‘We are serious about doing business in Nigeria’
AUSTIN AVURU: He is one of Nigeria’s biggest entrepreneurs in the oil and gas industry, with a reputation for strong corporate governance values. He was an impressive interviewee. After lunch at the famous Monte Carlo Hôtel Hermitage, he discusses entrepreneurship, Seplat, industry skills and hiring as well as the PIB, gas pricing and his promise to the company’s shareholders with CHARLES IKE-OKOH
As an entrepreneur and one who have had extensive interaction with your peers here in Monaco for the Entrepreneur of the Year Awards, what are you hearing from them and what will you be taking back home to aspiring Entrepreneurs and others who are in it already?
The exposure has been very uplifting because you get to meet and interact with different shades of people in different shades of business. But you know the message is the same and consistent, each one of them in his or her own way is striving to create value. So it is all about value creation for the public good, particularly in an environment like ours. That is what the country needs today to reignite the economic engine and expand the economic base, creating a lot more values, creating a lot more wealth and in the process creating a lot more jobs and all of the social impact that have to go with it.
So my hope is that, not just that aspiring entrepreneurs will be inspired by the things Nigerian entrepreneurs are doing across the economy, but that indeed the government itself will come to the full realization that genuine partnership between government and entrepreneurs is very important in creating value in the economy.
As an aspiring entrepreneur, some 10-20 years ago, if someone told you you that Seplat will be where it is today, what would have been your reaction and answer?
No, not even 20 years ago (laughter), let us say 6-7 years ago. But again, that is the power of dream. So you dream up something in the beginning, you have just no way of knowing how big it can become but what is important is that you are focused and in some specific area, you focus at creating value. And you go at it with all the experience, the expertise and knowledge that you have. And it is pleasing to watch such an enterprise grow.
Let me take you into understanding the type of people you have in the organization that makes all the results count. How difficult is it to develop the requisite skills you need?
There is a lot of emphasis in developing the right caliber of human capacity in our company. Right from our hiring policy we tend to bring in as much as possible the very best in the job space. We have the deliberate policy of training and motivating them properly. Our strong corporate governance plays a key role as well as a reward system that also emphasizes the things we cannot do.
So, we have zero tolerance for corruption for instance. And so anybody who strays, we are quick to let the person go and anybody who puts in his best into the company, we are quick to reward the person.
So, generally we have built a work force and we will continue to build a work force that is well motivated and very talented. That is key for us-that is one of our key differentiators.
So how challenging is it to retaining these right types of people in Seplat?
It is a very big challenge. First of all finding them; because you have a large pool of unemployed people and when you are looking for the critical talents you find this large people chasing you for jobs and they are not the ones you are looking for. The few people you are looking for that have the right talent and training are quite difficult to find.
But in the midst of all of that, it is either you find the right talents or the ones that are close enough that you can hire and develop, but overall, you must stay focused on human capital development because that is the core of your growth.
Does this say that in the industry and for you, that job turnover is high and when you are hiring what specifics are you looking for?
First of all, our job turn over is very low because we also have a deliberate programme of staff retention so when we hire those that are good enough we train them and try to retain them through motivation, which is embedded in our HR policy.
So our turn over is very low and we intend to keep it that way. What do we look for?-the right talents, the right experience, if we are looking for experienced people. If we are looking for fresh people and we do hire from fresh people, we will be looking for sharp young people that are trainable and amenable to our culture. And when we hire such people we invest in their training. We have a programme on training. When we hire the experience ones then we are looking for fit-for-purpose. That is people who have the right experience and the right qualities for the specific vacancies that we are looking for.
But overall, we are looking for well motivated and totally loyal staff and staff that very quickly understands our ethos-our dos and don’t. Like I often say, for us it is zero tolerance for corruption. So we are looking for staff that understands that there is a great future for them if they just put in their best and help the company grow.
People have talked about Nigeria running out of oil. Is Nigeria running out of oil?
No, Nigeria is not running out of oil because even up to this point, as long as any nation is able to find as much new oil as it is producing, it means that you haven’t hit the plateau yet. In the case of Nigeria, especially when we go back to full funding of the oil and gas industry, you will realize that we are, on the average still finding more reserves than we are producing.
So I think we haven’t hit the plateau yet, we have not started in the decline curve yet in Nigeria.
So Seplat is already looking for new reserves?
Yes, we are looking out for new reserves. As a company, our growth story is hinged on finding additional reserves, more reserves than we are producing because that is what establishes the longevity both of the business and of the company. So we are committed to increasing production just as we are committed to increasing our reserve base and that is the same for every oil producing company operating in Nigeria.
This oil price crisis- why didn’t anybody in Nigeria see it coming. Was it inertia?
To be fair, it is not just Nigeria. Almost everybody gets carried away by inertia. This is a circle that has repeated itself almost every 4-5 years. Remember that in 1999, just before the President Olusegun administration came in, oil price crashed to $9. By 2000, it had recovered to $22. Again in 2008, oil price crashed from $147 to $42 and then recovered by 2011.
I think it is the consistency of the price over a fairly long time-4 years- of $100 oil and we clearly lost sight that it could happen and as usual when it happened, particularly in the case of our government, it took them unawares.
But every time such a thing takes you unawares, either at the corporate level or at the national level, it is the absence of planning. That is the only reason it will take you unawares.
It is difficult for anybody to say he has successfully predicted the oil price. But if you look at the overall trend and correct for inflation, I think that the long-term price has always been in $70-$80 range.
So you can see a spike well above that and you can see a trough like we have now but on the long term it will still come back to that tunnel. I will say the tunnel between $70 and $90 with an average of $80. That is what I see as the long-term price.
In the next 18 months, what do you think will be the most disruptive trend for your company?
Our greatest fear today is the export infrastructure that we have for our production. Which means the export pipelines to take our crude to the terminal and the distribution infrastructure for our natural gas into the domestic market. Those are the elements that are outside our control and if they are down we are simply shut down. That is probably our greatest fear. The next serious challenge is the ability of government to pay their share of the bills because we are partners with government, (most of our business is through NNPC and NPDC). The stronger they are as partners is important for us, because when they pile up a lot of receivables on account of not paying their bills, it simply disrupts our growth trajectory.
So, I will say yes, stability of export infrastructure and the ability of our partners to live up to their responsibility. These are the two greatest issues that will worry me when I go to sleep.
And do you see any light in the tunnel on these issues with the new government of President Mohammadu Buhari?
We are very hopeful because one of the strongest elements this government is bringing to the table is the fight against corruption and we sincerely, even as a company, believe that if you minimize corruption in the polity, you will create a much more favourable business environment for those who are serious about doing business and we are serious about doing business irrespective of who constitutes the government provided the government is not corrupt and therefore provides a level playing field. That makes us very hopeful.
How relevant is the Petroleum Industry Bill (PIB) to Seplat?
We have always and will always do business inspite of and not because of the PIB and therefore its none passage have had no impact on our business and if it is passed tomorrow, we will simply adjust.
As a policy that people have talked so much about, what will the PIB exactly do if it is passed?
My personal view which is very well know and unfortunately not in accordance with public view, I have never believed that the PIB was capable of solving our fundamental problems. I always thought it was a distraction and unfortunately, a lot of commentators on the PIB are those who do not understand the critical elements of the PIB.
I believe that the core problems of the industry starting from the downstream, is the significant constraints in operating. Refining capacity is near zero. Our refining capacity should have been heading towards a million barrels per day and that is achievable in the next four years.
For product distribution, our infrastructure is dead and that is why you see all the trucks piling up in Lagos and causing so much social problems. I believe that deregulation and removal of subsidy should come in naturally and free up the down stream market. These are the problems and constraints that the PIB doesn’t even address.
When you go to the upstream, you will find identical problems. These are problems of infrastructure decay; problems of funding that are constraining growth in the industry. They are not addressed by the PIB and the industry and government spend so much energy fighting over fiscal regime and who gets the larger share of the pie without anybody addressing the main constrain to baking the cake. It has been a huge distraction for the past 10 years.
With regards to gas and all the issues surrounding gas pricing, what type of regulation would you like to see in that sector?
I would want to see government, particularly through its regulators, see this shift for oil and gas just being a primary revenue earner to oil and gas being an enabler for economic growth. Which means, emphasis is shifting from just direct gross revenue earning to oil and gas as domestic energy security-enabler.
Now what does this do for you as against just revenue earnings? Think about this, 3bcf of gas today into the domestic market, and that is achievable in the next 4 years, would power so many heavy industries-cement, fertilizer and petro-chemicals in addition generating some 10 gigawats of electricity.
Then go to the downstream-if you deregulate the downstream and reactivate the downstream and the refineries, in 4 years you can have 1.1 million barrels of refining capacity domestically. Add that to a well functioning downstream, you will have a new economy.
So, domestic energy security becomes an enabler for growing the economy and reigniting the economy rather than just looking at it as primary revenue earner. Once our regulators recognize that and regulations gets tuned into moving that paradigm then you will have the greatest impact on our economy and that is what I am hoping will happen.
Would you build or buy a refinery in this economy you describe?
Yes if we have an opportunity, we will build or buy because it is part of our three level integrated business, which is the upstream where we are doing very. We are also doing very well midstream in terms of gas processing and distribution into the domestic market and to process crude oil just as we are processing gas, which is what the refinery is, it will just be part of an integrated system to deliver the products into the domestic market.
So at the right time and given the right opportunity we will be involved in the refinery business.
The petroleum ministry-who should be the petroleum minister?
We have always advocated a very competent and none corrupt technocrat because the issues that plague us today in the oil and gas industry require very critical analysis, well planned and well thought out execution and it is partially about the removal of politics and sentiment from execution.
So we need a very strong and competent technocrat to come up with a very clear road map to reorganizing and reigniting the industry.
Reorganizing would mean taking out NNPC for instance?
Well, reorganizing NNPC so that they will no longer be an inhibition to the growth of the industry. It means reorganizing them to have a role to play but they should not stand in the way. Yes we need that deep-rooted reorganization to deliver on the industry promise.
Let us talk about your company’s recent Annual general meeting-what did you take away from your shareholders in the end?
We have enlightened shareholders in Nigeria. There were people that asked questions that showed how thoroughly they read through the report and how well they understood clearly the business we do and the fundamentals.
But it also says a lot about us as a company in terms of our disclosures. It also shows that our disclosures are total.
For our shareholders to thoroughly understand the business we do by reading our annual report, just shows how much disclosures you will find in our report. Those are the elements of corporate governance we as a company are very proud of.
And that is why it doesn’t matter the enquiry we are summoned to, we are not shaken because there is nothing we are going to say to you that we have not already disclosed.
And the company’s listings, the London Stock Exchange included, do you have the type challenges which some Nigerian firms have had with listing in the Johannesburg Stock exchange for instance?
No we do not have such challenges and we have not had challenges largely because we know what to expect. We were prepared for the high level scrutiny that being listed in London confers on you. But it is part of the reasons we went to list there. We needed that level of scrutiny so that we can build a business that will survive at all times, so that we can build a business on very strong corporate governance foundations and that is what we are doing.
So, we are actually enjoying the scrutiny and we are taking advantage of it. We have one of the strongest boards you will find of any Nigerian company and that is because of our listing in London. So we are taking advantage of it to build a very strong company.
We may face some head winds, as we said at our AGM-low oil prices, we are in the growth phase, a few things here and there but in the long term we are building a strong business based on a very strong corporate governance foundation. So yes, we are enjoying the benefits of listing even though there seems to be some constraints.
So what are you promising your shareholders?
We have always promised them three things and all of them hinged on growth. We have always said that we will grow the company. Grow the company by acquisition, grow our gas business, grow the company organically by optimizing value out of the assets we hold and we are on course to doing just that.
So what I promise the shareholders is that despite the headwinds we see today, we are still very confident that we are on course to deliver a very well built and well structured company that will be there for all times.
Perhaps you will argue then that is what makes the company a good place to work. What am I coming there to become in the end?
Absolutely a great place to work and with a lot of inspiration. There is so much more work to do and so much more to build in Seplat. And I think that is what inspires all of us at Seplat.
I should guess you’ve spent so much time advising on how to build better values. Who advises you?
Let me tell you, when you come to an event like this (Entrepreneur of the Year Awards in Monte Carlo, Monaco) all you are getting is advise. You listen to people, you are learning from their experiences-from different people, from different parts of the world and if you manage to have the discipline to be sufficiently humble you will find out that you are actually getting advise from everybody high and low at every event you go to.
So, I pick and choose events that are inspiring to attend because that is where you get the critical advise from. And then of course you get advise from your own staff just from participating very effectively in your planning circle as a company. You get more focus and you will be very clear in your mind where the company is headed and how execution should be done and you will just find out that you are getting advise from all around you.
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