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By Adewale Sanyaolu
As President Muhammadu Buhari gets set to unveil the new Nigerian National Petroleum Company(NNPC) Limited, on Tuesday,July 19, 2022, stakeholders in the oil and gas sector have charged the new entity to ensure it delivers a global brand that can compete with the likes of Saudi’s Aramco and Petrobras of Brazil among others.
This is coming after July 1 transition of NNPC Limited into a company whose operations will be regulated by the Companies and Allied Matters Act (CAMA).
The NNPC’s transformation into a CAMA company follows the implementation of the Petroleum Industry Act.(PIA) which was signed into law by President Buhari on 16th August, 2021, following its passage by the National Assembly in July of the same year.
Also, last September 21, the Corporate Affairs Commission (CAC) completed the incorporation of the NNPC Limited with registration number: RC — 1843987 in accordance with the provisions of the PIA 2021.
Indeed, the charge by the stakeholders didn’t come as a surprise as President Buhari had earlier instituted a similar mandate during the inauguration of the Senator Margery Chuba Okadigbo-chaired Board of the NNPC at the Presidential Villa, Abuja in January 2022, when he tasked the Board of the newly-incorporated Nigerian NNPC Limited to focus on profitability and operate at par with its industry peers across the world.
President Buhari urged the Board to ensure strict compliance with Corporate Governance principles that place premium on doing business with the highest ethical standards, integrity, and transparency.
He told members of the Board to be mindful of Nigeria’s commitment to the global net-zero agreement.
He said: ”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.”
President Buhari reminded the Board members that they came on board as a result of the reforms put forward by the Petroleum Industry Act (PIA) 2021.
He said PIA seeks to reposition the Nigerian petroleum industry to a commercially viable and competitive industry in line with global business dynamics and best practices.
According to him, ”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 Enabler Company that will foster the development of other sectors of our economy.
“The inauguration of this Board is a major step in the ongoing transition to a more viable petroleum industry that will attract investment to support our economic growth and generate employment to millions of our people.”
He thanked the leadership and members of the National Assembly for their seamless support in the journey towards a viable, accountable and transparent energy industry.
The President said he would count on the professional insights and ethical conduct of the Board members to ensure the delivery of his administration’s promises to Nigerians.
PIA as precursor to Nigeria’s global competitiveness
Prior to the enactment of the PIA, President Buhari, lamented that Nigeria lost about $50 billion worth of investments in 10 years due to non-passage of the Petroleum Industry Bill( PIB).
Buhari said stagnation affected the growth of the economy blaming the lack of political will by past administrations to actualize the needed transformation in the petroleum industry as contributing to the loss of investement.
The PIA, seeks to increase governments revenue from oil, and as well lay down a strengthened legal and regulatory framework for the Nigerian oil industry, set up structures for the establishment of commercially driven petroleum entities; and promote transparency in the administration of Nigerian petroleum resources. Succinctly put, I think the bill seeks to address the problem of administering petroleum resources in line with global best practices, and to provide for efficient and independent sector regulation.
In consonance with Section 53(1) of the PIA 2021, which 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, President Muhammadu Buhari approved the incorporation of the NNPC Limited.
Chief Executive Officer of NNPC Limited, Mallam Mele Kyari, disclosed that the PIA provides business opportunities that will enable the company earn more revenue for the country.
Kyari while addressing staff of the organisation in a town hall meeting held at NNPC Towers, Abuja, in January this year highlighted the significance of the PIA to the NNPC and by extension the Nigerian economy, saying the new legislation has raised shareholders’ expectations on the company, adding that the PIA had given the company a wide room to make progress.
“The PIA had put all money-making options on the table; it is up to us to take advantage of it,” Kyari was quoted as saying.
He said as a result of the new legislation, NNPC Ltd would not only shed some of its toxic liabilities but will be the largest and most capitalised company in the whole of Africa and, potentially, the most profitable on the entire continent.
Dissecting NNPC under CAMA
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 transitioned 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.
Going by the transitioning, the NNPC’s operations will not be subsidised by the government because as a CAMA Company, it would be expected to pay dividends to shareholders which in this case is the government.
Kyari explained 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.
NNPC Limited and Nigerian economy
NNPC Limited which was floated with an initial capital of N200 billion has made history as the largest capitalised firm in Africa and that with the highest share capital in the country.
With this capital, 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.
Chief Executive Officer of NNPC, Mallam Mele Kyari, in his address at the Nigeria Oil and Gas (NOG) conference which ended in Abuja last week, had said; ‘’On the transition in the NNPC from a federal corporation to a commercially-driven limited company, on the 1st of July this year, we crossed over to become NNPC Limited both technically, financially, and in every aspect.
“And on July 19, 2022, Mr. President will unveil the NNPC Limited to all of us. The meaning of this to our industry is that you are going to have a partner of choice, a partner that will be the largest capitalised company in Africa.”
The Securities and Exchange Commission (SEC) had disclosed plans to promote policies that would incentivise major companies which included the NNPC to list their shares on the stock exchange.
