NNPC plan not to renew Eni’s license could be costly

Following the clearing of debt owed to ExxonMobil’s local subsidiary, Mobil Producing Nigeria (MPN), the Nigerian National Petroleum Corporation (NNPC) has explained why it suspended cash call repayments to Italian oil major, Eni.

NNPC also GMD Mallam Melle Kyari also indicates that the corporation was considering not to renew some of Eni’s license when it expires in about two years.

Nairametrics understands that the NNPC owes some international oil companies (IOCs), including Eni, through the share of operating costs for their joint ventures, better known as cash calls.

Reason for suspension: NNPC’s refusal to pay the cash calls followed some disputes in the country’s Niger Delta region, which are said to have hindered the development of the country’s oil assets.

The new development comes as the Supreme Court in London is set to hear an appeal by Nigerian farmers and fishermen who are pursuing claims in England against oil major, Shell, over oil spills in the Niger Delta.

During a business visit by a delegation from ENI/Agip led by the Executive Vice Chairman, Sub-Saharan African Region and Chairman ENI Exploration and Production in Nigeria, Brusco Guido, the Group Managing Director (GMD) of the NNPC, Mallam Mele Kyari, was quoted as saying that the failure to pay cash call arrears in the last three months was deliberate and meant to ensure that the issues surrounding the agreement are settled. According to him;

“The money is there, it is ready. We will pay as soon as the issues are resolved by the end of the week.” 

Recall that barely two years after the NNPC signed a cash-call repayment agreement with its Joint Venture (JV) partners to defray cash-call arrears within a period of five years, the corporation paid $833.57 million owed to MPN.

NNPC’s new commitment: Having cleared the $833.57 million owed to Mobil, the NNPC disclosed plans to introduce the Incorporated Joint Venture (IJV) model with the aim of replacing all the JV exploration and production projects in the country.

Former NNPC’s GMD was quoted to have said the IJV model was conceptualised out of the need to encourage a healthy business culture and growth in the energy sector.

Implications: Nairametrics understands the refusal to renew their license could send bad signals to the foreign investors, especially IOCs.

  • Non renewal of their license could cost Nigeria billions of dollars in investment in sector still struggling for growth.
  • There is also a risk of handing the assets over to cronies of the government who may not have the right technical competency to manage such as asset.
  • Nigeria relies on technical partners to such as Eni to operate its upstream oil assets.

Source: Nairametrics

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