NNPC: The Pendulum Swings Again.

First a bit of brief history. Oil was discovered in Nigeria in 1908 but actual production in commercial quantities only started in 1957. In 1959 the federal government (more like colonial government) instituted the first set of rules for the oil industry, basically implementing a 50-50 tax on petroleum profits. Basically oil companies (all foreign) did all the work and whatever profits were made at the end of the day were split 50-50.

By the early 1970s that deal had become untenable due to many factors. Nigeria joined OPEC which required that the country nationalize its oil industry, there was bad blood between Nigeria and foreign oil companies because of the Biafra war, and the seeming negligence of big oil to “develop” the country.

In 1971 the Nigeria National Oil Corporation (NNOC) was born.  Very important to note that the NNOC wasn’t a real oil company in the sense that it could do oil company work. Its was more of an investment holding company designed to maintain ownership of the oil industry and expropriate as much value for the government (and maybe the country) as possible. I say maybe the country because by 1979 the federal government had almost completely seized control of the oil industry from both the foreign oil companies and the state and regional governments.

In terms of structure the NNOC was virtually a government parastatal. It was littered with political appointments, with almost every decision having to be approved by a political appointee, probably a commissioner.

As you no doubt have guessed, business cannot really work in that way. You cannot run a business where “approval from oga” is required at every meeting. Especially when the oga is politician. In practice this meant that plenty money disappeared. For example, according to the 1980 Crude Oil Sales Tribunal, the NNOC failed to “collect” $2bn worth of crude oil. The NNOC said it didn’t sell the crude oil because it couldn’t find buyers. The operating company said they were paid to “produce” the crude oil during that same period and did so. The NNOC of course had no audited financial accounts. Sounds very familiar eh?

So the pendulum swung.

The NNPC was created in 1977 with the major goal to create a corporation that could function like a private company, be accountable but run independent of politicians. Commercial freedom as they call it with the independence to make decisions up to a certain threshold.  In English this just means the control by the federal government was indirect. As you  no doubt have again guessed, money still missed road plus the regular mismanagement.

Another swing.

The results: another round of reforms in 1980. This time to decentralize (or unbundle?) the NNPC. The NNPC was split into nine subsidiaries. Still all federal government owned and managed. You probably know where this is going. Money missed road again plus the usual mismanagement.

Another swing.

In 1988 the reform manta was sounded again. This time the goal was to repurpose the NNPC as a “financially autonomous” and “commercially integrated” oil company. IBB grammar. 11 subsidiaries this time. Still federal government owned and run. Still answerable to the minster. Still sprinkled with political appointments.

Yet another swing.

Enter democracy in 1999. A new opportunity for the NNPC. Reforms number … I’m not sure… but many.  Cue petroleum industry bill and so on and so forth. Mismanagement. Missing money. You know the drill.

Why am I telling you this story? It seems the NNPC goes through reforms over and over again. In fact there is no decade that the NNOC or NNPC has not gone through some type of significant set of reforms to repackage it as a world class corporation the likes of [insert fancy government controlled IOC here]. It always seems to end the same way. Lots of missing money. Lots of mismanagement. Plenty stories about change.

In all these there has been one overriding theme; federal government control of everything. The current set of reforms are taking that into overdrive. The NNPC will do this. The NNPC will do that. Unbundling for a more effeicient this. Price modulation blah blah.

Of course this time may be different. This could be the final set of reforms that turn NNPC into Petrobras. Or maybe not.

My advice to the federal government: If you love something let it go. Free the oil industry.


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