Analysis: Nigeria restructuring oil works

Nigeria has decided to break down its state-run oil company into five different entities in an effort to become more efficient and profitable, while curtailing corruption.

The new entity comprising five divisions will replace the Nigerian National Petroleum Co. and replace it with the Nigerian Petroleum Co., or NPC, which according to analysts will function more like a state-owned oil firm rather than a government agency.

Nigeria’s current petroleum regulator has suffered from chronic capital shortfalls and been the subject of much scrutiny over its falling output. NNPC was reportedly $1.6 billion short in meeting its 2006 expenses and had to be propped up by other sectors of the Nigerian economy though it accounts for an estimated 85 percent of the government’s revenue.

Nigerian President Umaru Yar’Adua laid out a six-month itinerary for creating the NPC and its offshoots for exploration, production and export. Yar’Adua also appointed a national energy council to oversee the project in the coming months.

While some praised the president’s effort as part of his election pledge to crack down on corruption in the petroleum sector, others contend Yar’Adua has reorganized Nigeria’s oil and gas to increase his own influence over the country’s top source of revenue.

Foreign oil firms operating in Nigeria are watching the restructuring carefully for signs the Nigerian government could also seek to alter extraction and exploration agreements.

"Whether the new national oil company seeks to become the dominant player in Nigeria's oil patch or becomes just another competitor to Shell, Exxon, Total and Chevron in the Niger Delta, the net effect of its presence may very well be tougher terms for foreign operators, but also a more transparent bidding process and regulatory environment," wrote Eurasia Group Africa Analyst Sebastian Spio-Garbrah, Nigeria’s This Day newspaper reported.

The decision to restructure Nigeria’s oil and gas sectors follows a recent report showing the sector loses $14 billion a year to theft.

Monetary losses incurred by the oil sector were calculated based on the estimated number of barrels of lost production due to corruption and crime, President of the Corporate Council on Africa Stephen Hayes said last month.

"If you are losing 600,000 barrels a day on oil at $70 a barrel, you are losing $12 million a day on oil theft,” he said.

Before stepped-up hostilities by militant and other armed groups in the Niger Delta -- home to the country’s oil and gas wealth -- began in late 2005, Nigeria claimed to be producing about 2.5 million barrels per day. Since then, production has reportedly decreased by at least 20 percent, perhaps even by one-third, warn some analysts.

In and around the delta’s de facto capital, Port Harcourt, a recent spike in violence has raised concerns about the long-term viability of doing business in the region, where foreign oil and gas operations are regularly targeted.

“The situation in Port Harcourt will remain unstable in the short term until Nigerian authorities can regain some level of control,” read a recent report by Stratfor consulting group.

“Many companies with oil operations in the Niger Delta are based out of or supported by companies in Port Harcourt. These companies and their personnel have not been specifically targeted by the groups involved in the fighting.

“However, in any unstable situation, there is always the chance that they or their personnel will get caught up in the violence.”

Despite production disruptions attributed to “bunkering,” when oil and gas lines are tapped at times resulting in deadly explosions, illegal sales and violence attributed to armed gangs and militants, some Nigerians say they see a silver lining to the delta’s and Nigeria’s dilemmas.

In August, a leading Nigerian rights group praised Yar’Adua for his efforts to tackle corruption and violence.

The Niger Delta has been a flash point for decades amid accusations of government graft and corrupt practices by foreign oil companies.

Since the 1970s, Nigeria, Africa's No. 1 oil producer, has pumped more than $300 billion worth of crude from the southern delta states, according to estimates. High unemployment in the delta, environmental degradation due to oil and gas extraction, and a lack of basic resources such as fresh water and electricity have angered the region's youth, who have taken up arms, many times supplied by political leaders, and formed militant groups and local gangs.

Following his election in April, Yar'Adua appealed for calm and in his inaugural address said he would "set a worthy personal example" by tackling corruption and violence in the delta.

Since then some of the militants have said they would cease violence against foreign oil operations that have been the focus of escalated attacks and kidnapping campaigns over the last two years.

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