His mandate put into question by flawed elections, Umaru Yar’Adua has extra impetus to show that his administration can implement genuine reforms – and by announcing the much-anticipated restructuring of NNPC, the low-key president is starting to build a reformist track record in exactly the right place.

When Umaru Musa Yar’Adua was sworn in on 29 May, his critics claimed the new president’s hesitant, awkward promises to change Nigeria were an indication of the weakness and lack of authority of an ailing leader with no legitimacy or real support (AE 118/1, 113/1). But in his opening months Yar’Adua has proved he is far from ineffective – the critical question is: can he keep up the pace?

Yar’Adua’s enigmatic, low-key style has proved something of a departure from the ‘big man’ culture more typical of the business and political environment in Africa’s most populous nation. But this does not mean the new administration has been inactive: last month Attorney-General Michael Aondoakaa, who sought to clip the wings of the the Economic and Financial Crimes Commission (EFCC) anti-corruption agency, was obliged to apologise for not understanding the law; and the sometimes controversial Central Bank of Nigeria (CBN) governor Chukwuma (Charles) Soludo was forced to withdraw costly proposed currency reforms after a similar failure to ‘understand the law’.

Setting the pace is the announcement of plans for the biggest shake-up in 30 years in the oil sector’s management, with the break-up of Nigerian National Petroleum Corporation (NNPC) and the Ministry of Energy. Characteristically, the president left the 29 August announcement to his Minister of State for Petroleum Odein Ojumogbia – while deciding to follow former president Olusegun Obasanjo by keeping the energy portfolio for himself.

Under the proposed changes, the former petroleum ministry, merged with power in January, will be replaced by a National Petroleum Directorate (NPD), with responsibility for strategic planning. The new NPD will lose responsibilities for oil licensing – until now handled within the ministry by the Department for Petroleum Resources – to an independent Petroleum Inspectorate Commission (PIC).

New national company

NNPC, set up in 1977 to match other Opec national oil companies, is to be replaced by a new NOC, National Petroleum Company of Nigeria (Napcon).

Former NNPC subsidiaries Pipeline Products Marketing Company (PPMC) and National Petroleum Investment Management Services (Napims) will be replaced by a new Products Distribution Authority (PDA) and a National Oil and Gas Assets Holding Company (NOGAHC).

A National Energy Commission, headed by the president, will have oversight of the sector.

The new structure reflects the conclusions of the Oil and Gas Sector Reform Implementation Committee, set up by Obasanjo in 2000 under his then special adviser Rilwanu Lukman, who retains a role in Abuja .

Obasanjo also served as oil minister between 1999-2006, a period senior officials in the new government now say was marked by corruption and political influence-peddling. The proposed reforms were shelved by the former president and “NNPC was unsalvageable,” a senior Yar’Adua aide told African Energy: “We need a new structure if we are to change the way the industry works in Nigeria.”

Napcon will need the markets

African Energy understands the new Napcon will operate on a fully commercial basis. “It will raise money for its share of joint venture financing from capital markets, so it will have to produce a balance sheet and it will have to be more transparent” said an official.

“Allowing the Finance Ministry to set the annual budget for exploration and development was never in the best interest of the industry; and still worse when it missed monthly cash call payments,” the official said.

Officials in Abuja canvassed by African Energy said the reorganisation of domestic oil sector management was part of a broader strategy to maximise Nigeria’s energy resources.

Delta initiative

“Our effort to make the national oil company less opaque is not happening in a vacuum,” one senior source said. “It must be matched by success in the initiative to improve security in the Niger Delta – and the signs are encouraging.” The official observed that “we are negotiating with militant groups and isolating criminal elements; army deployment is already beginning to help improve law and order. The relationship between Abuja and state governors is also better. And we are rolling back where possible some of the more dubious deals that have been taking place.”

But NNPC’s size makes the proposed restructuring a huge logistical exercise, as well as a significant political move. Already unions and industry players have raised concerns about the changes – which make redundant the furious lobbying since May for Funsho Kupulokun’s replacement as group managing director.

It is likely to herald an intense round of lobbying, as well as a unique potential patronage opportunity, for senior executive posts in the new structure.

Deals in question

The proposed refineries privatisation agreed in May with Aliko Dangote and other business leaders close to Obasanjo has already collapsed (AE 119/20).

Officials say that several oil licences awarded in May 2006 and 2007 are now under scrutiny. Of particular interest is the process of real estate trading, where companies with little or no technical or financial capacity sell on for a premium interests in oil blocks they received in controversial circumstances.

The process of farm-outs continues despite the transition.

London Alternative Investment Market-listed Equator Exploration announced last month a $75m farm-out and carry of its remaining interest by BG Group in OPL 323, which it secured in 2006 despite the withdrawal of its much larger partner ONGC Videsh of India. Equator on 3 September announced the collapse of a proposed merger with Camac, an opaque group owned by Kase Lawal.

African Energy understands that high-profile projects of interest to senior officials include the proposed $500m Snake Island oil services project, awarded to Jagal group shortly before Obasanjo left office, and Olokola Liquefied Natural Gas Ltd’s proposed LNG plant.

The EFCC is understood to be investigating several serving and recently retired NNPC officials in connection with alleged improprieties.

Polite warning to IOCs

While companies operating in Nigeria are likely to benefit from more effective oil sector management and improved security in the Delta, government officials say privately that foreign partners can also expect a tough line from the new regime – for example when production-sharing contracts, up for renewal in the next few months, are renegotiated.

“We are showing operators we are cleaning up our side of the business – but we also need a different relationship with our partners. We are not interested in Venezuela-style resource nationalism; but when these contracts were originally signed no one was expecting the price of oil to be this high for this long. We need to think again,” said an official close to the process.

“We must also create incentives to encourage investment in gas exploration and support structure; as things stand, we may face a choice between using gas for export or domestic power. Where we do, we will choose power. But we aim as soon as possible to have the capacity to supply both sectors.”