The article series on the Nigerian National Petroleum Corporation Limited (NNPCL) continues, emphasizing the critical need for the privatization of its downstream assets. The previous discussions highlighted the necessity of focusing on the upstream oil and gas sector to optimize Nigeria”s hydrocarbon resources. This requires divesting from midstream and downstream operations, ultimately aiming for a complete privatization of NNPCL within a decade.
The current focus is the downstream sector, specifically the implications of selling NNPC Retail Limited. In the year 2000, NNPC sought to enter the downstream market primarily to address the persistent shortage of premium motor spirit (PMS) in Nigeria, which resulted in long fuel queues across the country. NNPC commenced its retail operations on January 1, 2002, beginning with the acquisition of a major filling station in Ikoyi, Lagos.
Over the years, NNPC Retail has grown to boast over 900 filling stations, positioning itself as the largest fuel retail network in Nigeria. The company was formally established as a limited liability entity in 2009. A significant development occurred on October 1, 2022, when NNPC acquired the downstream assets of OVH Energy Marketing Ltd, which included hundreds of filling stations, expanding its network significantly.
In a press release, NNPC articulated that upon acquiring OVH, both NNPC Retail and OVH became subsidiaries under the NNPC umbrella. However, the decision to merge NNPC Retail into OVH while retaining its name was met with confusion among industry observers. Normally, such a merger would see the acquiring entity absorb the assets and liabilities of the acquired company. Yet, NNPC Ltd opted for a unique approach.
The former Group Chief Executive Officer of NNPCL, Mele Kyari, described the acquisition as a transformative move intended to enhance the downstream oil and gas sector in Nigeria. The CEO of OVH Energy, Huub Stokman, recognized the potential synergies from this corporate union.
However, some analysts expressed skepticism regarding the effectiveness of this acquisition. A source from an NNPC subsidiary suggested that the transition to a limited liability structure indicated a move towards greater transparency and efficiency. Nevertheless, merely adding “Limited” to the company name does not inherently render it a private entity. NNPC remains wholly owned by the federal government.
The term “reverse privatization” has emerged in discussions about NNPC”s acquisition of OVH Energy Marketing Ltd, indicating a reversion to government ownership of a previously privatized entity. The context of Nigeria”s economic history, including the government”s nationalization of key enterprises post-independence due to a lack of capital and enterprise culture, provides background to this situation.
Today, significant changes in Nigeria”s enterprise culture and investment landscape have emerged, exemplified by the $20 billion Dangote Refinery, indicating a strong indigenous capacity for large-scale projects. Consequently, the rationale for government ownership of enterprises competing with the private sector in the oil and gas industry is increasingly untenable.
Despite the potential for improved efficiency following the OVH acquisition, reports indicate that NNPC Retail Ltd incurred substantial financial losses in the subsequent years. This underscores the notion that without true privatization, government ownership and political interference will continue to hinder performance improvements.
To achieve sustainable growth and profitability, the privatization of NNPC Retail and the exit from the downstream sector is essential. The government”s involvement in this competitive market is unwarranted, especially when it directly competes against well-managed private firms.
