NNPC: 30% Frontier Basins Exploration Fund to Gulp $400m Annually

•Sale of shares to public not immediate, says corporation

•Entire industry to run on new PIA in one year

Emmanuel Addeh in Abuja and Peter Uzoho in Lagos

TAbout $400 million would be spent annually to fund exploration of oil and gas in the frontier basins under the new Petroleum Industry Act (PIA), the Nigerian National Petroleum Corporation (NNPC) said yesterday.

When the sum, which is from 30 per cent of the proposed NNPC Limited’s profit from oil and gas, is added to the estimated $500 million to be spent on host communities, being the three per cent of operating expenditure approved by the Act, both cost centres would gulp a cumulative $900 million or roughly N450 billion every year.

Group Managing Director (GMD) of the national oil company, Mallam Mele Kyari, disclosed the cost estimates yesterday on a national television programme monitored by THISDAY. Kyari admitted that some of the misconceptions concerning the new law might be due to wrong communication strategy.

He said the proposed sale of NNPC Limited’s shares to the public might not be immediate, but assured that in the next one year, the entire oil and gas industry would run on the basis of the new Act.

Kyari stated that the 30 per cent exploration fund was not for the north alone. He said there were potential oil wells in the southern states, including Anambra basin, Calabar embankment, as well as the ultra-deepwater areas of the Niger Delta.

The GMD said, “I think we haven’t communicated enough. For instance, if we had done so, some of these misgivings wouldn’t have come up in the first instance or maybe the engagements are not effective.

“For instance, when you say 30 per cent of NNPC oil and gas, it’s a very small number. The percentages may appear very outrageous, but 30 per cent of what? Nobody has sat down to look at this. When you say profit percentage, it will probably come down to less than $400 million per annum. And, then, the other side of it is that 30 per cent is a big number, but when you come to the host community fund, you have three per cent of operating expense.

“We spent about $16 billion in fiscal year 2020 across the industry and that number comes to above $500 million, far above the budget of the Niger Delta Development Commission (NDDC).”

Kyari stated that the huge percentage for frontier exploration did not amount to short-changing of any part of the country. He said there was a lot of uncertainty around profit from oil, so the allocation for frontier exploration could be zero in some years.

He stressed that there was nothing wrong in looking for more oil because of the direction the industry was moving.

Kyari said oil companies must have operating expenses, which the host communities’ fund was built into.

According to him, “You must spend money, so we are very sure that the provisions that are meant for the host communities will be implemented and will be delivered. But then when we even come to the frontier exploration, what is the issue?

“There is this common understanding that when you say frontier, you mean northern Nigeria, it’s absolutely wrong.

“Frontier is a very technical word and it means where you haven’t found oil, but there’s potential for finding oil and this spreads across the country, from the Chad Basin, to Sokoto Basin, the Bida Basin to the Anambra platform, the Calabar embankment, including the ultra-deepwater in the Niger Delta, which has not been explored.

“What’s wrong in finding oil anywhere that you find it because once you find oil and gas, it becomes the resource of the federation, and therefore nobody loses from this participation.”

The NNPC GMD declared that when fully incorporated, NNPC Limited would operate under the Companies and Allied Matters Act (CAMA), saying the implication is that it would have shareholders among Nigeria’s 200 million population. But the shareholders would be represented by the Minister of Finance and the Minister of Petroleum, he stated.

Kyari stated that shareholders could decide to reduce their equity holding by inviting private investors, adding that NNPC Limited would be floated on the stock exchange.

“So, the intention at the very onset is not to take that step, but there’s a provision in the law that allows us ultimately to sell shares of this company,” he added.

He said NNPC Limited would then fulfil all obligations under the PIA, pay taxes and royalties, just like any other oil company, as well as declare dividends.

Kyari stated, “It’s a very different ballgame. To put it in context, in 2018, the losses of the corporation were about N803 billion, by 2019, by providence, we were able to reduce losses to just N1.7 billion. And I can tell you, I’ve said it before, in this fiscal year, this company will declare profits.

“Many things that would have probably contributed to some of the losses that we suffered will go away, decisions will be completely commercial, you can’t run any business under the CAMA rules continuously on losses, else you will declare bankruptcy.

“For the subsidiaries, they are businesses that stand on their own, NNPC will be the holding company, consolidate its books at the end of every year as the company that is a holdco company. And, of course, the individual companies will also operate under the CAMA and Nigerians can buy shares ultimately.”

Kyari explained that there would no longer be government intervention, but the new oil company would run strictly as a business, adding that the PIA is clear on what agencies will go into extinction and those that will make some transition under the new law.

He stated, “There is a transition provision for all of these institutions, including the Petroleum Equalisation Fund (PEF), the different timelines.

“In terms of pricing of petrol, which is the only regulated petroleum product, PIA will ensure a fully deregulated market, ultimately, but it didn’t say that it will be done tomorrow.

“There are a number of steps that need to be taken before we get to that position. In that context, you will see the relevance of all the regulatory institutions, clearly provided by the PIA, when they exist.”

The GMD said the new law had made Nigeria’s fiscal environment competitive.