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The Role of the Nigerian National Petroleum Corporation (NNPC) in the Development of the Oil Industry in Nigeria

The emergence of petroleum in the Nigerian economic scene inevitably resulted in government setting up monitoring and control regulations for the industry. In 1970, the Petroleum division of the Federal Ministry of Mines and Power which had been created in 1962, was upgraded to become the Department of Petroleum Resources in the Ministry of Mines and Power and in 1975, it was transformed into a full-fledged ministry of petroleum and energy which was later renamed the Ministry of Petroleum Resources with primary responsibility of advising the government on policy matters affecting the management of our petroleum resources.

In 1971, the Nigerian National Oil Corporation (NNOC) was set up to undertake commercial activities on behalf of the government. In 1977, the Ministry of Petroleum Resources and the Nigerian National Oil Corporation (NNOC) were merged under Decree 33 to form the Nigerian National Petroleum Corporation (NNPC). This decree also created the petroleum inspectorate division as an integral part of the NNPC. The Ministry of Petroleum Resources was later re-established and a reorganisation of the NNPC in 1988 brought the inspectorate back to the Ministry as the Department of Petroleum Resources (DPR). Today the DPR is responsible for achieving the overall objectives of Government policies for the industry.

The objectives include:

(i) ensuring compliance with all petroleum laws and regulations, encouraging the development of the nation’s petroleum resources in the public interest;
(ii) protecting both local and foreign investments (private or public);
(iii) ensuring harmonious relationship between government, industry and local communities;
(iv) promoting intra industrial peace and encouraging interaction between the industry and the general public. A key feature of the upstream and of the industry is the government joint venture participation and the operations of the six leading operatives in the sector. The NNPC owns 60 per cent – equity in the operations of Mobil, Chevron, Agip, Elf and Texaco as well as 36 per cent in Shell, in whose operations Agip and Elf hold 15 per cent and 5 per cent respectively. The equity participation puts the holders of the upstream machine in the hands of the government. For example, for every 100,000 barrels of oil produced by Mobil, government (or NNPC) is entitled to 60,000 barrels. This also means that NNPC funds the oil field activities of Mobil to the tune of 60 per cent. If Mobil must spend $100 million on a project then $60 million must be paid by NNPC. This also means that government budget for the oil sector affects the operations of the six transnational companies which produce 98 per cent of the total production of the country; and
(v) refining: Nigeria refines some of its crude oil for domestic consumption. The refineries are in Port-Harcourt, Warri and Kaduna. These three have a capacity of 260,000 barrels per day.