NNPCL: Long-term strategic imperatives (part five)

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This is the second and concluding part of the article from last week, which focused on the need to privatise NNPC Retail Ltd, the downstream operations of NNPC Limited. The entire series, which started five weeks ago, is canvassing the need for the privatisation of the entire NNPC and its subsidiaries along the path of the privatisation of British Petroleum, which took nine years to achieve and turned the company into a globally competitive oil and gas major. The justification is for NNPC Limited, as a privately held national oil company, to focus more intently on its upstream operations to enhance the nation’s portfolio of oil and gas assets to the fullest and more productively and profitably, thereby optimising our overall benefits from our upstream hydrocarbon resources.

Last week, I took the position that the Nigerian government, which owns NNPC Limited a hundred percent, has no business in 2025, after 65 years of political independence, owning and operating an oil and gas retailing enterprise and competing with a crowd of efficiently run private sector operators in the downstream oil and gas sector in selling petrol through NNPC Retail Ltd. The job can be done better and more efficiently by private marketing companies. The reason for the government filling in the gap to own public enterprises in the absence of a local enterprise culture and dearth of investment capital no longer exists, as can be attested to by the large number of privately owned petroleum marketing companies. In 2022, NNPCL raised the number of major oil marketers to 27. Historically, there have been seven major petroleum product marketers. These are 11 Plc (formerly Mobil downstream), Ardova Plc, Conoil Plc, MRS Oil Nigeria Plc, OVH Energy Marketing Ltd, TotalEnergies Ltd, and government-owned NNPC Retail Ltd. The major petroleum marketing associations include the Major Energies Marketers Association of Nigeria (MEMAN), the Independent Petroleum Marketing Marketers Association of Nigeria (IPMAN), the Depot and Petroleum Products Markers Association of Nigeria (DAPPMAN), and the Petroleum Products Retail Outlets Owners Association of Nigeria (PETROAN), which is an umbrella body for owners of licensed petroleum products retail stations.

“The Federal Government should take special interest in sanitising, restructuring and repositioning the midstream and downstream sectors of the Nigerian oil and gas industry.”

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I also took the position last week that the acquisition by NNPC Retail Ltd on October 1, 2022, of the downstream assets of OVH Energy Marketing Ltd, owner and operator of the erstwhile Oando filling stations, was a ‘reverse privatisation’. This is because Oando Holdings, which had, between 2000 and 2002, bought over the Federal Government equity interests in Unipetrol Nigeria and Agip Nigeria Plc to form the Oando Petroleum Marketing Company, within a short period of two decades, became a major force in petroleum products marketing in Nigeria. Oando Holdings sold its equity interests in the Oando Petroleum Marketing Company to OVH Energy, owned by the consortium of Vitol and Helios, between 2016 and 2019. Thus, the transaction that led to NNPC acquiring OVH Energy Marketing Ltd amounts to the Federal Government of Nigeria reversing the privatisation of its equity interests in Unipetrol Nigeria and Agip Nigeria Plc between 2000 and 2002.

Against the foregoing, some of the reasons NNPCL should exit the downstream oil and gas sector and sell off NNPC Retail Ltd are as follows:

· The acquisition of OVH Energy Marketing Ltd goes against the principle and global trend of privatisation, because it involves a government business entity, NNPCL, acquiring an efficiently run private downstream oil and gas entity, which is reverse privatisation, and consolidating government control in an industry where there are a large number of efficiently run private sector operators. This is a loss because government-owned businesses, particularly in the oil and gas industry, are subject to inefficiency and political interference.

· Secondly, there are already in existence in the downstream oil and gas sector a large number of efficiently operated private petroleum products marketing companies, making the presence of NNPC Retail Ltd superfluous. The reason for government ownership of enterprises, which is the absence of local entrepreneurial capacity and capital, no longer exists 65 years after political independence.

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· The plan to transform NNPC Retail Ltd into the largest downstream operator in Africa, with 1500 filling stations and other major downstream assets could lead to an inefficient, loss-making behemoth crowding out more efficiently and transparently run privately owned downstream operators.

· The loss by NNPC Retail Ltd of N395.5 billion in a single financial year in 2024 demonstrates the loss-making potential of the company due to operational inefficiencies, lack of financial autonomy and political interference.

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The first step in the privatisation of NNPC Retail Limited should involve the reversal of the acquisition of the OVH Energy Marketing Limited transaction. After that, the major petroleum marketers and other investor groups should form consortia to bid for 51 percent of the total equity of NNPC Retail Limited, using the core investor mode. After the selection of the core investor, the remaining 49 percent of the shares of NNPC Trading Ltd should be sold at the stock exchange through an initial public offering (IPO).

The Federal Government should take special interest in sanitising, restructuring and repositioning the midstream and downstream sectors of the Nigerian oil and gas industry. This also includes re-evaluating the upstream and downstream petroleum industry regulatory framework to serve the best interests of the oil and gas industry and the Nigerian economy. A privatised, repositioned and efficiently run upstream and downstream oil and gas industry has great potential to make a far-reaching impact on the entire economy through energy security, energy independence, efficient logistics, job and wealth creation and a positive impact on the naira exchange rate. The government has to determine its economic priorities in the oil and gas sector and ensure that its policies and the regulatory framework and environment are in sync.

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