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The Nigerian Senate has backed plans by Oil Minister Ibe Kachikwu to split the Nigerian National Oil Company into as many as 30 independent companies. The announcement comes after a short but severe strike by unions, which pretty much paralyzed the industry for two days. Still, the question of whether 30 different companies will take better care of Nigerian oil extraction, distribution, and marketing, remains.
Kachikwu, who also heads the NNPC, announced the planned split last week as a way of dealing with corruption and inefficiency at the company, which was costing it an estimated $30 million a month. The 30 companies will be divided into five segments: downstream, upstream, gas and power, ventures, and corporate planning and services.
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Initially, the announcement caused opposition from legislators, some of whom took it to mean that Kachikwu was transforming the state company into a private one on his own, which would have been a breach of the NNPC Act that established the company in 1977. A committee hearing followed, where the minister explained the company was not being split, rather it was merely being restructured. This apparently convinced many legislators that all was legal. Some, however, maintain that Kachikwu’s actions contravene the NNPC Act, since he failed to consult the board of directors of the company.
The announcement also caused chaos among NNPC employees who went on strike Tuesday, worried that the restructuring would mean job cuts. Talks with the government followed, and the strike was called off yesterday—one more stakeholder in the matter convinced that the minister is doing the right thing.
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Kachikwu has been gaining trust since he took the helm of the NNPC last year: the company, which was at the time in the red with a loss of around $800 million, has narrowed the loss down to $15 million as of January this year, according to the minister. He has pledged to make it profitable again—and soon—which explains the rush with the restructuring.
What’s more important, however, is that Kachikwu has vowed to review and where necessary, change production-sharing agreements plus the so-called crude oil swaps, which are a breeding ground for corruption. They are, however, not the only breeding ground for illegal practices, and substituting them with direct-sale-direct purchase agreements will be only part of what needs to be done to ensure transparency.
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While Kachikwu seems to maintain that splitting the company will improve accountability and transparency, the move can also be seen as actually making both these worse, as it will be much more difficult to control the separate entities and make sure they are not up to the old NNPC ways. Stronger oversight measures and a working system of controls are needed to make the good intentions work.
In other words, the problem with NNPC remains, despite the buzz created by Kachikwu’s announcement, and it is a big problem, since oil contributes over 90 percent of Nigeria’s export income and accounts for over two-thirds of the budget income.
By Irina Slav for Oilprice.com
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Irina is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing on the oil and gas industry.