The transformation of the Nigerian National Petroleum Company Ltd (NNPC) into an entity that would be regulated in line with the provisions of the Companies and Allied Matters Act (CAMA) could provide an easier path to unlocking private capital for the state-owned firm that would help finance not only its projects but also bigger national ventures.
With the official unveiling scheduled for the 19th of this month, the transition of the NNPC into a limited liability company will expand the corporation’s ability to enter into new deals, raise capital from financial institutions to fund projects and tackle funding shortfalls with joint ventures.
“The PIB will unlock Nigeria’s crude oil reserves which have stalled as a result of government delay in providing cash to the international oil companies for cash calls,” says Joe Nwakwue, chairman, Society of Petroleum Engineers (SPE).
“The reform would speed up delayed drilling programmes, unlock major expansion programmes and attract fresh investments to docile oil fields,” he adds.
Some stakeholders say the commercialisation of NNPC is expected to not only put the company on a bigger international stage, especially if the valuation is high, but the move would also fund Nigeria’s diversification plans and raise significant cash that could fund Nigeria’s decade of gas initiative.
The move will also allow Nigeria properly utilise its huge gas reserves estimated at 206.53 trillion cubic feet (TCF), fund big-ticket gas projects that are expected to create thousands of new jobs, spur domestic gas demand, generate electricity and turn Nigeria into a dominant geopolitical player in Africa, using its gas resources, just like Australia, Russia and Qatar.
While the Federal Government still owns all shares held by the ministries of finance and petroleum resources on its behalf after incorporation, the new NNPC will run as a commercial entity with annual audits by independent auditors.
Compliance with PIA
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, and 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 the 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 make 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.
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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.
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 would 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 percent 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.
