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NNPC saved over $150m monthly from cancellation of contracts – Kachikwu

By on September 30, 2015

Group Managing Director of the Nigerian National Petroleum Corporation, Dr. Emmanuel Ibe Kachikwu spoke to journalists recently in Lagos on his determination to focus on three elements – people, processes and performance – to reposition the corporation on the path of profitability and transparency. Ejiofor Alike presents the excerpts:

Impact of past wrong decisions on NNPC

When we want to make a decision in NNPC, we should consider the implication on the entire economy of this country and by extension, the hope and aspirations of the people; it is not an ordinary day job. Therefore, what we are bringing to bear is that for everybody that makes a decision for NNPC, you must look past yourself; look past the corporation; sometimes look past the country and look at what effects whatever decision you are making have on the general populace of the world. That is probably what has been lost overtime by people within the NNPC. We are beginning to resolve that now because sometimes you make a quick decision and you realise that you do not realise the implications both on the economic sectoral group and the entire nation at large.   So, we need to begin to take it more serious, the responsibilities that this country imposes on us as workers of NNPC. I have never imagined frankly that I was going to leave the private sector and end up in public sector. Over the last 20 to 30 years I have spent a lot of time working with the NNPC from the outer shell and my impression of them  was largely positive but for a few issues. But over the last decade we have seen a gradual backward dip in performance models; in perception of the public; in loss of expectations and everything.

So, when His Excellency, Mr. President asked me to join him in the fairly herculean task of trying to cleanse the table and redirect this company, my direct response was one of fright to be honest with you because I have been used to a life where processes work, and you can predetermine decisions to know where you were headed in everything. There wasn’t some underneath –the- table type thing going on in decisions and I wondered whether the corporation would be ready for the kind of sanitisation that I would need to do if I had to join the company. And my first response likely was to say, may be, not. But after we talked a bit more, I realised that it was really an option we had that all of us would have to leave our comfort zone to come out and help and give guide every day in our various fields but if you remain in your comfort zone, this country is not going to move forward and you have no right whatsoever to complain outside. So, I found myself thrust on this position of immense responsibility and I am very determined to make sense out of it.

I say to people that my time in this job is not how long. I see how a lot of people take government job and are very worried on how long they will last but I am not. I am worried about how well I do with the time that I have and if it is one day or two days, I will make a difference. So, if see some of the   actions that are coming out of my table, you will find that I am moving out with a lot of speed, almost like I have very limited time to do this because frankly, I won’t forgive myself if I just lasted here for one week or two weeks and didn’t take decisions that need to be taken because I was expecting that I would be there for six months. I would never have a reason to complain after this and that is my attitude. So, every day, I am looking at every   model of our business and every model of our economy and to see what needs to be done.  I am grateful to be working with His Excellency, the President, who has done everything that you would expect in terms of giving you the latitude to bring the issues on the table, discuss with him, reach decisions that will be fruitful to this industry. So, if you see the speed with which we are moving, it is because he has given me the free hand and is willing to work with me to sanitise the company.

Contribution of staff to the rot in the system
I have not started my sanitisation process on the basis that people are bad. It is usually a wrong model. Sometimes people do the wrong thing because the operation environment has enabled them to do it.  There are a lot of good people within the NNPC, who may have done wrong things at different stages of their career because they were propelled by politicians to do that. One of the things I said in my Town Hall meetings was that Managers, General Managers and officers have now lost the authority to ask anybody to do what is wrong. And even if I ask you to do what is wrong, you must refuse to do it and I have handed over that mantle of authority to my staff.

If I come to you one day and ask you to do something that you do not agree with because it is wrong, please, you should not do it and if I insist you go to the President. That is how much transparency – because really there isn’t a meeting line between right and wrong, frankly. Something is either right or it is wrong and there shouldn’t really be an accommodation of what is wrong so that it becomes right ultimately. So, if you follow that precept, you are going to do the right thing all the time. Frankly, I feel better if I have to do right.   I have never been asked to do wrong thing knowingly for 30 years of career in the oil and gas industry. That is not to say that I have not made mistakes. Don’t get me wrong. I take a decision that turns out to be wrong. But I will not start on the basis that making those decisions will
And so my staff will make mistakes; that is okay; there is nothing wrong with that. What I will not take is you making those mistakes knowingly doing that because you have other aims. I think that if we keep to the concepts of what is right and what makes sense, we will get to where we are headed. Unfortunately, we do not have a lot of time. So much harm has been done and so much things need to be changed and so quickly. Price of oil today the last time I checked was $48 and the chances from every calculation we have done is that between now and next year, if we continue to go at the way we are going currently, there is not going to be a lot of improvement on those prices.   But there are few things we need to do at OPEC level that could help propel those figures above $50 level. My expectation and my hope is that hopefully by this time next year, we should begin to see a trajectory of these prices getting towards $60s. So, every action that we must take must gravitate towards how do we have help that price uplift.   That is why for me to take a decision, you must tell yourself that it is no longer a decision you are taking because of your position; you are taking it because it has almost effects on the entire world economy. If you decide what you will do with the refineries, it has an effect; if you decide what you will do with the pricing, it has an effect; if you decide what to do with the management of funds out of NNPC, it has effects.

Efforts to enthrone transparency

We have begun the processes of weekly briefing, which is documented to Mr. President in terms of what we do as part of our transparency efforts. I am very focused on transparency because I think that the Nigerian public has a right to know. It is not a privilege and I will ask Ohi and his team that we must start fairly quickly the process of trying to put out enough data out there so that the journalists basically don’t have to beg you for facts. They should be able to find those   facts readily available. Of course, one of the effects of openness is that you get a lot of criticisms but that is fine because in the process, we learn more and we will be able to do analytical review of what we do. That is good for the country.   It is an entitlement of the country; it is not a privilege that we give to them to know how their oil money is obtained; how the contracts are done; how their income is spent; it is their entitlements. So, this not being a private company, we must be very open. We have started a weekly briefing. Our first monthly publication, which is just one month after I started, will be out next week, I think and it will      you that you have all the data that all the activities for one month will show you. You will also have all the data for all our activities from January and every month, we are going to have such publications. So, you don’t even have to call us to get those data. All I implore you as gentlemen of the press is that if you read and you have some issues, please don’t go sensational. You should call us; discuss the issues and get clarifications because sometimes what we publish are so critical that it would lead to results you cannot imagined. I am sure that is not your intent. So, rush to publish, please we must keep an open door to everyone of you who has   legitimate questions on the things that we publish and the news that you hear, which are not published. It is not likely that there is anything we cannot publish. I have not been given any no-go-areas. That is one.
The other aspect of transparency is, how do we do with the accounting issues? We are doing a couple of things in this direction. First, we are bringing back all the auditors, who did the partial audit to do a full audit. The issue was that they did not get all the data; but we are going to give them all the data. I need to know what the state of the finances of the corporation and the treatment of funds were up to this date. Our account was last audited in 2010 and it will be audited and brought currently to date to 2015. I hope we will achieve that before December. Once we know that, whether the accounts are good or bad is secondary but at least, we know what the state of the finances are and we owe that to the country. We are doing that and the President is supportive of that.
Transparency of new contract models

Another aspect of this transparency is that the contracts models we run must be transparent. Nigerians have an entitlement to participate in the contracts; it is also not a privilege; it is a right and everybody must have the same opportunity to be able to participate. But in doing that we must choose the best contractual models that offer the best value chain yield for this country. You saw that the first bullish effort we have made was to cancel the contracts.
We cancelled the contracts when we felt there were challenges; there were issues. That is not to say that the contracting parties were bad. Again, I place less emphasis on individuals and institutions and I place more emphasis on processes and outcomes. So, it is not to say that a company was bad or was not good. I am not a judge and I am not going to be the jury. But if a contract doesn’t give me a good financial yield for the company and for the country, I am going to cancel it. It is not to say that the individual who is the operator of that contract is bad. What it simply calls for is to open it up and ask others to give you an alternative yield and if they come up with the best alternative, so, be it. I think if you look at some of the contracts we cancelled, we saved average of over $150 million monthly just by those contracts being cancelled and being given new models even for the interim period.

In December, obviously, we are going to have the crude bid; we are going to have the coastal bid; we are going to have the Offshore Processing Agreements (OPAs) bid and all that and those will turn out to the entire world. Hopefully, we will end up with a sequence of results that will not only save money, improve efficiency and be seen as transparent. The thing with transparency is that sometimes you are but the perception is that you are not; that is the problem with transparency. So, you have got to deal with the perception issues. But once you are open about it, people will see that you are open about it and it shouldn’t be too difficult to do it. So, we are very focused, I, personally,  am very focused on transparency issue because if NNPC must get back its credibility, it is going to be on the altar of transparency.  I hope that as we through this process, you all work along with us to achieve those set of results. The other thing I did introduced is the three elements we call the 3Ps – which are people, process and obviously the performance. The people aspect is very key for me   Individuals, who have aided or abetted the wrong that has sank the corporation will obviously be left out. There is no space in any business in the world for you to keep doing wrong things and keep progressing. The only way we can do that obviously is that your performance modeling and evaluation must be very strong. Right now, it is poor in the system and I like to see our HR Group doing a better job of evaluating people’s performance every year. Salary increases are going to be based on those. One of the things I started doing is weekly briefing; we take an issue every week from now till December and we deal with all manners of issues from performance to behavioral norms to where we are headed to.  The whole idea is first and foremost, to carry everybody along because it is one thing   to do a restructuring exercise but if you do it and you do it in such a way that you lose your staff, you are not going to be a one-man soldier.

Efforts to improve state of the refineries

Nothing pleases me more than when I go to the refineries and I see the amount of enthusiasm that they show with what we are doing. At the end of the day, you need to clean but at the end of the day, you   also need to take along those who are there as parts and parcels so that they can provide the solutions. One thing I can assure you is that and I have never been under any illusions about it. There are a lot of skill people in the corporation; some of the best engineers in this country reside in the NNPC. The fact that they continued to maintain the refineries that are over 30 years old, some with no spare parts and no Turn Around Maintenance (TAM) for over 15 years is a sheer miracle; it is unbelievable. Every international team you called would say scrap them but our guys have continued to maintain them. So, we must respect their intelligence. Now, what we need to do to help them is some level of independence; to be able to shut down and do TAM when due; be able to fund the refineries and be able to create contractual models that make the business profitable. Right now, we are losing quite a lot. My last records we were more in the region of N10 billion for each of those refineries and it is huge loss effect.   But that is where you need to move from the era of emotion to the era of the business. Sometimes, people say that I am talking too much of business; that I have to offer social services.  No; not as a corporation. The day NNPC is called NNPC Social Services then I wouldn’t have to have this kind of conversation. But if it is called a corporation; it means that the country expects them to make yield, make a profit and manage the business properly, so that people can benefit. So, the word ‘Corporation’ was not put there by accident by the founding fathers of this company and we need to go back to that model.  I think the other time we confused our social responsibility and societal responsibilities with a more important responsibility, which is to generate much money. I am very focused on the corporation; I am very focused on the business aspects. And in doing that I am sure we will be able to meet even better, some of the societal responsibilities that are expected of us. There are a lot of issues to deal with; refineries being one of them. How do we get them to work?  My first belief really as somebody who wants to run a refinery as a businessman is that if they don’t work, you simply get somebody who is going to make them work. The reality is that if you give me 445,000 barrels per day of crude oil allocation, the model must be very straightforward. It is like I take the barrel and I pay for it; I go out and process and I get a better yield. And the government makes profit out of that yield and I keep back what is required to run the refineries. It is a very straightforward deal. But the model  that has been run is that you trade the barrels; either for reason of pipeline issues or for reasons of aging facilities in the refineries; you trade the $40 barrel oil  and you get back to $15 results. Now, you are dead before you start because you are already unprofitable. So, the greatest immediate challenge is how do you: one; limit the loss factor and on a medium term basis,  address the issues that made the refineries not to work, for example.

The reality is that the refineries as of now are not yet working because if you do give me 60 per cent performance one week and the next week I am down to zero per cent performance, the average you have done is 30 per cent. The average performance of the refineries right now is 30 per cent based on the continuity basis as that is the fact and that is the reality. Now, is it anybody’s fault? Not really.

What we need to do is say which of those refineries can work in the short term? Which ones do we need to shut down and do proper maintenance to get them to a position where they can actually compete. When you want to do that, you are faced with two issues- do you have the money do it in the present very tight fiscal environment. Can it be done if you go and raise the money somehow, or through joint venture participation to be able to fund the repairs.   The model we are working it is that I have given a  90-day programme to the refineries and any General Manager who is running a refinery  will either keep the refinery open by December and producing on much more consistent basis or if it is not, we need to shut it down and do repairs.  It is as simple as that; I am not going to waste good crude and money against the perception in there.   I will rather go sell the product out and bring in imported products, while I am repairing the refineries. Once they are working, I will put the products back. They are all part of very hard decisions and sometimes you find those decisions very emotional decisions.  But my job is not an emotional job; it is a practical reality job to get things working. So, I do crave your indulgence when you see some of these decisions coming. It is not for any reason other than to make things to work better.

State of pipeline network

The pipelines are going to work; there are absolutely no model under which we are going to be able do petroleum business in this country   without pipelines working. It is inconceivable. Militancy; difficulties – whatever the reasons are, is not enough explanation why our pipelines should not work. I am working with security forces to ensure that we provide – and also the communities for that matter, to ensure that we provide enabling environment to have access to those pipelines and to repair as the need be.   Long-term framework; medium term framework, we need to do other pipelines with more sophisticated equipment in terms of the metals to be able to carry and resist tampering.

We have got to do patrols; we have got to monitor real-time online what is happening in the refineries. If we are able to do that, then we can at least have products distributed through the pipelines. That is a model we must work on fairly quickly because coastal movement of products; whether it is for crude or petroleum products, is not the solution. It is unprofitable; it is not sustainable. It is as simple as that. Every area you look at in our operations, you will find difficulties. Now, bear in mind, however, that if this was a private company run without any social responsibilities and emotion, some of these things are very easy. If you don’t get the pipelines working, you get out of the business; it is as simple as that. You go to where you can make profit but we don’t have that option because we also have service to give to the country. So, we must try and give those services because we are compelled by law to do that. I think with good efficiency; with good planning; we will have those results. Some of the things we are doing in PPMC for example is unbundling the PPMC to have a pipeline company, with a Managing Director that focuses strictly on pipelines; whether it is pipeline security; whether it is pipeline expansion. His 24-hour job is basically working to ensure that the pipelines remain open. Once we do that we pump for the first time say from Port Harcourt to Enugu and it will be massive because for the first time, we could actually get products.

 

[ThisDay]