Explaining NNPC’s Evolution to New Entity

By the provisions of the Petroleum Industry Law, the Nigerian National Petroleum Company Limited  on July 1 this year became a limited liability company, but with the official unveiling scheduled for the 19th of this month. Emmanuel Addeh writes on what’s likely to change if everything goes well, as the national oil firm kicks off its operations under the Companies and Allied Matters Act (CAMA).

On September 21, last year, the Corporate Affairs Commission (CAC) completed the incorporation of the NNPC Limited in accordance with the new PIA, a law that had taken almost 20 years to bring to fruition.

With that age-long hurdle now surmounted and official documentation completed as specified in Section 53(1) of the law, it is time to ramp up the operationalisation of the Act to give some verve to the beleaguered petroleum industry in the country.

Floated with an initial capital of N200 billion and with several regulations now in place, driven by the PIA transition committee, the stage has been set for the formal take-off of the new NNPC, as its promoters would put it.

To be sure, the NNPC has not performed optimally since it was set up some 45 years ago to act as the eyes and the hand of the government in the oil and gas industry.

But with the PIA in place, and the initial in-house work now done and dusted mostly by a committee supported by external consultants, the NNPC may have a new roadmap or pathway to its much-awaited revival.

It was learnt that with the phasing out of the old NNPC, activities like the valuation of the national oil firm’s assets and liabilities, establishment  of sound corporate governance frameworks, rebranding of the new NNPC and change management have been silently going on in the company.

NNPC AND CAMA

With the passing into law of the reformed Company and Allied Matters Act (CAMA, 2020), which replaced the CAMA 1990 Act, companies like the NNPC are now provided a regulatory framework for how businesses should be carried out in the country.

These include the framework on areas of shareholding, registration processes, statement of compliance, minimum share capital, audit obligations among others.

Being now a commercially-oriented and profit-driven entity, the NNPC is expected to be managed like a private sector enterprise , well in some sense, and devoid of government’s brazen interference.

In essence, these processes, it is expected would translate to a more efficient, slim and nimble national oil firm, which is able to take decisions without constant recourse to the powers that be.

 In addition, like every other company in the country, NNPC will pay taxes to the government and eventually be able to pay dividends to its shareholders, represented by government in its teething stages and then the public when it decides to have an Initial Public Offer (IPO).

Furthermore, the new NNPC will serve as a holding company for all its subsidiaries, over a dozen of them, in the post-PIA era.

Under the new arrangement, the new NNPC will review its existing assets and liabilities, determine those that it intends to operate based on sustainable commercial principles and incorporate those assets into her balance sheet.

Since the NNPC does not and cannot operate without partners or third parties, those of them with subsisting contract(s) and joint operating agreements with the NNPC, will also have their fate determined by the PIA.

This development will come drawing from Section 54 of the PIA, which provides that all assets and liabilities of the NNPC will be transferred to NNPC Ltd within the first 18 months of the PIA coming into effect.

Further to that, 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. This means that some toxic assets may be excluded.

When the transitioning takes off in effect, existing contracts and Joint Operating Agreements (JOAs) with NNPC will be evaluated and transferred in line with agreed principles to ensure business continuity.

As a business under CAMA and with the overarching guidelines of the PIA, the NNPC ltd., or the new NNPC will enter new investments and partnerships in upstream assets to increase gas production.

It is also expected to expand its downstream operations, while modular or small-scale refineries will be developed in addition to current investment in rehabilitation of existing refineries to ramp up in-country refining.

INITIAL FUNDING

In transforming to a CAMA company, the NNPC will need to source for private funding, outside the apron strings of the government. It is also expected, to, due to a renewed commitment to transparency, scale up its credibility to its creditors.

Recently, the NNPC said it had secured a $5 billion corporate finance commitment from the African Export Import Bank (Afreximbank) to fund major investments in Nigeria’s upstream sector. That’s, perhaps part of the initial funding for the activities of the new entity.

In another connection, the company has hinted that it will be raising between $3.5 billion and $5 billion as corporate finance to fund major upstream investments and would be pushing to take over ownership from non-investing partners through acquisition of pre-emption rights in the sample Joint Ventures (JVs).

At the same time, Section 65 of the Act encourages NNPC Limited and its joint venture partners to explore the use of incorporated joint venture companies.

Consequently, the firm may be required to declare dividends to its shareholders as well as withhold 20 per cent of profit as retained earnings to grow its business like any other incorporated entity incorporated under the CAMA.

BUHARI’S DIRECTIVE

President Muhammadu Buhari’s directive to the new NNPC is clear: “Ensure strict compliance with good corporate governance principles.”

The president who spoke during the inauguration of the board, urged the NNPC to place a premium on doing business with the highest ethical standards, integrity, and transparency.

He charged them to focus on profitability and operate at par with its industry peers across the world, exhorting the board to ensure that there is full alignment and synergy between NNPC Limited, the upstream regulatory commission as well as the Midstream & Downstream Regulatory Authority (NMDPRA) in compliance with the provisions of the law in all respects.

”I expect the NNPC Limited to be mindful of our commitments to our net carbon zero aspirations and to ensure total alignment with the global energy transition realities,” he reminded.

The President informed the board members that they came on board as a result of the reforms put forward by the PIA 2021, which seek to reposition the Nigerian petroleum industry to a commercially viable and competitive industry in line with global business dynamics and best practices.

”The Nigerian National Petroleum Company Limited is mandated 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 an enabler company that will foster the development of other sectors of our economy,” he noted.

A DIFFERENT BALL GAME

Group Managing Director of the NNPC, Mallam Mele Kyari, has also been upbeat about the possibilities that have been made available through the PIA, saying that it has provided better fiscal, commercial and regulatory frameworks to support competitiveness, investment and growth, while creating a fully commercial National Oil Company.

“Consequently, our company, the NNPC Limited will be unveiled on 18tb of July 2022 by our president, and I invite you to join us in Abuja Nigeria for the historic event as we create the largest corporate entity in Africa,” he told a gathering of oil and gas professionals recently.

Speaking separately in a recent interview on a national television, he stated that when the NNPC is fully commercialised, the company will no longer render free services to the federal government.

He noted that from then, all services rendered to the government by the NNPC limited or its subsidiaries will come at a cost to government, including the remittance of federation crude account funds.

He stated that the NNPC was on course towards its final lap of completion, explaining that it will no longer have access to government funding, but would survive based on its internal resilience and efficiency.

“First of all, the PIA is very clear that within six months, we must incorporate the NNPC as a company that is bound by the CAMA. The meaning of this is that you must be fully commercial, you must be profitable.

“It means that you will have no access to any other results, other than from your own production and your own productivity. So, that means that NNPC will be the different company that it has to be.

“Even when you render service to anyone, including the institutions of government, it must be at a fee and the PIA is very clear that even when we render service to the state, it would be at a fee. So, it’s going to be a different game,” he stated.

He stressed that although today NNPC is in a good stead, having declared N287 billion profit, with the assets available to it, the company can be turned into a multi-trillion naira business organisation.

Kyari said that when NNPC becomes a limited liability company, it will operate in a competitive environment, with the sole aim of making profits.

The GMD pointed out that the NNPC decided to be more transparent in its operations because of the perception of Nigerians that the company operates in a very opaque environment, explaining that even for its lenders, the condition of accountability remains sacrosanct.

“We know for sure, that historically many people have doubts about what NNPC does. Our shareholders think that we’re an opaque company, that we’re not representing them well, and that we don’t know what we’re doing and I’m sure many times you see us in the media, in the public space, in very many forums, everybody thinks that nobody knows what NNPC is doing.

“We know that trust is very essential for our business. We also know that our partners, you know, financial institutions, even commercial partners would like to see and know what we are doing, so that they can invest in our company.

“So we know that making transparency and accountability, a primary focus of our activities will serve the best interests and will also enable our partners to see what we are doing, so borrowing will become easier for us,” he added.

If for anything, it may be just the right time to give the new NNPC a chance to prosper like its counterparts in other parts of the world who are currently reaping the fruits of high oil prices. Hopefully, it will deliver this time!