NNPC to review PSC, JV contracts, others

By Michael Eboh
ABUJA — The Nigerian National Petroleum Corporation, NNPC,
yesterday, vowed to undertake a review of all Production
Sharing Contracts, Joint Venture Agreements and all other
contracts between it and its various partners.
In a statement in Abuja, Group Managing Director of the NNPC,
Mr. Ibe Kachikwu, stated that the review would be undertaken to
reflect current day realities in the global oil and gas industry.
Kachikwu also stated that under his watch, the NNPC would put
in place mechanisms that would plug all revenue leakages in the
upstream, midstream and downstream sectors, adding that all
crude oil proceeds due for the Federation Account would be
remitted accordingly.
He disclosed that the mandate given to him by President
Muhammadu Buhari is to turn around the entire commercial
processes and procedures of the NNPC in order to impact on the
growth trajectory and operations of the corporation.
To this end, he denied embarking on a mass retrenchment of the
workforce, stating instead that his mandate in the NNPC is to
put in place an efficient, transparent and profit-oriented
processes.
According to him, the reduction in the directorate from eight to
four at the top management cadre of the NNPC is to refocus and
sharpen the business aspiration of the corporation.
He further stated that training and retraining of members of staff
to align with the new vision is the next stage of the ongoing
reforms.
Kachikwu reassured that the recent repositioning is to put in
place the right set of skills for performance, stressing that the
new arrangement provides a veritable vista for upcoming
professionals in the corporation to have a speedy career path.
The decision of the NNPC to review all its contracts is
apparently in response to several reports, the latest being the
Natural Resource Governance Institute, NRGI, which identified
the contracts as a major drain-pipe to revenue meant for the
Federation Account.
The NRGI in its report, entitled, ‘Inside NNPC Oil Sales: A Case
for Reform in Nigeria’, accused the NNPC of entering into poorly
designed oil-for-product swap deals when it could no longer
meet the country’s fuel needs.
It further stated that the NNPC began to unilaterally spend
billions of dollars in crude oil revenues each year, rather than
transferring them to the treasury, because NNPC’s actual
budget process fails to cover operating expenses.
“Some of these makeshift practices began with credible goals.
But over time, their operation became overly discretionary and
complex, as political and patronage agendas surpassed the
importance of maximizing returns. These poor practices come
with high costs,” it said.
On the issue of Domestic Crude Allocation (DCA), the report
said, “Setting out the terms of intercompany sales in a written
agreement is basic good corporate governance, especially for
transactions as large as those in the DCA.
“Yet NEITI’s latest audit found that “there is no contract in
place” between NNPC and PPMC for domestic crude sales.
“If correct, this begs the question of what legal instrument, if
any, dictates how the parties handle DCA sales. The common
claim that NNPC underprices oil sold to the refineries shows one
risk of allowing the corporation to manage the DCA without
having basic terms codified in an enforceable agreement.”