What NNPC’s CAMA Transformation Mean For Nigeria

By Ifeanyi Onuba 

By July 1 this year, the Nigerian National Petroleum Company Ltd will fully transform into a Company whose operations will be regulated under the Companies and Allied Matters Act.

The NNPC’s transformation into a CAMA company follows the implementation of the Petroleum Industry Act.

The Corporate Affairs Commission had on September 21 last year completed the incorporation of the NNPC Ltd in accordance with the provisions of the Petroleum Industry Act 2021.

The PIA was signed into law by President Muhammadu Buhari on 16th August, 2021, following its passage by the National Assembly in July of the same year.

Specifically, Section 53(1) of the Petroleum Industry Act 2021, requires the Minister of Petroleum Resources to cause for the incorporation of the NNPC Limited within six months of the enactment of the PIA in consultation with the Minister of Finance on the nominal shares of the Company.

With the registration by the CAC, the NNPC Ltd was floated with an initial capital of N200bn making history as the company with the highest share capital in the country.

Between when the PIA was signed into law in August last year and now, the management of the NNPC has taken proactive steps to prepare it for the July 1 take-off as a CAMA company.

For instance, several engagements have taken place between the NNPC, the Nigerian Midstream and Downstream Petroleum Regulatory Authority, the Nigerian Upstream Petroleum Regulatory Commission, the Ministry of Petroleum Resources, Ministry of Finance, Governors, legislators, host communities and other key stakeholders to understand the impact of the changes the PIA brings. 

Also, a PIA transition committee has been set up to drive the transitioning of NNPC into a full CAMA Company. 

The NNPC has also set up an in-house committee supported by renown reputable consultants (McKinsey, KPMG, PWC, Wood McKenzie and Olaniwun Ajayi LP) to define and implement the transition roadmap. 

This roadmap includes valuation of the assets and liabilities, development of corporate governance frameworks, rebranding of NNPC to NNPC Ltd and change management.

Flowing from the PIA, one of the things that will be different as the NNPC transitions on July 1 is that it is expected to become a commercially oriented and profit-driven national petroleum company independent of government and audited annually.

What this means is that in terms of operations, the NNPC would be managed like a private sector enterprise and unlike previously when it was owned by the government, the NNPC is expected to become more efficient in its operations. This will enable the Company to effectively maximize returns on investment for the 200 million Nigerians, ensure returns for shareholders and pay taxes to the government. 

Where there is an impact of its operations on prices of petroleum products, the government will be expected to determine how the differential will be managed. What this implies is that impact of prices will not automatically be transferred to the citizens as the government remains committed to providing energy security and sustaining the economy.

Going by the transitioning, the NNPC’s operations will not be subsidized by the government because as a CAMA Company, it would be expected to pay dividends to shareholders which in this case is the government.

The Group Managing Director of the NNPC, Mele Kyari gave credence to this when he said recently that the National Oil Company will serve as a holding company for all its subsidiaries in the post PIA era.

He said, “So, these shareholders can decide, as the law provides that over time, they can reduce the shareholding into some private shareholding. That means it can be floated subsequently as a company that is quoted on the stock exchange. The intention at the very onset is not to go to that step but there is provision in the law that allows us ultimately to sell shares of this company.

“This is very simple. This company will pay taxes and royalties, which are revenues that accrue to the federation. So, every part of this country and every sub national institution or government will benefit from it.

“Secondly, this company will pay company income tax that also comes to the federation for the benefit of all. So, what is different is that this company will now have profit to make and declare dividend, which will be decided by the board of directors of this company.”

But one would wonder what becomes of the assets and liabilities of the NNPC based on the transitioning?  The simple answer to this is that the NNPC Ltd will review its existing assets and liabilities, determine those that they intend to operate based on sustainable commercial principles, incorporate those assets into her balance sheet. 

Similarly, other assets will be left with the Corporation for government to determine their fate.

For third parties with subsisting contract(s) and joint operating agreements with the NNPC, Section 54 of the PIA provides essentially that all assets and liabilities of the NNPC will be transferred to NNPC Ltd within the 18 months of the PIA coming into effect. Subsection 2 of the Act states that any assets, interests, or liabilities not transferred shall remain that of the NNPC until extinguished or transferred to government. 

What this means in effect is that under the transitioning, existing contracts and Joint operating agreements with NNPC will be evaluated and transferred in line with agreed principles to ensure business continuity.

With the transitioning, the NNPC is also expected to enter new investments and partnerships in upstream assets to increase gas production in line with the decade of gas agenda.

Also, Nigerians will begin to see further expansion of downstream operations to ensure energy security, while modular refineries will be developed in addition to current investment in rehabilitation of existing refineries.

Already, the NNPC had secured a $5bn corporate finance commitment from the African Export Import Bank to fund major investments in Nigeria’s Upstream sector.

The NNPC’s $5bn corporate finance commitment from Afreximbank is seen by oil industry stakeholders as a dividend of the Petroleum Industry Act and the incorporation of the NNPC as a limited liability company.

Under the NNPC Ltd funding strategy for selected upstream investments, the Company would be raising between $3.5bn and $5bn as corporate finance to fund major upstream investments.

To achieve this objective, the NNPC would be taken over ownership from non-investing partner through acquisition of pre-emption rights in the sample Joint Venture.

The NNPC’s strategy would also see the company investing in assets to address integrity, bottlenecking and growth issues including rig-less activities, and drilling campaigns in the oil industry.

The funding would also be used to finance part of the NNPC’s investment including acquisition of interest in quality upstream oil and gas producing assets.