During his appearance at the special press briefing organised by the Presidential Communications Team at the Aso Rock Villa last week, as Chief Executive Officer of the newly floated NNPC Limited, Mr. Mele Kolo Kyari cleared the air on some seeming paradoxes the commercialisation of the country’s oil behemoth has created. Quite importantly too, he laid out a plan on how the new company intends to fulfil the dream of many Nigerians – stopping the embarrassing importation of refined petroleum products into Nigeria, one of the world’s largest producers of crude oil. Here are excerpts of the briefing as recorded by Deputy Editor, Chesa Chesa.
* When will the ongoing rehabilitation of the nation’s refineries be completed so that Nigeria can stop oil importation, and can you explain the borrowing option being used to do this?
We plan to restore the refineries to 90% of installed capacity, that is minimum, we’ll deliver. We’re borrowing from the Afrexim Bank and we’re also borrowing $1 billion for this purpose.
On when importation of fuel will stop, even if all our four refineries operate at 90% of installed capacity, they will only be able to raise 18 million litres of Premium Motor Spirit (PMS). That means even if all of them are working today, you will still have a net deficit of PMS imported to this country. This is what it means because our population has grown, demand has grown, the middle class has grown. I’m sure everybody here owns one or two cars and so on and so forth, such that the volume of PMS required in this country has grown almost exponentially because there is clearly an exponential growth to our needs.
So, even if they all come back, we will not stop importation of petroleum products, but happily also, NNPC owns 20% equity in the Dangote refinery. And not only that, we have the first right of refusal to supply crude oil to that plant. But we saw this energy transition challenge coming. We knew that time will come when you will look for people who will buy your crude and you will not find and that means that we have locked down the ability to sell crude oil for 330,000 barrels minimum by rights for the next 20 years.
By right also we have access to 20% of the production from that plant. That means that whatever it does, we have a right to take 20% of that production as part of our equity. And this refinery, we think that it can come up latest by the mid of next year.
This refinery has a 650,000 per barrel capacity and a different technology which means that it can crack the crude in a manner that you can have more gasoline than a typical refinery. That means that that refinery has the ability to produce up to 50 million liters of PMS. So the combination of that and our own ability to bring back our refineries will completely eliminate any importation of petroleum products into this country next year.
You will not see any importation into this country next year. This is very practical. This is possible. As a matter of fact, when we’re done with our refineries and the Dangote refinery, then the small initiatives that we are doing, with small modular condenser refineries that we’re building, this country will now be a net exporter. As a matter of fact, it will be a hub of export of petroleum products, not just the West African sub region, but to the rest of the world. This will happen. The flow of supply by the middle of next year will change. So, you will have no need for importation of petroleum products into this country by the middle of next year.
* A recent report said that the staff of these refineries being rehabilitated were paid N136 billion in salaries and allowances. What is the justification for that when there is no production taking place?
This question has been raised severally in many fora and in the National Assembly. There are two options. When you have a refinery that is not working, typically what you do is that you prune them down, break that into crates and then ask everybody to go and they have security men to watch it. Otherwise, the second option you have is to keep them as we’re doing. You continue to lubricate the parts that you must lubricate, test-run some of the parts that you have to test-run, otherwise the day you want it, it won’t work.
So, it is the second option we are doing. We have to keep it, we’re not ready to bring them down into pieces. Typically when you bring them down into crates, you will never want to bring them back. But we know that we will bring them back, we know that we’re working on them. And that means that you are keeping personnel to continue to do those activities. And more than anything, the other implication is that, in fact, everybody has to be sincere so that you can stop the salaries. And this also is a matter that has gone to the National Assembly and the informed position that we have, even by the clear wisdom of the National Assembly is that we can’t do this at this point in time. And that’s why we’re paying the salaries. But what we have also done to minimise that, we have moved around many of the staff to locations where they will be put to work. And we’ll continue to do this as we know that ultimately, the refineries will now be run on an O & M basis, so we’ll have no need for this cost as we go forward. It will continue to diminish. There are retirements that are happening as a result of age and very many other considerations and the numbers are coming down by virtue of statutory requirements.
* The efforts you are making to construct the Saharan pipeline is impressive but why are you not reconstructing the vandalized pipelines that transport products to all parts of the country?
We are building every one of them concurrently. We’re not leaving any one of them. And as you’re aware, gas is the next transition fuel globally, it is where your money will come from, you will be stranded with your oil in another 30 years but you won’t be stranded with gas, even in 50 years to come. That’s why we’re building those infrastructure to make sure that Nigerians of tomorrow will be able to benefit from these resources today. While we’re also constructing our pipelines, we’re doing a build, operate and transfer programme for the pipeline networks and we’re replacing them. So, I’ve not abandoned them.
* To restore public confidence, don’t you think, NNPC should quickly reveal the identities of the ‘big’ people involved in crude oil theft and other high level crimes in the oil and gas sector?
There are about 122 arrests. I’m sure you’re also aware that it is very obvious that it is not NNPC that will release the announcement of criminals and culprits. But I know that names exist. They will be named but definitely the most important thing to do is to prosecute them and show to the world that it is wrong to do this. And if you do, the law will catch up with them. I think the most important thing for us to follow up on, it is to make sure that there is prosecution and while they are prosecuted they will be liable and everyone will see them no matter who they are.
* Some people have said that commercializing the NNPC is a step in the right direction but it is only half-baked until the shares of the NNPC are listed on the Nigerian Stock Exchange. How soon will that happen?
For you to list shares, you must be Initial Purchase Offer (IPO) ready. It means that you must have systems and processes, you must have governance, you must have assets. You must have the correct and indisputable valuation that the potential buyers we will see, the stock exchange will demand for all these. And ultimately you can now list your shares. We will be IPO ready by the middle of next year. It means that we’ll have systems, processes, policies, governance, assets that we can show valuations that are reliable that people can test as you already have today, the right kind of governance structure and also risk management systems. These are basic requirements of IPOs and all these will be ready by the middle of next year. And at the choice of its shareholders that it can be listed at any time because the law, Section 54 of the PIA, clearly said that you can dilute the interest of this company by shareholders. The shareholders are the 200 million Nigerians represented in today’s context by the Ministry of Petroleum, incorporated by the Ministry of Finance.
* Many Nigerians are unable to reconcile the fact that NNPC Limited is now an independent company, but with its Board appointed by the government, can we have clarity on that?
Why would the board be appointed by the government. Board of companies are always appointed by shareholders. Shareholders are always represented. This is typical. If anyone here owns a company just go and try to incorporate your company. They will tell you that you will have some shareholders. Those shareholders will appoint the board of those companies. In today’s context, Ministry of Petroleum incorporated by the Ministry of Finance, is holding in trust for the Federation, but they cannot do anything except the shareholders of record as we put it, the 200 million Nigerians say so, and that is why the PIA, provided the leverage of the National Economic Council to have a say in this process. And therefore, by law it is required that Mr. President appoints the board of these companies, on behalf of all of us. So that whenever you dilute interest, even if it is 10% interest in these companies, that right for government appointments vanishes automatically. So, it now becomes a matter for the shareholders, which includes the private owners of this company to do. So, this will come but not today, we are transmitting. But as soon as you hear we’re ready for IPO, it is all over, the board will be appointed by shareholders, which will include private equity holders.
* NNPC Limited says it will now make remittances to Federation Accounts Allocation Committee (FAAC) through royalties and dividends, but the defunct NNPC owes several billions of naira in remittances to FAAC. Will these outstanding remittances be accommodated in the new arrangements you are making?
To the best of our knowledge, we have reconciled our position with FAAC. We have no liabilities that we’re carrying forward to this new company and as a matter of fact, NNPC is not remitting any money to the Federation Account, that is very correct. But what is also never mentioned is that we are providing premium motor spirit to this country, as a matter of a commercial relationship between us and this Federation. We are paying market price for PMS as we all know. We all know that AGO price is not always far from PMS price and you know what the price of PMS is. So, whenever you do this, and you sell at same market price and once there’s no direct payments to any company, then the only way we can recover that cost is for us to hold back our fiscal obligations, which are taxes and royalties so that we can use it to bridge that payment that we’re doing on behalf of all of us as a matter of our responsibility and as a matter of law.
The Appropriation Act clearly provided for subsidy on PMS. The Appropriation Act is the Act of the National Assembly. That means it represents all of us and we’re merely executing the provisions of the law. And there’s no way you can do both of them. You cannot pay your fiscal responsibilities and also find money and pay for the PMS subsidies that we are all carrying on behalf of all of us. As a matter of fact, the level of subsidy that we’re seeing because of the price differential versus the revenue that we’re able to generate, which is associated with some of the crude oil theft that I have mentioned to you, is no longer practical for our fiscal responsibility to even cover those costs, but we are managing it. We’re here also by law, we are required to ensure energy security for our country. And we will do everything possible, and we have no fears around this and will continue to serve this country as a company.
* Is there a timeline for the creation of the National Reserve Company and how much are you looking at it for the contract that is going to be implemented on that?
Every country in the world has a National Reserve Company but in different manners, and there are very many ways of doing this. One is to require petroleum product marketing companies to maintain minimum reserves in their depots on behalf of the State. Of course, that means there’s a holding cost and the government will be ready to pay for that. The second way is for the government to directly procure those products and keep them somewhere and that is why you have the network of the pipeline that we have and the depots that we have. The main intention is first to bring a product close to its consumers, and secondly to maintain them at national reserve locations. So we’ll bring back the pipeline so that these depots will serve that purpose. We have built another reserve facility in Atlas Cove and it is due for commissioning, we have completed it. And the end result is that you will now have a network of pipelines and depots that will now manage the National Reserves on behalf of all of us. It is typically a government responsibility.
It can be outsourced to private companies and it can also be done by an agency of government. In some countries, the military maintains the national strategic reserve of petroleum products. This is not the situation we are dealing with currently. We’ve established the National Reserve Company which will manage on behalf of the state and we’ll defer to any decision the state will now make. In the interim, there is no contrary view around how else we can do it.
* The Petroleum Industry Act (PIA) says we cannot be paying subsidies on petroleum products. But we are still doing it, does it mean the PIA is in suspension or can we be executing the law piecemeal?
Yes, PIA is very clear, the petroleum products will be priced at the market. But the PIA did not exclude any intervention from the government. Government can decide to give any form of relief to its citizens. And that is why the Appropriation Act of 2022 clearly provided for this and we’re simply implementing this. So it’s not in conflict with the PIA.
* What are you doing to address the shortage of Jet A1 (aviation fuel) in the country?
Okay, I’m sure you’re aware JET A1 and diesel are all deregulated products, it is delivered into the market at the market costs. The only way you can have cheaper JET 1A is to put subsidies on it or diesel. And there’s no framework for subsidy on JET A1 and diesel. All NNPC is doing is to balance the market. We intervene by bringing in products because we have access to cheaper products in the market. And we’ve dampened the pricing so that consumers are not exploited by marketers.
