Restructuring the Nigerian oil industry

by Funsho Kupolokun

In order to address its challenges, NNPC is being repositioned and aligned with national and international developments. The ongoing transformation programmes in NNPC are being structured to rejuvenate the organization, enhance productivity, promote higher ethical standards, and prepare the corporation to face future challenges in a competitive environment.
Just as in your implementation of SOFT, we have embarked on a transformation programme tagged PACE, which actually commenced about one year ago. "PACE" stands for Positioning and Aligning for higher performance, Creating appropriate processes and systems for global competitiveness, and Enabling and empowering its people. It is aimed at making the NNPC a world class National Oil Company by moving our systems from the current level to world class standard. The need for transformation in NNPC became imperative as a result of many factors.

The transformation of NNPC is part of the Federal Government Reform Agenda. Besides NNPC was faced with declining growth and varied challenges desiring change. There was therefore the need for the Corporation to wake up from its slumber in order to have an effective organization with improved processes and technology.
In addition, NNPC could not face competition from either the IOCs or Independents because of weak processes and low level of IT. Also, the corporation faced severe cash shortage with resultant low capacity for reinvestment or new business. Furthermore, NNPC's performance in all segments was poor and consequently the shareholders and the general public's expectations could not be met.

From the transformation will emerge a new NNPC that will:
-- Be restructured into a holding company, managing the SBUs as district portfolios.
-- Focus on profitable commercial activities, with a gradual exit from regulatory activities
-- Become world class oil and gas company operating appropriate processes, procedures, IT systems, HR and Finance Functions.
-- Becomeand result oriented organization with performance contracts, model leadership, responsive workforce and a culture of individual accountability.
-- Review corporate governance to improve the speed of decision making an collective accountability in a new business environment.

We plan to achieve this transformation plan by doing the following:
-- value adding businesses, processes/improvements
-- inculcate the right attitudes and behaviours in our people
-- exemplary leadership and strong corporate governance structure and culture
-- Review of system tools and technology
To have the NNPC of our dream, both NAPIMS and NPDC will be strengthened. Already 50 experienced and world class professionals have largely begin engaged to complement our efforts and to fill the gaps notice throughout the corporation. Furthermore, 600 new graduates have been recruited. Our processes and procedures are also being reviewed to align them with our objectives. These are some of the quick-wins of this transformation project. Project PACE is also to ensue objective evaluation of our performances both as individual employees and as a corporate organization.

In order to improve our processes, we are designing innovative and efficient systems. For instance, to reduce the cycle time for the procurement of goods and services, and at the same time follow due process, we are designing an electronic petroleum market place. This system, which will be linked to an Industry-Developed Joint Qualification System (JQS) will ensure open and competitive bidding, capture information on all transactions for performance monitoring and cost benchmarking, while reducing administrative cost of tendering for contracts.
We urge you to begin to prepare for the introduction of the Petroleum market place by the end of this year. Already, a test-run using one SPDC tender exercise is scheduled for August.

Since the inception of this administration, the requirement for increasing local content has been highlighted. Recall thatof the first time, government has set a target for the industry, namely to attain 45 % local content by the end of 2006 and 70 % by 2010. It is our intention to vigorously pursue this policy. We have intensified our the national economy.
Meanwhile, a Group General Manager has been appointed in NNPC to administer this policy. Already, the Nigerian Content Unit has engaged the oil service industry to ensure build capacity and bridge identified gaps in local resources (human, materials and infrastructure). It is expected hat, as our partners, Shell will play a positive role in the local content drive by encouraging, and where necessary, nurturing fledgling supply and service companies.

In very simple terms, the oil and gas industry in Nigeria needs to be fully linked to the larger society. In furtherance of this, I will re-iterate here the following guidelines, which were recently issued for implementation on all Join-Venture, PSC and gas projects:
i. Henceforth, all fixed platforms (offshore and onshore), piles, anchors buoys, jackets, bridges, flare booms and similar structures and storage tanks are to be fabricated in-country, to maximize utilization of local fabrication yards.
ii. FEED and Detailed Engineering for all projects, as well as seismic data processing projects and all reservoir management studies, are to be domesticated effective end-2005
iii. All FPSO topsides integration to be done within the country starting from mid-2006.
It is gratifying to note that SPDC is aligned with the Government in this aspiration. I recall with pride that the Bonga offloading buoy, Stella, was constructed here in Nigeria. It is also worthy of note that Shell is the first major IOC to appoint a Nigerian Managing Director. This is a landmark achievement worthy of emulation by other IOCs.

However, there are still a lot to do to realize our dreams in this area. Another major challenge is the gas flare-out target of 2008 and the gas monetisation policy of government. As part of this effort, the industry is expected to contribute significantly to the power sector's target of attaining 10,000 MW in 2010 from the current level of less demonstrates our unequivocal commitment to corporate social responsibility.
Consequently, I call upon both management and staff of SPDC to support this initiative which inquires the use of available natural gas resources for power generation. We are currently implementing Afam (power) project and it is our desire to complete the project by first quarter, 2007. We are also jointly working on projects to supply gas to the recently approved seven Niger Delta Power Plants (NDPP) to be sited in various locations in the Niger Delta.

In addition to these, we are also required to supply gas to 4 other NEPA Power generation projects at Omotosho, Papalanto, Geregu and Alaoji. We are therefore challenged to find, produce and supply natural gas at reasonable cost and within the limited time schedule. Only this week we had two days of serious engagement with your Natural Gas Team, during which we tabled and together sought solutions to all issues relating to power projects in which Shell is directly involved, to ensure they are delivered not later than Q1 2007.
I therefore encourage you all, as staff, to play your role diligently towards achieving the target, as any slippage in delivery would impact negatively on the nation's economic aspirations. When we are able to achieve the foregoing, we would have significantly linked the petroleum industry (which had hitherto operated as an enclave industry), to the larger society.

In addition to power generation, current demand for natural gas for other uses presents further challenges, especially as substitute industrial fuel, and for the production of methanol and other derivatives of gas. Jointly, we shall rise to these challenges. Our expectation is that you will give your unflinching support to these national economic empowerment and development schemes.
One important area where there is urgent need for improvement is the time it takes for approval of submissions from our partners. We recognize that our due process requirement increases approval cycles. However, while we do not intend to circumvent this transparent process of doing business, as this is one of the cardinal polices of this Administration, project PACE review of our processes supports the need to increase approval limits within NNPC in order to address the issue. We should therefore begin to see substantial reduction in turn around time for your submissions soon. This will be further complemented by the eventual introduction of the petroleum market place.

The main objective of government's reform programme is to create employment. Therefore, we expect that all companies operating in Nigeria will improve on their records of employing Nigerian professionals. The current situation where Nigerian nationals are retired prematurely or moved away from core professional areas only for such positions to be filled with expatriate contract staff is not acceptable.
Wewill monitor the development, in collaboration with other agencies of government to improve on the current situation.

On the specific operations of Shell in Nigeria, let me make the following observations:

Rising operating expenditure
Shell's OPEX that was stable between 2001 and 2003 increased by about $ 1.2/bbl in 2004. There is therefore the need to critically examine this item so that capital projects will not be adversely affected.

Relationship with host communities
There is need to bring operators and host communities closer through some identified forum to minimize failed projects. It is also important for the communities to see these projects as theirs.
In addition, publicity should be given to community projects so that no individual would be able to jeopardize them. SPDC as an Operator should focus attention on sustainable community development, which is expected to lead to full sustainable social development. Staff that are indigenes of the communities or from oilproducing localities are to be ambassadors of their companies while the company is to be a responsible corporate citizen.

Project delivery on schedule
Furthermore, although inadequate budget funding has been the major problems facing the industry for sometime, various alternative ways are being explored to augment the funding levels approved by the government. However judicious use of the related budget is very important.
Additionally, a project not delivered on time and on budget has negative impact on revenue expectation and execution cost. Improper project scoping had always been one of the reasons for untimely delivery of and incessant variations on projects. In situations whereby contract staff are engaged to administer facility projects, there will be project overrun.

Lastly, non-professionalism has always led staff to seek protection where there is none. Just as NNPC has disengaged redundant staff, I do not believe that it is in the interest of the Joint Venture to retain non-performing individuals.
Although the problem of inadequate funding occasionally still occurs, it is to the credit of the current administration that the first alternative funding arrangement for the development of the EA field was approved. Since then, we have completed four other similar arrangements, including their part financing of a major gas project. As national budget, allocation to JV cash calls continue to fall short of our needs, government and NNPC will continue to support AF initiative with a view to bridging the gas in funding our programmes.

Mr Kupolokun is the Group Managing Director of the Nigerian National Petroleum Corporation (NNPC).