What is NNPC doing at Dangote Refinery?

The decision by state-owned Nigerian National Petroleum Corporation to acquire an equity stake in Dangote Refinery is curious and may be difficult to justify, without understanding the rationale of the fiscal authority. The adulations it has received on this seemingly spontaneous decision have failed abysmally to consider the potential regulatory and statutory implications of such investment decision.

It can be quick to justify this with the government’s stake in LNG and the notable dividend and benefits that have accrued from the investments to the Nigerian state. Albeit there may be salient issues to consider in the case of Dangote Refinery, especially as it creates a potential conflict of interest with the State’s purported commitment to overhauling the moribund refineries in Port Harcourt, Kaduna and Warri.

Again, will the government be taking equity stakes in other refineries coming on board, and how will this influence the disposition of the government toward effective regulation of the entity, which is expected to produce a product that has significant integration with virtually all sectors of the economy? How will this government’s investment affect regulations on pricing and the competitiveness of other potential investors in the sector?

If care is not taken, this single action may lock out other potential investment flows into this critical segment of the Oil & Gas sector, as Dangote Refinery becomes the pseudo entity, which few capitalists would compete against. Does the government actually need this investment at this time? How will it be funded? Are we borrowing to fund this equity investment and what is the basis for the valuation? These and many questions would become subject of controversies, whether now or in the future, as the silence in the country on this issue may be louder than one can imagine.

It is difficult to place this sudden move because prior to the announcement the Corporation had announced that it had signed contracts for the revival of one or two of its four ailing, loss-making refineries. Interestingly, the NNPC may be better off, either selling off its existing refineries before embarking on such an investment foray or resuscitate at least one of the refineries before taking a plunge to co-invest with an upcoming refinery, as this decision may undermine its capacity to effectively run its own enterprise and hence not the best partner to take a significant stake in a private refinery.

It may perhaps also undermine the private orientation of Dangote Refinery, as a pure-play private enterprise. The only thing that would qualify NNPC is that it is a government establishment that can muscle its way through the industry where operators in one way or the other will depend on its services or approvals.

It would really be surprising to the world if this means the administration of President Muhammadu Buhari has given up on the state-owned refineries, which was a major campaign agenda both in 2015 and 2019.

Now in its 44th year, NNPC has largely disappointed Nigerians, in whose interest it was primarily set up. Like many other state-owned enterprises, the corporation has been a source of disappointment to Nigerians, living below expectations and indeed below the performance of its peers, which are also state-owned in Brazil, Malaysia, Saudi Arabia etc. NNPC straddles Nigeria’s oil and gas sector, so much so that there is a thin line between its actions as an operator and as a regulator, one of the issues that the

Petroleum Industry Bill was designed to address.

Over its period of existence, it has undergone strings of reforms, including change of name, from the Nigerian National Oil Company to its present name. In 1988, the government of the day commercialized it, a process that led to the creation of strategic units for the behemoth. One of such units was Refining under which came the four refineries located in Port Harcourt (two), Kaduna and Warri.

This was followed by another reform five years ago, when NNPC said it had become a global energy company.

Since its inception, the corporation has been the driver of Nigeria’s oil and gas industry, with its 18 different Group Managing Directors leading its operations. It has led in the provision of the country’s oil and gas infrastructure, no doubt.

Yet, the corporation has failed to deliver value to Nigerians. NNPC’s challenges do not arise from a lack of investment opportunities in any of the areas. Rather, its challenge, and the reason it has remained a laggard among its peers in the global oil market is a glaring lack of strategic intent.

Gary Hamel and C.K. Prahalad in their book, Competing for the Future, declare that strategic intent is that capstone on strategic architecture that gives a company direction, discovery and destiny.

Unfortunately, NNPC’s political environment has prevented it from preparing for the future, which explains why it is now running from one investor to the other to take stakes in refining projects. At its age, it should be attracting investors wishing to partner with it.

It has said that its mission is to be “an integrated Oil and Gas Company, engaged in adding value to the nation’s hydrocarbon resources for the benefit of all Nigerians and other stakeholders”.

It is difficult for millions of Nigerians to identify themselves in this mission statement of their national oil company. One needs to be involved in this industry, as an operator, regulator, or a hanger-on, to be able to benefit from the corporation’s activities.

When this corporation had the opportunity to strengthen local refining capacity, it chose to run down the refineries, preferring rather to import refined products.

So Nigeria had agents roaming the global refining market searching for products for its citizens. With that obvious corporate policy, a nation that had a total installed refining capacity of 445,000 barrels of oil per day became totally dependent on the importation of refined products. That cost Nigeria not only extra money through the higher prices, it has also been part of the forces driving the country’s current high inflation.

Many Nigerians believed and still believe that there was a deliberate decision to run the four refineries down in order to sustain the importation of petroleum products for the benefit of some interests. To what extent this true is subject to verification.

In doing that local consumers of these products were saddled with taxes and extra costs that could have been avoided with local refining.

NNPC also says that its vision is to become “a world-class oil and gas company driven by shared commitment to excellence”.

A better test or proof of the change that is said to be taking place in the corporation would have been its ability to attract investors to its existing refineries, not for it to jump unto other projects where it knows there would be little or no entry barriers for it.