As NNPC Fully Becomes Limited Liability Company

Dike Onwuamaeze writes on the expectations from the Nigerian National Petroleum Corporation as it becomes a Limited Liability Company from July

The Nigerian National Petroleum Company Limited (NNPC) from July 1, 2022, is expected to become a fully Limited Liability Company whose operations would be fully run in compliance with the provisions of the Companies and Allied Matters Act (CAMA) of 2020.

This is in accordance with the provisions of the Petroleum Industry Act (PIA). Indeed, with the passage of the PIA, there’s no gainsaying that the operations of the NNPC would be significantly impacted when the law comes into full swing.

Section 53(1) of PIA 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.

The PIA also raised stakeholders’ expectations on the company, even as it has given it a wide room to stimulate investments in the oil and gas industry.

Also, Section 65 of the Act encourages NNPC Limited and its joint venture partners to explore the use of incorporated joint venture companies. The NNPC is also required to declare dividends to its shareholders and retain 20 per cent of profit as retained earnings to grow its business like any other incorporated entity incorporated under the Companies and Allied Matters Act, as provided under Section 53(7) 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.

Since the signing of the PIA into law in August last year, there had been several engagements between the NNPC, the Nigeria Downstream and Midstream Petroleum Regulatory Authority (NMDPRA), the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), Ministry of Petroleum, Ministry of Finance, Governors, legislators, host communities and other key stakeholders to understand the impact of the changes the PIA brings.

A PIA transition committee was also set up to drive the transition. The NNPC had also set up an in-house committee supported by consultants that included 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.

With the registration by the CAC, the NNPC Limited was floated with an initial capital of N200 billion making history as the company with the highest share capital in the country.

As a limited liability company, the NNPC would be required to pay taxes and dividends to its shareholders, including the government, and the new status of the national oil company allows it to be listed on a stock exchange. Also, its operations would not be subsidised by government.

With its new structure from July, the NNPC would have reviewed its existing assets and liabilities, determined those that it intend to operate based on sustainable commercial principles and incorporate those assets into its balance sheet.

Furthermore, in line with CAMA, the company’s operations would be fully commercialised and operated in line with profit motive. This could definitely lead to an increase in the price of the products and services it offers particularly to Nigerians. However, where there is an impact on prices of petroleum products, the government would determine how the differential would be managed. It might not automatically be transferred to the citizens as the government had always stated its commitment to providing energy security and sustaining the economy.

With the NNPC fully transiting to a CAMA company, existing contracts and joint operating agreements with the national oil company would be evaluated and transferred in line with agreed principles to ensure business continuity.

Also, what this means is that from July, the monthly remittances the NNPC makes to the federation account during the Federation Account Allocation Committee meeting would be discontinued, while dividends would be paid at regular intervals defined by the approved dividend policy.

In terms of investments, it is expected that the company would take up additional investments in upstream assets to increase gas production in line with the federal government’s ‘Decade of Gas,’ agenda; expansion of its downstream operations to ensure energy security and the development of modular refineries in addition to current investment in rehabilitation of existing refineries, going forward. It is also worthy to note that gas is the new oil expected to drive the strategy in reshaping and optimising the NNPC portfolio. Therefore, the NNPC would thus prioritise acquisition of assets rich in gas, especially those ready for blowdown.

It shouldn’t come as a surprise that the national oil company, which is expected to sustain its new status by pursuing new investment opportunities in the oil and gas industry would expand its asset base.

In order to reshape its portfolio, it would rely on acquiring assets that have high performance, low vulnerability and huge gas potential. It would also aspire to acquire high performance assets with robust reserves with potential for growth and high performance and operators will be a key priority NNPC would consider in reshaping its portfolio.

With this, assets which have minimal vulnerability would be prioritised over assets which have higher vulnerability to security or production loss issues.

President Muhammadu Buhari had last year received the certificate of incorporation of the NNPC from the Corporate Affairs Commission (CAC).

The president had then pointed out that with the certification of the company, the country expected nothing less from the Board of Directors, the chief executive officer and the chief finance officer, “than the realisation of a global national oil company that this nation desires and deserves”.

The president had described the incorporation as “a significant milestone in our quest to create an enduring National Energy Company that can compete with its global peers and deliver value to its shareholders, the Nigerian people”.

He said his expectation was for a speedy transition through taking all steps required to transfer assets, human and material, “and without wasting time to capitalize the company as required by the Petroleum Industry Act”.

He had expressed the hope that the institutions would immediately take off to facilitate effective implementation of the provisions of the PIA “on accelerated gas development and optimization of oil production and support for energy transition”.

In addition, Buhari had mandated the national oil company to focus on profitability and continuous value creation beyond the simple fulfilment of legal and regulatory requirements.

“NNPC Limited is expected to operate at par with its industry peers across the world, while acting as enabler-company that will foster the development of other sectors of our economy,” Buhari had said.

Also, the Group Managing Director of NNPC, Mele Kyari, had said the incorporation was, “history made again, a massive transformation from what we know, to where we are going,” under Buhari’s leadership.

He added that lots of values had been delivered in the past seven years, “and we still have further accountability and values to deliver.”

Kyari had said the company’s operational leaning would henceforth be business-like, with profit motive, as a CAMA entity. He had said under the new arrangement, the company would raise between $3.5 billion and $5 billion in corporate finance to fund major upstream investments under its funding strategy for selected upstream investments.

The NNPC strategy, Kyari said, also included investing in strategic assets to address integrity, bottlenecking, and growth issues in the oil industry, such as “rigless” activities and oil drilling campaigns.

This saw the company recently securing a $5 billion corporate finance commitment from the African Export-Import Bank (Afreximbank) to fund major investments in Nigeria’s upstream sector.

Under the contract, Afreximbank agreed to enter into a finance advisory and fundraising role to raise $5 billion to, “acquire, invest and operate energy producing assets in Nigeria as part of NNPC’s growth strategy following its incorporation as a limited liability company.”

Furthermore, the bank committed to underwrite $1 billion as part of forward sales based trade finance transaction. The finance commitment would enable NNPC fund some of its major investments in the country’s upstream oil and gas sector.

So, going forward, in line with CAMA, the national oil company would be laying more emphasis on transparency and accountability and would no longer have access to government funding.