NNPCL: Long-term strategic imperatives (Part four)

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The first part of this series of articles, titled “NNPCL: Long-term strategic imperative”, laid the foundation for a proposition of a transformative agenda to reposition the Nigerian National Petroleum Corporation Limited (NNPCL) to intently focus on the upstream oil and gas sector to rapidly grow Nigeria’s upstream assets and to optimise the benefits derivable by Nigeria from its hydrocarbon resources. This will require the selling off of NNPCL’s midstream and downstream assets in the short to medium term and the privatisation of the entire organisation within a ten-year time frame, using the British Petroleum nine-year privatisation programme as a benchmark. The company will become a publicly listed company with all the shares owned by broad-based Nigerian shareholders and investors. NNPCL can remain a ‘national oil company’ vigorously pursuing Nigeria’s national interests in the upstream oil and gas sector without being necessarily owned by the government.

The second and third parts of the series of articles focused on the need to privatise the midstream assets of NNPCL, that is, the refineries, which have had a long history of suboptimal performance and inoperability. This was due largely to government ownership, political interference and loss of financial autonomy, which have led to billions of dollars of avoidable losses in the last four decades.

The current article will focus on the need to privatise NNPCL’s downstream assets or how NNPCL could completely exit the downstream sector of the Nigerian oil and gas industry by selling off NNPC Retail Limited. The vision of NNPC in 2000 to enter into the downstream sector as a petroleum products retailer was largely motivated by the need to bridge the petroleum products, primarily premium motor spirit (PMS) or petrol, supply gap in an era of acute shortage of petrol in particular, leading to perennial long queues of vehicles in fuel filling stations all over the country. The corporation began its retail business on January 1, 2002, by acquiring the TEXACO mega filling station in Ikoyi, Lagos. The strategy was to establish key mega filling stations. The second NNPC mega filling station was established in Abuja in December 2002. Today, NNPC Retail has the largest network of fuel filling stations in Nigeria, numbering over 900, comprising mega, standard and floating filling stations, a number of them, not the majority, being franchises. NNPC Retailing was formally registered as a limited liability company and a wholly owned subsidiary of NNPC in 2009. On October 1, 2022, NNPC acquired the downstream assets of OVH Energy Marketing Ltd, owner and operator of the erstwhile OANDO filling stations, in the largest merger and acquisition deal in the Nigerian downstream petroleum sector to date. The acquisition added 380 filling stations to the NNPC retail network in Nigeria and Togo, reaching 1500 filling stations, making NNPC Retail Ltd the largest retail network in Africa.

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“The major reasons the Federal Government of Nigeria established key enterprises after the attainment of political independence in 1960 included a lack of an enterprise culture and a dearth of capital, as a low-income country.”

In a press release signed by its former Chief Corporate Communication Officer, Olufemi Soneye, NNPC stated thus, “Upon acquisition of OVH by NNPC Ltd, both NNPC Retail Ltd and OVH effectively became subsidiaries of NNPC Ltd. However, based on professional advice and sound commercial considerations, NNPC Ltd opted to merge NNPC Retail Limited into OVH and thereafter retain NNPC Retail Limited as the company name post-merger.” This, for many observers, would certainly be confusing. NNPC Retail Ltd, as a full-fledged corporate entity and limited liability company, would, in a normal merger and acquisition deal, have fully acquired the assets and liabilities of OVH, and OVH would have ceased to exist as a corporate and legal entity. But taking a rather unusual approach, NNPC Ltd acquired OVH Energy Marketing Ltd, thus making it a subsidiary of NNPC Ltd along with NNPC Retail Ltd. “Based on professional advice and sound commercial considerations”, NNPCL then “opted to merge NNPC Retail Limited into OVH”, retaining NNPCL as its trading name.

Former group chief executive officer of NNPCL, Mele Kyari, stated that the acquisition was an audacious step to leverage the extensive asset base of OVH to achieve NNPCL’s strategic intent of becoming a catalyst for massive improvement within the downstream oil and gas industry. The chief executive officer of OVH Energy, Huub Stokman, saw synergy in the corporate combination, transforming the downstream energy sector in Nigeria and West Africa.

A correspondent of a leading online Nigerian financial journal who reported the matter stated thus, “The acquisition of OVH Energy by NNPC Limited is a case of a private company acquiring another impactful private sector company. This is an example of reduced government participation in the downstream sector,” a source at an NNPC Limited subsidiary told the respected online journal. It further reported that “According to the source, it is a good thing that NNPC is no longer under the government and is now operating as a private sector entity, which will promote transparency while pushing for success in Nigeria’s downstream sector.” Nothing could be farther from the truth. A hood does not make a monk. Adding the suffix ‘limited’ to the corporate name of a government-owned enterprise does not automatically make it a private enterprise. A government-owned enterprise can be a limited liability company. What that signifies is the intention of the enterprise to be run as a commercial entity, which presumes little or no political interference in its day-to-day operations as a commercial entity. But we have seen in the past that the ‘commercialisation’ of a major government-owned ‘parastatal’, as they were then called, neither reduced political interference in their operations nor led to any significant improvement in their operations. And they remained fully government-owned entities. NNPC Ltd and NNPC Retail Ltd remain hundred percent Federal Government of Nigeria-owned enterprises. They are not private companies.

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What the acquisition of OVH Energy Marketing Ltd by NNPC Limited amounts to is ‘reverse privatisation’, where a previously privatised entity reverts to government ownership or where a private company is nationalised by the government for one of several reasons, including market failure or ‘national interest’.

The major reasons the Federal Government of Nigeria established key enterprises after the attainment of political independence in 1960 included a lack of an enterprise culture and a dearth of capital, as a low-income country. Another reason in the specific case of Nigeria was the emergence of Nigeria as a major petroleum-producing and exporting country awash with billions of petrodollars, which we did not know what to do with. So, the government enacted the Indigenisation Decree, which forced foreign investors and entrepreneurs to sell certain categories of businesses to Nigerians either in part or in whole. The government also nationalised some major companies, either in part or in whole, including the major commercial banks.

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Today, the story is significantly different. Enterprise culture is diffused and deeply entrenched. Nigerian companies and investors are investing billions of dollars both locally and beyond our shores, especially in other African countries. The $20 billion Dangote Refinery symbolises that major shift in indigenous enterprise culture and deep pockets for major commercial projects. Therefore, there is no longer any economic justification for the government to be active in owning enterprises that directly compete with private enterprises in sectors like the upstream or downstream oil and gas industries. I do not see any economic justification in a government-owned company known for the opacity of its operation buying out a well-run major private competitor. (This takes nothing away from the improved financial reporting we saw during the tenure of Mele Kyari as group CEO of NNPCL).

Despite the expected improvements in efficiency post acquisition of OVH Energy Marketing Ltd in October 2022, two years later, in September 2024, NNPC Retail Ltd reported a whopping N239.5 billion loss! This goes to show that simply ‘commercialising’ NNPC Retail Ltd by adding ‘Limited’ to its name, without removing the factors of government ownership and political interference, will not improve its performance, just like the NNPC refineries. The medium- to long-term route to corporate growth, survival, efficiency and profitability for NNPC Retail, the downstream oil and gas wholly owned subsidiary of NNPCL, is privatisation. The government has no business selling petrol and competing in a downstream oil and gas sector overcrowded with efficiently and profitably run privately owned petroleum products marketers.

Mr Igbinoba is Team Lead/CEO at ProServe Options Consulting, Lagos.