Why Nigeria is breaking up its beleagured national oil company

An NNPC gas station. The national company will be split into 30 units.
An NNPC gas station. The national company will be split into 30 units.
Image: Reuters/ Afolabi Sotunde
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Nigeria’s national oil company, the Nigerian National Petroleum Corporation (NNPC), is about to go through a major shake-up. Ibe Kachikwu, NNPC’s reformist boss, says it will be broken up into 30 standalone units in the coming weeks.

The key reason for the restructuring of the 39-year old company is to get it to operate more profitably and transparently ahead of a proposed IPO of certain assets in 2018. Over the last decade, despite Nigeria’s vast earnings from oil exports, the company has been making losses. Last year alone, it recorded losses of $1.3 billion.

The hope is likely to be that breaking up the company into smaller units will reduce the notorious opacity of the NNPC’s finances even though, under the new leadership, the company begun publishing monthly financial reports. In the last few years, very little was known of the company’s accounts, including how much it makes. Last year, a PricewaterhouseCoopers report described the company’s oil revenue accounting and monitoring systems as “inaccurate and weak”.

The restructuring is the latest step in a wider reformist agenda by Nigeria’s president Muhammadu Buhari—particularly with Nigeria’s most important revenue-generating industry. He has made it clear that revamping NNPC is one of his major goals in office. Though the first ten months of Buhari’s tenure have come with mixed appraisals due to a floundering economy and the ongoing fight against insecurity, the reforms in the oil industry, despite the global slump in prices, may soon start to earn him some credit. In his time, Nigeria has pulled the plug on controversial oil swap deals which are believed to have cost the country almost $1 billion between 2009 and 2012 alone. The country has deployed drones in its fight against oil theft and has also revived old refineries in a bid to shore up local production.

As part of NNPC’s pending new set-up, Kachikwu mentioned that leaders of the business units will also have their job titles changed. “Titles like group executive directors are going to disappear and in their place you are going to have chief executive officers and they are going to take responsibilities for their titles,” he said.

The organizational culture of the civil service in the country is widely believed to allow a poor productivity with key appointments based on political relationships rather than competence. Over the years, this has bred a crop of government employees less inclined to pull their weight knowing that it rarely had major consequences. The new job titles for the NNPC leaders suggests a change of tactic as unit heads will be tasked with delivering positive results, as they would in any privately run business.

It is too soon to say if the new 30-unit structure will drive accountability as hoped or end up creating new levels of bureaucracy and even opportunities for abuses of power and corruption as seen in other Nigerian government parastatals in the past. It is likely to be a test of the management skills of the Harvard-trained Kachikwu.