Oil & Gas Reforms: Safeguarding the Legacy Kachikwu Left Behind

Dr. Ibe Kachikwu, immediate past Minister of State for Petroleum Resources, worked diligently to reposition Nigeria’s oil and gas sector for stability, efficiency and transparency.

By Desmond Kazim

When Dr. Emmanuel Ibe Kachikwu was earlier appointed Group Managing Director (GMD) of the Nigerian National Petroleum Corporation (NNPC) by President Muhammadu Buhari in 2015, and later became Minister of State for Petroleum Resources in 2016, Nigerians and other observers from the international community applauded the development in both aspects. And there are several reasons that the choice of Kachikwu for the positions attracted wide public acclaims.

Buhari had been elected on the mantra of change in 2015. He was expected to save Nigeria the steady flow of frustration and hardship from the bourgeoning energy sector entangled in a sequence of missteps and poor corporate governance. The NNPC was seen as an incorrigible cesspit of corruption and a conduit pipe for extensive national revenue leakage. It was reputed as a behemoth of treasury looting that had infected the system and its contacts.

Additionally, the president, who had assumed the portfolio of Minister of Petroleum Resources, knew he could not do all the work. He considered it imperative to bring in a technocrat with verse exposure in the energy sector; one also capable of undertaking the diplomatic shuttle that global energy politics entails. He opted for Kachikwu, then Vice Chairman and General Counsel at ExxonMobil where he oversaw the company’s compliance programme and advised on issues related to adherence with compliance regulations and anti-corruption laws in Africa.

On assumption of duty Kachikwu, still bubbling in the spirit of efficiency, profitability and productivity for which the private sector is known, articulated his plans to transform NNPC into an efficient and profit-oriented organisation. He implored the corporation’s management to team up with him to close the skill gap towards turning the fortunes of the organisation around. Specifically, he pledged to fix the moribund refineries and reposition them to run efficiently and profitably while meeting the energy needs of the country. He was clear about his goals.

The then NNPC chief set out to ensure that the Corporate Service Unit and all the strategic business units of the corporation were run as profit centres. He communicated this to members of the organisation, especially the leadership echelon. The message he brought was that the days when NNPC was perceived as a civil service organisation, instead of a profit-oriented corporation, were over. In his maiden interactive session with the corporation’s top management in Abuja, Kachikwu told them, “In the next 60 days, some of the strategic targets would be translated into concrete milestones to the appreciation of all Nigerians”.

The wheels of Kachikwu’s strategic plan had barely started rolling when the journey was truncated. The ex-ExxonMobil executive was removed by Buhari who replaced him with Maikanti Baru as the group managing director of NNPC in July, 2016. Kachikwu had been appointed Minister of State for Petroleum Resources by President Buhari in November 2015, barely three months he became NNPC’s chief executive officer. His new status also placed him in the position of chairman of the NNPC board.

Notwithstanding what appeared a shockingly fateful disruption, the man who took the risk of venturing into the miry clay of the public sector, riddled with political thistles and thorns, trudged on. He refused to pander to public sentiments that portrayed him as habouring grudges against the president in effecting the change of guards at the NNPC leadership. He vehemently rejected the conspiracy theory that he lacked the deep understanding of the complex algorithms of power because he was a stranger in the public service domain.

The appointment and replacement drama coincided with the 15-month recession that invaded the Nigerian economy, occasioned by the double tragedy of huge slump in oil prices in the international market (from $100 to below $50 per barrel) and disruption in local production (declining to 800,000 from 2.2 million barrels per day). Niger Delta militants had embarked on attacks against oil companies, destroying their facilities in oil-bearing communities. Kachikwu rolled up his sleeves and took a dive into the field. The responsibility of stablising the oil and gas industry amidst increasing volatility in the international market, as well as neutralising the rage of the rampaging militants was an acid test for a “novice” in the public sector setting. Only a big heart of undiluted patriotism could effectively grapple with such challenge.

“Security in Niger Delta was all time low”, Kachikwu said. “Most of the oil companies were actually not producing; there was militancy all over the place. Our pipelines were being ruptured every day. Therefore, the volume of production at the time was roughly about 800,000 to a million barrels per day. So, prospects of getting down to our generating capacity were virtually not there”. The courageous move in tackling these challenges brought stability to the nation’s oil and gas sector. Nigeria depends on crude oil export for about 70 per cent of government revenue and 90 per cent of foreign exchange earnings.

It was noteworthy that the president and the vice-president played their own roles at the time. But Kachikwu remained the arrow-head. He recalled paying “all kinds of visits into the Niger Delta terrains by exposing one’s life to risk”, while the president was also pursuing from the other side. There was two-prong approach to the security issue; both of them sort of met at one point. “The good news is that the engagement paid off. The effect of that was that militancy stopped; we were able to move our production to where it is today and has remained largely stable over three and half-year period which, quite frankly, is historical in this sector”, Kachikwu once disclosed.

The calm in the Niger Delta derived largely from the ‘diplomatic shuttle’ of the then minister of state for Petroleum Resources. According to investigations, and which Kachikwu confirmed, oil companies are fully back to production and the country is shooting up to 2.4 barrels per day. This guarantees jobs and enables banks to recover their loans that were trapped in murky waters of oil and gas business. It is on record that the bulk of the non-performing loans (NPLs) which almost crippled many deposit money banks in the past were linked to the volatile oil and gas sector.

A report by the Financial Times in November, 2018, stated that most of Nigeria’s commercial banks had their fortunes tied to the fluctuations in global oil prices. It said that about a third of all credits they extended to the economy were directed to operations in the country’s oil and gas industry.

Recent reports showed that the situation has tremendously improved and the banks that were badly hit during the heydays had since cleaned their books. They are now celebrating healthier balance sheets on account of improved oil and gas related NPLs. First Bank of Nigeria Limited, for instance, recorded improved NPL recovery down to 20.8 per cent as at June 2018, from the peak of 24.4 per cent at 2016 year-end. “The improvement in oil companies’ liquidity arising from Kachikwu’s drive to rescue the oil and gas industry during the recession paid off and led to improved earnings per share of many banks listed on the Nigerian Stock Exchange”, said Kehinde Abiodun, a stockbroker in Lagos.

A major landmark of Kachikwu’s tenure was that the lingering problem of cash call which plagued the Nigerian government was frontally tackled. Through his international contacts and global industry exposure, the country was able to raise over $6 billion to settle the arrears. In what appeared an unusual negotiation tactics, substantial deductions were made (from the arrears) resulting in reduced cash call commitment of about $5 billion spread over a five-year period – on incremental production volume base. That’s the first time anyone will pull out that in the industry.

Obviously, Nigerians do not realise how much was gained by virtue of that deal. But once that happened, confidence returned to the sector, people began to invest back, we began to return to the fields. Over 30 per cent reduction in production cost was another major feat. Reports showed that NNPC operates production cost dropped to about $23 per barrel as against $33 that obtained. Kachikwu said he aimed at $15 per barrel target and that some oil companies had achieved that. “My target is to get down to $15 per barrel; in fact one or two oil companies have achieved that. The more margins you are able to create the more profitable it is and the more you can resist the price shocks in the international environments”.

Nigeria’s moribund refineries will become functional again if the government would look the direction Kachikwu had pointed at: the private sector. The lack of political will to transfer management and operation of the refineries to operators in the private sector is responsible for the continued importation of refined petroleum products and huge resources committed to fuel subsidy. Nigeria imported N2.3 trillion fuel and paid N2.9 trillion subsidy in 2018.

Kachikwu in an interview with a Nigerian news publication expressed concern over the sorry state of the refineries and showed how to go about it. According to him, “The key challenge for me was how to fix these plants. Mr. President and I agreed that the country did not have the 2-3 billion dollars to throw into another turn around maintenance (TAM)”, he said. “We had too many TAM in the past that just never ended anywhere. My position is that if we were going to do something that involves the private sector, it will undertake the management and post-TAM repairs so that the facilities are efficiently run.”

He spoke further: “This is one area that I think, obviously, if you ask me ‘what you have not done that you are not happy about?’, it is the refineries. Not because I didn’t do what I was supposed to do; but because, somehow as a manager, you take responsibility that we didn’t finish that. I would like to see us go back and complete that model. For me, it’s not going to be model for looking for government money or NNPC dipping hand into government money to repair refinery. The reality is that private sector financers were there, they held meetings and all kinds of negotiations with them; the issue was the term.”

Taking Nigeria back to the position of respectability in the international community earned the country robust confidence among foreign investors. The key roles played by Kachikwu at the Organisation of Petroleum Exporting Countries (OPEC), Gas Exporting Countries Forum (GECF) and African Petroleum Producers’ Organisation (APPO) leaderships repositioned Nigeria for strategic investments that enhanced her revenue stream and created more job opportunities for indigenous companies under the Nigeria Content Development and Monitoring Board (NCDMB) activities.

The introduction of the Nigeria International Petroleum Summit (NIPS), hosted in Nigeria for the first time in February, 2018, brought wide acclaims from stakeholders at home and in the Diaspora. “In the past, most Nigerian energy and petroleum industry players spent huge foreign exchange to attend the popular Offshore Technology Conference (OTC) in Houston, United States. Kachikwu changed the narrative by conceptualizing and hosting the new Nigeria OTC, which seeks to bring investors and players in the sector to Africa for the first time,” said President, National Association of Nigerian Students (NANS), Chinonso Obasi, , after participating in the event in Abjua, February 2018, on Kachikwu’s approval. The next edition of the NIPS will hold in February 2020.

Tackling corruption in Nigeria’s oil and gas sector is not a mean feat. The sector and the nation’s national oil company, NNPC, now operate on the window of transparency never recorded in history, which boosts investors’ confidence. The Automatic Tracking Oil Production has enabled government to monitor crude oil production and conveyance, thereby blocking leakages arising from unaccountable volume of the product produced at a time.

Government recovered N1.2 trillion in royalty arrears from oil companies operating in Nigeria through the Crude Oil Liquefied Natural Gas Tracker (COLT), a facility stakeholders describe as major blow to corruption in the oil and gas sector. “Buhari’s anti-corruption war paid off,” said a leader of the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN), who spoke on condition of anonymity.

• Kazim, a public affairs analyst, wrote in from Abuja.

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