INTERVIEW: Nigeria’s Oil & Gas Sector Now Operates in a Regime of Greater Transparency, Says Kachikwu

 

 

Dr. Emmanuel Ibe Kachikwu, Nigeria’s immediate past Minister of State for Petroleum, recently revealed in a media chart that the much desired transparency and stability has returned to the oil and gas sector.

 

 

After four years in office, what will you say are your key accomplishments vis-à-vis your promises and the expectations of the generality of Nigerians?

 

Let me start by thanking His Excellency the President for the opportunity to serve. Usually, it is not all about what skills you have or the quality of person in you. I have always said that opportunity to serve is not because individuals are extremely the best. First, is the role of destiny; the other is that opportunity is given to you by someone who is in position to do that; and he did.

At the time we came in, His Excellency the President Muhammadu Buhari was clear about the critical challenges he wanted us to focus on as a matter of priority. I was appointed about a month after he was sworn-in. So, he had used the period to carry out a critical analysis of the sector

There was the rampaging issue of corruption and trials going on everywhere. There were allegations of contracts that couldn’t be explained and issues of that nature. In terms of corruption index, we were just right high up there at the petroleum sector at the time. Secondly, security in Niger Delta was at all-time low. Most of the oil companies were actually not producing; militancy all over the place. Our pipelines were being ruptured every day. Therefore the volume of production at the time was roughly 800,000 to a million barrels per day. So, prospects of getting down to our generating capacity were virtually not there.

The performing oil companies were basically servicing the business as it were because of the constraints of cash call. Government owed about $6.5billion in cash call. There wasn’t money even to keep the engine running on constant basis. As if that wasn’t bad enough, the price of crude oil was falling. At the time I assumed office, it was about $50 per barrel. It later nosedived to about $28 per barrel. So what it meant is, even the money to pay the next trench of federal salaries was, quite frankly, not there.

The refineries were not working. There was fuel scarcity. The fuel subsidy level was already over a trillion. In this circumstance, if you’re looking for challenges, there were challenges everywhere you looked.

Four years after, it isn’t for me to beat my chest. I think, it’s first for him as the employer to evaluate and see whether, really, one has performed. The second is that the Nigerian public, being ever intelligent and analytical, is also making up its own mind. I am very encouraged by some of their evaluations. We have received close to 100 awards since I assumed this portfolio. It points to the fact that our performance impacts positively on the people.

 

Do you believe all these registered positively in the minds of Nigerians and their perception of what your accomplishments are?

 

I must say something about the perception of both Nigerians and the international community on all the work that has been done. And that is RESULTS. In most specifics, we dealt with the cash call issue. Today, oil companies are back to production and fully; we are back to 2.4 barrels per day. More importantly, we were to raise revenue up to $6.5 billion in cash call. We were able to chop off over $1.5 billion on a negotiated basis out of those arrears. We were therefore left to paying only about $5billion, which was spread over a 5-year period incremental production volume base. That’s the first time anyone will pull out that in the industry.

I don’t think Nigerians realise how much was gained by virtue of that deal. Once that happened, confidence returned to the sector, people began to invest back and we returned to the fields. We had a zero rig-type operation in 2015. Today, it is over 50 weeks in operation; so everybody is back to work.

 

Accomplishing all these at the peak of disturbances arising from Niger Delta militants’ attacks on oil facilities suggests you dealt with issues in a peculiar manner. What could that be?

 

Yes. We had to deal with the security issues at the time. It was really the key one at the time. I spent all kinds of visits into the Niger Delta terrains by taking the risk to one’s life, while the President was also pursuing on the parallel basis. 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. There were commitments and promises that worked. We got the Vice President to do a tour with us and he eventually got a MoU signed with the oil-bearing committees in the states. I must praise substantially the works of PANDEF (Pan-Niger Delta Forum). In fact, PNADEF was set up as a result of those working with us behind the scene. The PANDEF relationships became the umbrella to bring everybody together.

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.

Would you say all these really impacted positively on the Nigerian National Petroleum Corporation (NNPC)?

 

That was a fundamental one – NNPC (Nigerian National Petroleum Corporation). The question was, how do you get that place working? I think those who watched what happened over nine to 10 months that one superintended could see the amount of work that we did with Mr. President on that. We set up board structure; we set up governance structures, and we began to publish our reports on that for the first time on that. We designed an effective auditing process for the company. Today we are current on audit: we have done 5-6 years of accumulated audit to bring us to where we are.

We took away the top echelon of NNPC within two weeks and reappointed new individuals. Some from in, some from out and they began to study what we call the ‘20 Fixes’ at the time: Twenty problems that if fixed will move this company forward. We identified that through working with staff and consultants and we began to robustly implement it. Those ‘20 Fixes’ varies from all kinds of areas and processes: From security, to cost of operation, to cost of management, to time within which we give approvals; everything that we thought could stop this company from moving.

It was therefore no surprise that after nine months, when we published our main report, the company had shown a main profit performance; so we dealt with those issues. I think since my leaving as the GMD (Group Managing Director) they have continued to work along those lines to try and stick to the principles that were put in place, training and retraining; restructuring as the case may be.

We have changed that industry in many ways. We looked at the cost of operation and we began work – to bring down cost of operation. Production cost was just too high – average of about $33-$34 per barrel at the time. Today, I think it’s down to about $22-$23; my target is to get it down to $15. In fact, one or two oil companies have achieved that. Because the more margins you are able to create the more profitable it is; and the more you can resist the price shocks in international environments.

 

What was ‘Project 100’ all about; and how successful was it?

 

‘Project 100’ identifies Nigerian companies to the levels of performance. It was a process of determining their level of performance at a given time and taking it off from there. It assisted in dealing with the specifics. It helped us to track the priorities in line with the growth trajectory for the sector: We’ve done gas commercialisation, passed the Petroleum Policy; we have passed the Gas Policy. We worked with the National Assembly in terms of the Petroleum Industry Bill (PIB), which is now sorting out areas of disagreement. We have computerized GPR (ground-penetrating radar) to the point where we can now track our crude on line, from point of production to the point of discharge. We have set up a team to work on the issue of discharge in the downstream because of the seepages that we see. We began a robust policy on refining,

When people judge refining, they tend to focus simply on ‘Have we repaired our own refineries?’ but that’s just a subset. The fact that Dangote refinery is close to completion is a factor of the robust support work and collaborative efforts that occurred. Being in the forefront of all that, we collapsed the issue of private competition to deal with national calamity. So as much as the credit for the refinery will go to the investor, credit also has to be given to the ministry and our policy for enabling that to happen on the fast-track basis.

We have started the modular refinery trajectory with 10 modular refineries on near kick-off stages; three have already begun; seven taking FIDs (financial investment decisions), seeking funds to finish up reengineering feasibilities and continuing. If all 10 come to completion at some point between now and two and half years, that’s additional barrels of refined petroleum capacity that has been brought in. So, from today that we have only about 150 thousand, even if that’s all we do, we will get to about 800,000 barrels of refining capacity; that is more than this country is consuming.

 

How will these specifics help in addressing the poor state of the refineries?

 

We are also focused on our own refineries. 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 go and throw into another turn around maintenance (TAM). 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, the private sector will undertake the management and the post-TAM repairs so that the facility is efficiently run.

There wasn’t enough support to sell the refineries, but there was a Presidential support to find the money – a way almost similar to the cash call where the incremental volumes on refining will help to address the issue of payment over certain number of years. That was the model and the approval that was got. I left after that as GMD and that matter was passed unto the current leadership, because the refineries, at the end of the day, are NNPC assets. But we continue to maintain oversight through the Board to see where they were going; unfortunately, after one and half years they didn’t reach conclusions on that.

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.

Going forward, I think we have to sit down either directly with these ones, or interest expressed from Saudi Arabia, from Qatar and several of them, to come in and put money into these refineries and get them upstart. If we do, we’ll progressively get ourselves to 1.2 million barrels of refining capacity. What it means is that most of the markets in West Africa, East Africa and probably South Africa for refined petroleum products will come to Nigeria. That’s why a lot of the private sector investors are investing on the basis of an export refining.

 

A lot was done in projecting and repositioning Nigeria prominently in the international business community. Can we share some of these success stories?

 

We have taken Nigeria back to the position of respectability. I became OPEC (Organisation of the Petroleum Exporting Countries) president. I was lucky to be one of the first, if not in history today, to have been the CEO of a national oil company, the minister of Petroleum (Minister of State in my own case), the president of OPEC, of GECF (Gas Exporting Countries Forum), the president of APPO (African Petroleum Producers’ Organisation) all at the same time concurrently; it has never happened.

The point here is that I was able to use those positions for international posturing on the issues of pricing of crude, OPEC policies and appointment of the OPEC secretary-general. That helped us get back the confidence, the respect and that helped us stabilise the oil price. I will also say very critical is member of the very few countries that were selected as the JMMC (Joint Ministerial Monitoring Committee) – the team which monitors compliance, adherence to the quotas that were setup and advises the OPEC ministerial team in terms of the ways to go.

 

The public seems to be seeing and hearing much less than what your achievements actually are. Why is the story quite different in the media?

 

Despite the difficulties, we have done massive turnaround of this sector and you don’t have to take my word for it, talk to the oil companies and they will tell you what they feel in terms of what the sector is today. Transparency is very key; nobody is waiting for hours and days to see a minister for approvals. We were able to go out and raise funds to do the things that we were able to do, we’ve had all kinds of financing success – from Chevron to Total to all of them and to Mobil, raising funds to simply invest on increasing our production. We birthed the Egina project started before us, which is now being completed with potentially another 200,000 barrels releasing onto the system. We are almost taking FID on NLNG Train 7, which is not expanded for a very long time. We have seen the marginal field begin to pick up and increase in terms of their barrel content.

 

 

How can we ensure there will be continuity after you have left office, because that is a major challenge in government business?

 

First, let me say that the challenge of continuity is something I know is very uppermost on Mr. President’s mind in all of our conversations with him. He would like to see continuity of policies not necessarily of personnel; in some cases yes, but the continuity that ensures that the bedrock of what has been built stays. Secondly, we have to give him credit for stepping out of the public sector to pluck somebody to come and begin a process. Thirdly, I think it is the responsibility of people like us, as we go through that sole layering and development process, to ensure that people are being trained and getting ready. I think the greatest difficulty we have is creating a reliable succession plan that can be relied upon like we see in Saudi Arabia and other countries.

I have always said, there isn’t monopoly of knowledge. I am an expert, a technocrat in this field. There are numerous experts and technocrats that can be chosen. Yes, continuity helps stability; but the reality is that Nigeria is suffused with very intelligent, skilled people. If you do the right thing, like the kind of decision he made to look for the right people, you arrive at the right answers. I think Mr. President is very committed to that trajectory.

 

How do we go forward without having the refineries working?

 

In terms of going forward, several things are uppermost in my mind. The refineries, for me, are key; and for the successes of what we have done. I feel bad that we still have not been able to get the refineries up and running; that we must finalise. In the case of gas, we need to build the infrastructure. I think any petroleum minister here must use the credibility that he has externally to pull in massive amounts of private sector investments into the infrastructure area and repair not just the dilapidated infrastructure that we have, but invest on new infrastructure.

Another point is that governance and transparency should not be compromised, there is a process, there are boards for these parastatals, those in charge should work through boards and follow the processes as difficult as they are. That is the only thing that ensures that the system works, not that an individual is successful. If you build foundation on individuals they will fail after they leave office, but if you build foundation on the processes the system survives irrespective of who is there. We must go back to those ethics and make sure that systems followed due checks and balances.

My philosophy all through my four years is that the public does not deserve to know, it has a right to know. It is not something you do as favour, the owners of the resource are the public. The shareholder of the NNPC and the rest of the parastatals are the public. They are the Nigerians. Government holds these in trust for them because it is their assets. I have never had occasion to be angry when somebody writes in to seek information. In fact, if you write to seek information, my attitude is that I have failed because I ought to provide it before you write in to seek it. And so when I started publishing results, doing results analysis, doing all the podcast, I was guided by this philosophy.

There are lots of things to be done: The refinery is there, gas is there, training is there and keeping the international respect and using it to raise investments is there. Investment in infrastructure is there. The oil producing communities are key; we have had three years of peace, because of lots of adequacy of communicative management and dialoguing.

 

Do we expect the Local Content initiative to gather momentum; and what informs your position?

 

We started from less than five per cent ten years ago, which means that every business opportunity was being taken out. Now it’s about 30 per cent. We set the target of 70 per cent to accomplish over the next five years. You can never have a 100 per cent local content otherwise you are chasing everybody out, but if we get 70 per cent that’s a huge thing. We have set expectations for them, we have set industrial practices as it’s the global practice. We have had a GINA FPSO, which was partially capsuled here and sent to Korea to be treated; that’s the first time ever. Setting them a 10-year mark to build our first FPSO ever in Nigeria is remarkable.

We are going into marine vessels very soon – to produce our own marine vessels; even if we have to create fiscal incentives for people to come in here and build it. I am looking for China, Korea, Japan to come in and set up fundamental yards here and meet the local content requirement so that they can be seen as Nigerian companies to building and assembling this work on the Nigeria local content platform. Nigerian companies are beginning to come to a point where we encourage them to move to next level and be able to take away from Samsung and rest of them. What I like to see is futuristic joint venture with Samsung or some of the big yards to set up facilities in Nigeria to encourage the likes of Nigerdock to expand so we can begin to produce some of the basic equipment we have.

We set up the $200 million NCDMB, (Nigeria Content Development and Monitoring Board), fund domiciled in Bank of Industry to grant soft loans with about seven per cent interest, as against 30 per cent out there, to investors in this area who are domiciling investments and are into manufacturing concerns here. I am hoping that with $200 million and the target I have, it will move to a billion dollars, not from government, but private sector investment and banks supporting the intervention.

Frankly speaking, a lot has been done in this sector, I could go on and on. Again, I thank Mr. President for the opportunity and support. We look forward to a more efficient, productive and stable oil and gas sector.