Why is the Nigerian National Petroleum Company still in existence?
The dead were spared the depths of man’s monstrosity to the living,
For through dying, they found peace.
Embodying the endemic corruption that plagues Nigeria’s oil industry is the country’s national oil company, Nigerian National Petroleum Company (NNPC), aka the New Nigerian Pirates’ Collusion. The company is a leech that has grown fat off the fortunes of Nigerians. It is a cash cow that successive Nigerian governments tug at its tits for money to fund their budgets. The company doesn’t just trade oil for profit for the Nigerian government; it also apparently uses Nigeria’s oil to take out resource-based loans on behalf of the Nigerian government and the “Nigerian people,” as was the case in August 2023, where the NNPC in return for a $3.3-billion-dollar loan from African Export-Import Bank (Afreximbank) promised Nigeria’s oil as payment.
Interestingly, some of these oil-for-money loan arrangements that the NNPC is involved in are based on future oil production projections. So, say a militancy operation disrupts the activities of NNPC and its contractors like Shell and Chevron, and oil production does not meet targets, Nigeria defaults on its oil payment to its lenders? You can say that militancy is a thing of the past as the Nigerian government, through the NNPC, used billions of naira worth of security contracts with former militants like Tompolo for the dual purposes of giving the agitating militants a more “equitable” share of the profits from the oil in their lands and using the people who know best the environment, that’s the oil-rich Niger Delta, and the tactics of militants, for being once militants themselves, to protect pipelines and other oil assets from attack and theft. The interlinked stories of inequality and theft in Nigeria’s oil industry are not explored in detail in this piece; however, they form part of the bigger picture.
Nevertheless, aside from the underlying risk of resource-based loans, Nigerians are robbed of the potential wealth that could have been unlocked by adding value to crude oil by refining it. The lack of value addition is an issue that isn’t peculiar to Nigeria but is replete across sub-Sahara Africa, which remains poor despite its wealth of natural resources. What usually happens is that the politically connected elites who rake in most of the profit from selling the natural resources in their raw state are usually too comfortable with the status quo to bother creating more value.
In Nigeria, the roadblocks that have been and are being encountered by the Dangote refinery — a 650,000-capacity-a-day refinery in Lagos — in its much-needed interface with the NNPC and the petroleum industry regulators — the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) and the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) could be interpreted to be the dying shrieks of the crude-oil-for-money business model that has long shortchanged Nigeria and Nigerians.
First, as the national oil company possessing most of the country’s oil assets, any of Dangote’s dreams of refining Nigerian oil, which, by the way, is mostly low in sulphur and a favourite of refiners, hinges on obtaining supplies from the NNPC in conjunction with the NUPRC, the Nigerian petroleum industry upstream regulator. As for the NMDPRA, the midstream and downstream regulator Dangote needs their blessing to sell refined petroleum products in Nigeria.
Alas, Nigeria is not the kind of country where change that will benefit the masses is welcome with open hands. Corruption, after all, fights back. In a signature Nigerian style, Dangote had to wrestle the NNPC and the two petroleum industry regulators, who all, before 2022, were bundled together as NNPC. On the part of the NNPC and the NUPRC, Dangote complained that his refinery was not receiving the amounts of crude oil the duo is legally obligated to deliver to him under the Petroleum Industry Act, which guarantees domestic supply of crude oil by producers to refiners in a willing buyer, willing seller arrangement. According to the NUPRC, it had, for the first six months of 2024, facilitated the supply of 29 million barrels of crude oil to the Dangote refinery, claims the spokesperson for the refinery refuted.
Meanwhile, with the NMDPRA, Dangote got into a spat over the quality of Dangote’s refined petroleum products and the quality of those that the regulator licensed for importation into the country. The regulator, perhaps in a bid to demarket Dangote’s refinery, not only accused the enterprise of producing high-sulphur petroleum products that failed to meet national standards but also accused it of trying to monopolise the supply of petroleum products in Nigeria. Nevertheless, it was later revealed that Dangote’s diesel had a sulphur content of about 88 parts per million. In comparison, the diesel the NMDPRA licensed for importation into Nigeria had sulphur levels of 2,000 parts per million.
Cue oil refining in Nigeria. Refining crude oil in Nigeria, Africa’s largest crude oil producer, for local consumption, export, or both seems like a no-brainer. Yet, Nigeria had been a paradox until the refining renaissance sparked by Dangote’s refinery, which began operations in January 2024. The oil-rich country had for decades spent a sizeable chunk of its foreign exchange earnings importing refined petroleum products despite having refineries in Warri, Kaduna, and Port Harcourt with a combined production capacity of about 445,000 barrels a day. In 2023 alone, Nigeria’s import bill for petroleum products was about $25 billion, a whopping 7 per cent of Gross Domestic Product (GDP). The key to the puzzle is that the four refineries in Warri, Kaduna and Port Harcourt are moribund and have guzzled billions of dollars in repairs, all to no avail. One company is responsible — NNPC — NNPC owns and runs Nigeria’s four failed refineries.
Connecting the dots, one would not be hysterical to arrive at the conclusion that the NNPC is undermining its refineries and even the Dangote refinery in order to continue its lucrative business of exporting Nigeria’s prized low-sulphur crude oil for a premium price while importing cheap sulphur-laden petrol, diesel and the like for consumption by Nigerians. Going by the cold-hard economics, the NNPC would make more money selling Nigeria’s low-sulphur oil on the international market than refining it locally and selling it to Nigerians.
In essence, Nigerians are too poor to consume the oil in their ground, but instead, they are to consume what they can “afford,” which is cheap oil. This issue of locals not enjoying a locally occurring natural resource isn’t peculiar to Nigeria; it’s a hallmark of the modern globalized world where efficiency often takes the front burner, sometimes at the cost of human life and the environment. Take the Democratic Republic of Congo, for instance: Despite being the world’s largest cobalt producer, the country’s electric vehicle sales are almost non-existent compared with those of richer developed countries in Europe and North America.
Nevertheless, aside from the moral bankruptcy of the NNPC’s crude oil trading business, which exports more expensive Nigerian crude oil and imports cheaper refined petroleum products of a different origin, the NNPC is incompetent and irresponsible. In September 2024, it was revealed that the petrol queues that arose in response to petrol shortages could be partly traced to the unwillingness of petrol suppliers to supply NNPC, the sole importer of petrol in Nigeria at the time, because of its $6 billion debt to them. The NNPC, Nigeria’s national oil company, has a nasty reputation for being a lousy debtor in a world of international business where reputation is everything.
At some point, Nigerians have to start querying what value the NNPC brings to their lives. Currently, there still seem to be traces of petrol subsidy passed on to the average Nigerian, but other than that, why is the NNPC still in existence? Can the NNPC independently explore and produce crude oil without the assistance of international and domestic oil companies? Why hasn’t the NNPC and its gas holding, Nigeria Liquefied Natural Gas (NLNG), made Nigerian natural gas commercially available in Nigeria for local consumption and export? Why are the Warri, Kaduna, and Port Harcourt refineries not fully functional after spending billions of dollars on turnaround maintenance? Who bears the liability if NNPC defaults on its obligations to lenders under a resource-based loan?
In my harshest opinion, once the price of petrol is fully deregulated and all subsidies disappear, the NNPC should be wound up with the Nigerian government auctioning its holdings to indigenous oil companies. This way, the Nigerian government gets a bumper harvest, which it can invest in humanitarian efforts, critical infrastructure, development initiatives, etc. More importantly, this change of tracks by the Nigerian government will pivot Nigeria away from being a failed petro state towards unlocking its competitive potential, which its people embody. Nevertheless, pragmatically speaking, I doubt this monumental change would happen anytime soon as the political will needed simply doesn’t exist yet.
