woods institutions.

A national Plan allows the citizens to monitor quantitatively, the projects and programmes being executed or to be executed by the government through the budgeting procedure. It is part of the definitive measures of transparency and accountability which most Nigerian governments do not cherish. So, you cannot pin your government down to anything.

Budgets these days hardly contain budget performance in terms of revenue, expenditure and other achievements like several schools, hospitals, small-scale enterprises, etc, that the government got involved in successfully and partially. These are the foundation for a new budget like items brought forward in accounting documents. The new budget should state the new reforms or transformations that would be taking place. Reforms like shifting from dominance of recurrent expenditure to capital expenditure; moving from the provision of basic needs programmes to industrialisation, and from reliance on foreign loans to dependence on domestic fund mobilisation for executing the budget.

That brings us to the issue of budget deficit and borrowing. When an economy is in recession, expansionary fiscal policy is recommended. That is, the government will need to spend more than it receives to pump prime the economy. If this is taken, Nigeria has always had a deficit budget, implying that we are always in economic recession. The fact is that even when we had a surplus in our balance of payment that made it possible to pay off our debts, we still had a deficit budget. We are so used to borrowing at the national level that stopping it will look like the collapse of the Nigerian state. The States have also followed the trend. Ordinarily, since States are largely dependent on the federal government for funds, they should promote balanced budget.

The States are like a schoolboy who depends on his parents for school fees and feeding allowance but goes about borrowing from classmates. Definitely, it is the parents that will surely pay the debt. The debt forgiveness mentality plays a major role in the process. Having enjoyed debt forgiveness in the past, the federal government is always in the credit market and does not caution the State governments in participating in the market. Our Presidents don’t feel ashamed when they are begging for debt forgiveness in international forum where issues on global development are being discussed. Not less than twice I have watched the countenance of some Presidents, even from Africa, while they looked at our president with disdain when issues of debt forgiveness for African countries was raised.

In most cases, the government, both at the federal and state cannot show the product of loans, except those lent by institutions like the World Bank or African Development Bank for specific projects which are monitored by the lending institutions. In other cases, the loans are stolen and transferred abroad while we are paying the loans. In some other cases, the loans are diverted to projects other than what the proposal stated. There was a case of loans obtained based on establishing an international car park in the border of the State but diverted to finance the election of a politician in the State. The politician eventually lost the election but the citizens of the State have to be taxed to pay the loan. Somebody as “Nigeria we hail thee”.

Transformation in budgeting should commence subsequently at the State and federal level. Now that local government will enjoy some financial autonomy and therefore budgeting process, they should be legally barred from contracting foreign loans. They have no business participating in the market. They should promote balanced budget where proposed expenditures must equal the expected revenues from federal and internal sources. The State government that cannot mobilise, from records, up to 40 percent of its total budget from IGR should not be supported to contract foreign loans. The States should engage in a balanced budget. The federal government budget should shift away from huge allocations to recurrent expenditure towards capital expenditure for capital formation and within the context of a welfarist state.

Sheriffdeen A. Tella, Ph.D.