Emefiele Proposes Sale of Oil Joint Ventures

Governor of the Central Bank of Nigeria (CBN), Mr. Godwin Emefiele, has proposed that the incoming government to be led by Major-General Muhammadu Buhari (rtd) consider selling down its majority stakes in joint ventures with multinational oil companies to shore up state finances and raise funding for infrastructure development.

According to the UK-based Financial Times (FT) newspaper, Emefiele has asked CBN officials to evaluate how much could be raised if the state-owned Nigerian National Petroleum Corporation (NNPC) substantially reduced its 55 per cent equity in the joint ventures — with Royal Dutch Shell, Chevron, ExxonMobil, Total and ENI — which pump about half of Nigeria’s 2 two million barrels a day of oil production.

He believes that $75 billion is a realistic target, and that private equity groups could be encouraged to compete with the oil companies for acquisitions to ensure the price is competitive.

Some of the proceeds could be used to rebuild macroeconomic buffers damaged by the collapse in world oil prices and failure of the outgoing government of Goodluck Jonathan to save more when prices were high. But Emefiele said a greater portion should be invested in transport and energy developments that would “grow the economy and create jobs”.

“If you sell down a 30 per cent stake, you could raise something substantial. It is an option they need to consider as a way of raising further funding,” he told FT.

He added that he had commissioned the research and would present the idea to Buhari when he assumes office on May 29.

“It is an option now because our revenues have dropped and we don’t need to pile on more debt. The alternative is to look for ways of releasing value from some of the government’s assets,” he said, adding that petroleum profit taxes could be adjusted upwards to compensate for the state’s reduced stake in crude oil sales.

Emefiele’s suggested remedy could prompt opposition from those ideologically opposed to selling off state assets, and resistance from politicians dependent on oil resources for patronage.

But it will find sympathetic ears among the more liberal, market minded reformers in the administration in waiting. Some of them believe that the NNPC should be sold off altogether — both to eliminate associated corruption, and to help free up commercial oil firms to invest in new production.

For years, Nigeria’s oil production has been stagnating at around 2m b/d because of uncertainty around stalled reforms and because of the state’s difficulties in raising its own share of development and maintenance costs.

Oil company executives argue that production could be almost doubled if the NNPC were commercialised or sold, and the companies freed up to meet the full cost of investment.

“Our manifesto says we are going to break the NNPC up. But the ultimate answer may well be to divest the whole thing,” said an influential politician in Buhari’s camp.

“It is an idea that will be seriously looked at. But I don’t think it can be the immediate priority. First, we need to get back to a position where revenues that belong to the people are getting into the Federation Account. We need to stop the leakages,” he said.

Buhari, who cut his teeth in office at a time when the state was the main driver in the economy, may be harder to convince.

“We can’t just wake up overnight and sell the NNPC. First we need to see how much damage has been done and how we can stabilise the situation,” he said in a pre-election interview with the FT.

However, reformers in his camp believe he may be persuaded otherwise if oil prices remain depressed given the scant alternatives to finance the ambitious changes he has promised.

Meanwhile, the inability of NNPC to liquidate over $1.5 billion debt owed local and international oil traders involved in the importation of petroleum products on behalf of the corporation has raised concern over the long-term sustainability of supply of products in the country, THISDAY has learnt.

THISDAY gathered that the NNPC owes trading companies over $1.5 billion dating back to 2010, further confirming concerns that have been raised over the long-term effectiveness of the corporation and its ability to meet its obligations.

NNPC accounts for over 60 per cent of petroleum products imported into the country while private marketers account for less than 40 per cent.

The debt owed both local and foreign companies had initially risen to $3 billion. However, the corporation was compelled to seek a $1.5 billion loan in January 2013 from foreign and local lenders to offset its indebtedness to international oil suppliers following threats of lawsuits.

The loan was to be secured by 15,000 barrels per day (bpd) of crude oil from its exploration and production subsidiary, Nigerian Petroleum Development Company (NPDC).

The foreign traders – Trafigura, Vitol, Glencore and Acardia, among others – were under intense pressure from their bankers such as BNP Paribas, Standard Chartered, Citi Bank and Napaxis, which financed the imports to repay the loan facilities granted them.

It is not clear if the $1.5 billion loan was eventually secured, but industry sources maintain that over $1.5 billion is still owed by NNPC to local and foreign traders.

Sources among oil traders that do business with the national oil company also told THISDAY that the huge debt has raised questions over the ability of the corporation to continue to serve as supplier of last resort and provide stability in the fuel supply and distribution value chain.

According to some of the affected companies, the inability of the NNPC to liquidate its debt also raises questions over the solvency of the corporation and sends negative signals to global markets and foreign investors.

But in a swift response, a top official of the NNPC, who craved anonymity, told THISDAY that the corporation was doing everything possible to fulfill its obligation to suppliers in accordance with laid down procedures and terms of agreements.

“NNPC is a going concern with fiduciary responsibilities to the government and people of the Federal Republic of Nigeria. The fact that a change of administration is in the offing does not obliterate our financial and contractual agreements with all our suppliers and partners at different levels of engagements,” he said.

On the fear raised by the oil traders that NNPC may be insolvent, he said the insolvency tale was spurned in 2010 by a Minister of State for Finance.

“Interestingly five years after, the corporation is still standing on its feet. Like any other business concern, debit and credit transactions constitute the nucleus of NNPC’s financial operations with suppliers across board and the corporation is alive to its responsibilities to its huge base of clientele in the upstream, mid-stream and downstream sub-sectors of the industry,” he said.

However, a top official of one of the companies wishing to remain anonymous, was particularly bitter about the impact the five-year-old debt has had on his company.

“NNPC does not pay interest on delayed payments. When the import tenders were conducted in 2009, the pricing assumed a payment for the supplied products within 45 days after Notice of Readiness (NOR),” the source stated.

“We got bank facilities to finance these imports at rates of 12 per cent or 15 per cent per annum. Can you imagine the cost to us owing to the inability of NNPC to repay? All our profit has been wiped out and the banks have been chasing us to repay the loans,” said the source.

“Five years later, we still have not been paid and nobody is being held accountable. I hope with the new government coming in, they will honour their obligations and pay, with interest, the debts they owe all of us.

“The overall state of the corporation at the moment is a big hindrance to the sustainability of long-term supply,” the source added.

THISDAY gathered that these debts which, were accumulated on the back of NNPC’s erstwhile open account tender process, allowed reliable trading companies with a proven track record of good performance and strong capital base to supply products on behalf of the corporation with a payment undertaking as the guarantee.

“Initially, when a trader won the tender to import on behalf of NNPC, the agreement involved payment to the trader within 45 days. Even though NNPC was notoriously late in paying, trading companies involved in the process could easily get Letters of Credit (LC) from banks to fund the deliveries,” one of the traders told THISDAY.

“NNPC was notoriously late in paying, often running to 120 days, but the suppliers never defaulted. Nonetheless, the process suffered following the massive defaults by the NNPC, with debts spiralling to just over $3 billion and payment invoices not being settled even after 400 days,” he added.

THISDAY learnt that it was at this point that the banks became extremely doubtful of NNPC’s financial viability and pulled their credit lines to traders operating with NNPC’s payment undertaking.

This resulted in petrol scarcity and massive fuel queues nationwide. With no way of liquidating their debts, NNPC had to look for alternative ways of restoring importation to the country and eventually settled for swapping crude oil for refined product imports as a way out of the quagmire.

Debts accruing to oil traders and marketers have been widely fingered as being responsible for recurring fuel shortages in the country.