[NGW Magazine] Nigeria’s ‘sidelined minister’ saga unsettles investors

This article is featured in NGW Magazine Volume 2, Issue 21

Concerns over how Nigeria’s president and state-run NNPC boss are sidelining the petroleum minister are not helping investor confidence.

Nigeria’s state producer, Nigerian National Petroleum Corporation (NNPC) has been in the news due to an ongoing battle between the minister of state for petroleum Emmanuel Ibe Kachikwu and NNPC’s group managing director, Maikanti Baru.

Kachikwu -- who held both his ministerial role and Baru’s job until mid-2016 and before that was a senior ExxonMobil executive in Africa -- wrote a letter October 3 to Nigerian president Muhammadu Buhari about several issues, including Baru’s method of approving contracts.

In an earlier letter, dated August 30 2017, Kachikwu complained of being sidelined by the current NNPC leadership under Baru, and specifically noted that contracts worth a total of $25bn were approved without going through the NNPC board.

It is mandatory that oil contracts exceeding $20mn to go to the board for approval; yet Kachikwu claimed in his letter that in over one year of Baru’s tenure, no contracts gone for the board’s approval. 

In particular, Kachikwu claimed that the Ajaokuta-Kaduna-Kano (AKK) gas pipeline contract had been awarded without his consent as an NNPC board member. He also said that some $3bn of Nigerian Petroleum Development Company (NPDC) production service contracts were similarly awarded. 

In response to Kachikwu’s letter, NNPC released a statement October 9, dismissing the allegations as baseless and arguing that it had followed due process. 

NNPC said that, apart from the AKK project and NPDC service contracts, all the other transactions cited were not procurement contracts. It maintained that the NPDC production service contracts had undergone due process, while the AKK contract – which requires Nigerian cabinet (Federal Executive Council) approval – had not yet reached the stage of contract award.

NNPC further argued that the AKK pipeline project is a contractor-financed contract, which is being executed by due process. It said that certificates had been obtained from the Bureau of Public Procurement (BPP) and Infrastructure Concession Regulatory Commission (ICRC), while one from a further authority is pending, after which the contract will be presented to the cabinet for approval.

Nigeria’s vice president Yemi Osinbajo said October 12 that he approved some recommendations on JV financing while Buhari was away in London earlier this year: “They were financing loans. Of course, you know what the joint ventures with the lOCs like Chevron are. In some cases, NNPC and their joint venture partners have to secure loans and they need the authorisation to secure those loans.” 

“While the president was away, the law actually provides for those authorisations. So, I did grant two of them and those were presidential approvals, but they are specifically for financing joint ventures and they are loans, not contracts,” said Osinbajo.

His spokesperson Laolu Akande had previously said on Twitter: “Osinbajo, as acting president, approved recommendations after due diligence and adherence to established procedure. Action necessary to deal with a huge backlog of unpaid cash calls which the Buhari administration inherited and also to incentivize much needed fresh investments in the oil and gas sector.”

Nigerians have expressed misgivings over Baru’s alleged high-handedness towards Kachikwu Buhari himself, when elected president in 2015, appointed himself minister of petroleum resources, effectively making Kachikwu his deputy.

Industry sources note that Baru may be reporting directly to Buhari and ignoring Kachikwu, a scenario that may not sit well with potential investors in the gas sector, which is in dire need of both of investments in infrastructure and of debt financing. This breakdown of trust between the petroleum ministry and NNPC could degenerate into a deeper scandal, cautions Josh Holland, an analyst at IHS Markit.   

“This raises concerns about the level of co-ordination and co-operation between the petroleum ministry, NNPC, and the presidency. For example, why has Kachikwu apparently had so much trouble meeting with Buhari, who is not only the president but also the petroleum minister? Why aren’t Buhari, Kachikwu, and Baru more in sync? This lack of “alignment” – as Kachikwu calls it in his leaked memo – between the key decision makers is worrisome because it hinders the administration of the hydrocarbon sector and casts doubt on the authorities’ ability to revamp the sector,” says Holland. 

It is also, adds Holland, a reminder of NNPC’s problems over alleged impropriety, which have dogged the company for years and undermine Nigeria’s much-touted talk of oil and gas reform.

“While there have been some positive changes over the past two years – NNPC’s upstream JV cash-call exit agreement comes to mind – a structural overhaul of the sector has yet to materialise.  

This is problematic because investment and production levels are stagnant and unlikely to substantially improve without major legal, institutional and fiscal reforms. Until such alterations are made, objectives geared towards guaranteeing investments have a low probability of being achieved,” Holland concludes.

On October 17, the Nigerian Senate committee on ethics, privileges and public petitions summoned Baru and Shell Petroleum Development Company  to discuss how OML 13 was revoked and re-awarded, allegedly by executive fiat, to India-based Sterling Global Oil Resources’ subsidiary Seepco, without an open tender being held.

The committee went further to call for an outright cancellation and reversal of the entire process.

While some stakeholders believe that president Buhari doubling as petroleum minister may be affecting investments in the sector, others argue that the lack of investors in the gas sector is due more to a lack of hydrocarbon reforms, lack of security, and ongoing power sector problems. The fall in oil prices and resultant fall in companies’ capital expenditure are not helping either. 

Consultancy Wood Mackenzie last month published an estimate that $133bn had been cut from capex in sub-Saharan Africa’s upstream during 2015-20, compared with what was planned in 2014 prior to the price collapse. Of that, $50bn was in Nigeria (37% of the total) mostly in oil projects. 

Central Bank of Nigeria governor Godwin Emefiele told attendees at a London Stock Exchange event October 30 that investors should invest in Nigeria as the Return on Investment is among the best in the world.  

He added that the petroleum sector was one of the four sectors that received foreign exchange allocations from the CBN, the others being farming, airlines, and natural resources. 

Omono Okonkwo