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Friday, July 1, 2022

Mele Kyari: The Reformer-in-Chief

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The Nigerian National Petroleum Corporation (NNPC) has undergone a remarkable transformation over the past 2 years from being almost a byword for opaqueness and corruption among global national oil companies to a firm focused on transparency aided by difficult reforms undertaken by its Group Managing Director (GMD), Mele Kolo Kyari.

Known for loss making and undue political interference over the past 44 years of its existence, the NNPC recently declared a N287 billion profit.

Following reforms by its GMD Kyari, NNPC started publication of its financial operations. Last year, the group published its first audited statement for 2018, indicating that the corporation incurred losses of over N800 billion. They were reduced in 2019 to N1.7 billion.

NNPC’s Group Managing Director (GMD), Mele Kyari, who came into office promising to open the books of the organisation, had repeatedly promised profit declaration.

“I am pleased to announce the declaration of profit after tax of N287 billion in 2020 by the NNPC. This is sequel to the completion of the statutory annual audit exercise for 2020.

“This development is consistent with this administration’s commitment to ensuring prudent management of resources and maximisation of value for the Nigerian people from their natural resources,” Nigerian President Muhammadu Buhari, who also doubles as the petroleum minister said.

Following the release of its audited financial statements for 2020 President Muhammadu Buhari also directed the incorporation of the NNPC.

“This is in consonance with Section 53(1) of the Petroleum Industry Act 2021, which requires the Minister of Petroleum Resources to cause for the incorporation of the NNPC Limited within six months of commencement of the Act in consultation with the Minister of Finance on the nominal shares of the Company,” a statement issued by Special Adviser to the President (Media and Publicity), Femi Adesina, said.

The statement said the Group Managing Director of the NNPC, Mr Mele Kolo Kyari, had been directed to take necessary steps to ensure that the incorporation of the NNPC Limited is consistent with the provisions of the PIA 2021.

President Buhari has also approved the appointment of the Board and Management of the NNPC Limited, with effect from the date of incorporation of the company.

The reforms continued to gain momentum as this week it was revealed that the registration of Nigerian National Petroleum Company (NNPC) Limited by the Corporate Affairs Commission (CAC) had been completed.

Speaking at the quarterly meeting of Heads of Agencies in the Federal Ministry of Industry Trade and Investment in Abuja on Tuesday, the Registrar-General of CAC, Mr Garba Abubakar, announced that the registration was concluded the same day after fulfilling all requirements set for the incorporation of the firm.

How we got here

Mele Kolo Kyari was appointed the 19th Group Managing Director (GMD) of the Nigerian National Petroleum Corporation (NNPC) by President Muhammadu Buhari on Monday, July 8, 2019.

He succeeded Maikanti Kachalla Baru (now late).

Prior to his appointment, Kyari, a Maiduguri-born Petroleum Engineering graduate from Bornu State was the Group General Manager in charge of the Crude Oil Marketing Department (COMD). He has worked with the NNPC and the Nigerian oil and gas industry for over 33 years.

On assumption of office, Kyari inherited an NNPC that was still struggling to shake off the negative image of a national oil company where nothing works.

Established on April 1, 1977 as Nigeria’s national oil company, the NNPC has been living in the dark shadows of a cesspool of monumental corruption and opacity; a place perpetually lagging behind its peers in other climes; where nothing is done properly and efficiency to the benefit of its shareholders, which are the Nigerian people.

Kyari knew NNPC needed a new vista and a break away from its decadent past. He saw his appointment as an opportunity of lifetime to give the NNPC a new direction in the way, its operations and businesses are well conducted, and give Nigerians a renewed hope.

Days after his inauguration, the reform-minded oil, and gas industry technocrat unfolded an agenda for NNPC’s rebirth.

He called it the Transparency, Accountability and Performance Excellence (TAPE), a five-step strategic roadmap for NNPC’s attainment of efficiency and global excellence.

During the official unveiling of the TAPE agenda, Kyari said it was the only way to transform the NNPC and enhance its potential and capacity to compete with other national oil companies around the world.

Kyari told members of the NNPC’s Management team to buckle up, shape up, ship in with the new direction, or ship out with the old ways of doing things.

He said the five steps for realizing the objectives of TAPE were to ensure:

  • NNPC opened up its systems to public scrutiny;
  • Its operational processes were made transparent and accountable to the Nigerian people and the government;
  • The new system would operate along with well-defined operational processes, benchmarked against established global best practices by world-class oil and gas companies;
  • Set the right operational cost structure, to guarantee value-addition towards NNPC’s sustained profitability, and
  • Set achievable goals, priorities and performance standards and criteria, by developing suitable governance structures for its strategic business units, and the entrenchment of team-spirit, work ethic and collaboration with all key stakeholders to achieve set corporate goals.

Reform agenda of Kyari pays off

 UPSTREAM

Prior to Kyari’s appointment, the upstream sector of the country’s petroleum industry was facing a myriad of challenges. Prices at the international crude oil were experiencing a rapid decline.

Earnings from crude oil exports were significantly lower than the situation a few years ago. The average oil production volumes of 1.9 million barrels per day were significantly below the country’s approved 2.3 million barrels per day capacity in the 2019 Federal Budget.

New investments in the industry were stalled for several years as a result of the growing uncertainty over lingering issues that bordered on the poor operational environment. Key among the issues was the unresolved Petroleum Industry Bill (PIB), fueling the pervading uncertainty among existing and prospective investors in the industry.

For instance, the final investment decision (FID) for the construction of Train 7 of the Nigeria Liquefied Natural Gas (NLNG) plant, which NNPC is the principal partner, could not be taken after several postponements and delays. Partners could not reach a consensus on certain fundamental issues.

Also, there were some unresolved disputes that involved some communities in the Niger Delta region and some oil companies, which affected oil exploration and production activities in the region.

There has been tangible progress on resolving many of these issues in the last 2 years under the Kyari management at the NNPC.

Alternative Financing Deal for NPDC

Once he became GMD, Kyari ensured the execution of a funding and technical services agreement (FTSA) as well as an alternative financing deal for NPDC’s OML 13 valued at about $3.15 billion and OML 65 for $876 million. These agreements resulted in a 32% and 21% incremental production output in OMLs 40 and 30.

Also, 14 companies participated in the auction for the financing and redevelopment of OML 119 operated by the NPDC. The twin offshore block made up of Okono and Okpoho fields located approximately 50 kilometres offshore south-eastern Niger Delta operated by ExxonMobil.

Kyari described OML 119 as one of NNPC’s critical projects, which aligns with the Federal Government’s aspiration to boost the country’s crude oil and gas production, growing reserves, and monetizing the nation’s enormous gas resources.

Revision of Unit Costs for JVs, PSCs

Kyari has also been able to save costs for the government through NNPC’s revision of joint venture and production sharing contract (PSC) operators’ unit costs, down to $19 per barrel and $18.3 per barrel, from the initial $31 per barrel and $24.3 per barrel respectively.

Concerned about the impact of high oil production cost on the government revenue, Kyari has demonstrated commitment to achieving the industry target of reducing oil production cost to an average of $10 per barrel by 2021.

Under Kyari’s management, the NPDC also acquired four new oil acreages (OMLs 11, 24, 116 and 98, while recovering debts for gas supplies totaling about N16.64 billion and $3.55 million.

Nigeria LNG Train 7 FID

For almost two years, the final investment decision (FID) for the construction of Train 7 of the Nigeria LNG project was delayed. The NNPC and other partners in the project could not come together to commit to the development of the project.

The outbreak of the coronavirus last year worsened the problem as the global economy came to a virtual standstill. But, Kyari did not allow all the crises to rob Nigeria of all the benefits derivable from the execution of the project.

Kyari ensured the NNPC and its JV partners, including Shell, Total, and ENI, came together to execute the NLNG T7 FID on December 27, 2019. He went ahead to mobilize for the signing of the engineering, procurement and construction (EPC) contract for the project awarded to the Saipem, Chiyoda and Daewoo (SCD) JV Consortium.

The signing of the contract signaled the commencement of EPC activities for NLNG T7 Project. On completion, the production capacity of the six-train plant would expand exponentially by 35 per cent, from the extant 22 million tonnes per annum (MTPA) to 30 MTPA, and boost Nigeria’s competitiveness in the global LNG market.

The project has the prospects of further attracting foreign direct investment (FDI) in excess of $10 billion to Nigeria.

As Kyari said, additional benefits would include creating “over 12, 000 jobs created during the peak of construction phase, boosting trade and commercial activities within the Niger Delta region as a result, supporting the development of local engineering and fabrication capacity in the country, and providing opportunities for local content include procurement, logistics, equipment leasing, insurance, hotels, office supplies, aviation, haulage, and many more.”

The AKK Pipeline Project

Just as Nigerians were celebrating the milestone on the Nigeria LNG project, Kyari ensured President Muhammadu Buhari flagged off the EPC activities on the 614 kilometers-long Ajaokuta–Kaduna–Kano (AKK) pipeline project by NNPC.

Considered to be at the heart of the country’s economic growth, Kyari has pursued the execution of the project with single-minded commitment to see that it is completed on schedule in 2023.

The pipeline project represents phase one of the 1,300 kilometre-long Trans-Nigerian Gas Pipeline (TNGP) project being developed as part of Nigeria’s Gas Master Plan to utilize the country’s surplus gas resources for power generation as well as for consumption by domestic customers.

The AKK pipeline system that will originate at the Ajaokuta terminal gas station (TGS) in the Kogi state will transport up to 3,500 million cubic feet (MCF) of gas per day from various gas gathering projects in southern Nigeria through Niger and Kaduna States, to terminate at a gas station at Kano State.

Apart from helping the government to save over $300 million, the AKK project would also attract over $2billion of FDI.

Completion of Power projects

Kyari has mobilized to ensure the completion of the second phase of the Okpai Power Plant to guarantee the supply of electricity to the national grid.

To ensure the sustenance of gas supply to power plants in the country and other domestic users leading to a peak energy capacity of 111,591.83 megawatts-hour is attained, Kyari ensured the execution of a funding and technical services agreement (FTSA) with NPDC on OML 11, while taking the FID on the $3.5 billion West African Gas Project (WAGL).

In addition, Kyari has already ensured the successful execution of the intelligent pigging of the West African Gas Pipeline project as part of regulatory compliance and flow assurance, which is instrumental to achieving delivery of Nigeria-Gas foundation volume of 133 million BTU and cumulatively of more than 190 million BTU through the pipeline system this year.

Kyari has also ensured that debts valued at over N80 billion and $45million owed the NNPC, through its subsidiary in charge of gas development and supply, the Nigerian Gas Company (NGC) by gas off-takers, were recovered.

DOWNSTREAM

2020 crude oil lifting contracts

In August 2019, a few weeks after his inauguration, Kyari announced the issuance of fresh crude oil lifting contracts to 15 local and international oil marketing and trading consortia/companies under the 2020 DSDP scheme.

With the country’s four refineries still operating far below their installed capacities, and unable to produce enough to meet the country’s daily national consumption need for petroleum products, the 15 contractors were to utilize the 445,000 barrels per day crude oil allocation for local refining to bring into the country petroleum products for domestic consumers.

Kyari said the difference in the latest issuance of the oil lifting contracts was that this would be the first time since the DSDP programme began in 2016 that the NNPC would officially be making public the list of all the contract winners.

Kyari said revealing the names of the beneficiaries to the public was a new normal for NNPC as part of the policy direction, pledge and commitment of his management to transparency and accountability in NNPC’s operations going forward.

Strategic Fuel Reserves

Kyari has ensured the NNPC maintains a national strategic fuel reserve capable of serving the country’s needs for a reasonable period.

Even during a period of a global pandemic, when the world economy was on lockdown, Nigeria did not experience any concerns by way of disruptions in normal fuel supply as a result of the strategic fuel reserve.

Kyari made sure the NNPC thought ahead and built a strategic reserve of over two billion litres of PMS the country could fall back on.

Diversification of NNPC’s Portfolio

Kyari has put in motion a plan for NNPC to expand its activities beyond its traditional operations to other unexplored frontiers, to grow its revenue streams, and cushion the impact associated with the volatility in the international crude oil market.

The NNPC Retail Limited recently launched its range of lubricants into the Nigerian products market.

Apart from growing the country’s gas export potentials, Kyari said the NNPC and its partners were committed to developing the infrastructure necessary to encourage domestic utilization of gas among Nigerians as well as the generation of electricity for the country and the industries.

Besides, Kyari said the NNPC will continue to encourage the use of liquefied petroleum gas (LPG), otherwise known as cooking gas, among Nigerians in their domestic activities.

FINANCE & ACCOUNTS/HUMAN CAPITAL DEVELOPMENT

Timely Remittance of Oil Revenues to FAAC

For years, the NNPC had always defaulted in remitting to the Federation Accounts revenues realized from its operations. Every audit conducted by the Nigeria Extractive Industries Transparency Initiative (NEITI) on the activities of the oil and gas industry always ended with reports that indicted the NNPC for not remitting several billions of unreconciled balances to the Federal Government.

But, under Kyari, NNPC has ensured timely and regular remittances of all revenues accruable to the Federation Accounts Allocation Committee (FAAC) for distribution to the three tiers of government.

Regulatory Compliance

Kyari has implemented various International Financial Reporting Standards (IFRS) 9, 15 and 16 across NNPC Group to ensure regulatory compliance as well as implemented the Centralized Invoice Processing System, integration of systems, applications and products to Remitta, SAP Funds management and issued conditions for financial autonomy of NNPC strategic business units (SBUs).

He has also inaugurated the NNPC Delivery Team charged with the responsibility of ensuring the effective performance tracking of top five priorities across the business as well as launch the NNPC Code of Conduct and Tip Portal.

Recruitment of Graduate Trainees

Kyari has implemented NNPC’s People Strategy to address organizational optimization, resourcing, capacity development, retention, succession planning, compensation and rewards by recruiting onboarding and integrating 1,050 fresh graduates into various departments of the NNPC operations.

Roll out Integrated Management Systems

Kyari has ensured the NNPC automates its operations by rolling out the SAP enterprise management software in performance management, procure to pay, travel management to ensure an automated and integrated operational process.

Reviving Moribund Subsidiaries

Apart from the diversification of the portfolios of its investment to create wealth, Kyari said NNPC is pursuing its drive towards profitability, by reviving its moribund subsidiaries and providing the building blocks for stronger strategic business units (SBUs) and Corporate Services Units (CSUs) to rake in more revenue to support the overall growth of the corporation.

Over the years, some of the SBUs remained largely financially dependent on the support from their parent company and hardly able to meet their obligations towards the discharge of their mandates.

For instance, the IDSL in Benin, which is supposed to be responsible for all the seismic data the NNPC requires in its oil and gas exploration activities, and its technical and engineering arm, NETCO in Lagos, which was supposed to make the technical and engineering inputs were all dormant for years.

But, since Kyari came to office, the two entities have not only been revamped and made to stand on their feet, they are now operating profitably and involved fully in the performance of their official functions in support of the entire NNPC business chain.

In 2020, IDSL achieved 20% year-on-year revenue growth and completed eight reservoir studies alongside the upgrade of IDSL’s Data Processing Centre.

Also, IDSL has obtained an Integrated Management System (IMS) Certification in ISO 14001:2015 (EMS), ISO 9001:2015 (QMS) and ISO 45001: 2018 (OH&SMS), while NETCO executed 729,771 man-hours against a plan of 660,000; which is 11% above plan. Revenue performance from the agencies as shown in the NNPC audited actual plan about N38.05billion and N25.77billion respectively, which is 48% above plan.

Energy Security

Kyari in 2021 unveiled a plan to acquire a 20 per cent stake in Dangote Refinery.

NNPC Group Managing Director, Kyari, said some financial institutions had already agreed to fund the acquisition, while the debts would be paid back from the NNPC’s earnings from dividends and profits accruing from its investment in the fuel plant.

The 650,000 barrels per day refinery, located in Lagos State, which Kyari said had been tentatively valued at about $19 billion, is expected to come on stream in 2022 and will produce 50 million litres of petrol per day.

According to Kyari, there are no underhand dealings concerning the transaction, as the federal government’s presence on the board of the Dangote Refinery will not only secure its energy needs, but give it a strong voice in the running of the asset to guarantee the country’s security.

Kyari added that the NNPC has a responsibility to ensure a constant flow of fuel, and as a policy, it will continue to acquire stakes in any refinery in excess of 50,000 barrels per day.

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