Ahead of the July 19 public unveiling of the Nigerian National Petroleum Limited as a fully operational commercial firm, Nigeria’s state-oil firm is battling to rein in subsidies on petrol even as marketers demand new subsidies on diesel and aviation fuel.
Based on the provision of the Petroleum Industry Act, NNPC is supposed to have restructured its operations to morph into a fully fledged commercial entity by July 1 but rising subsidy costs is weighing on the corporation’s plans.
The biggest provision on NNPC’s books is currently the payment of subsidies on petrol which is set to gulp over N2trillion in the first half of 2022. This has impacted the corporation’s abiltiy to make remittance to the treasury to share among the federating states.
At the Nigeria Oil and Gas conference (NOG) in Abuja last Tuesday, the NNPC boss Mele Kyari said the goal of the organisation is to return it to profitability while investing in developing gas assets around the country.
In his remarks at the event, Bala Wunti, group general manager, National Petroleum Investment Management Services, said the new state oil company is now guided by two different laws – the Petroleum Industry Act and the Companies and Allied Matters Act.
“We are also guided by the need for future proofing of the business to deliver value to shareholders, this puts an obligation on us to create ways to comply with energy transition and deliver value,” he said.
Wunti said the new NNPC is expected to enable energy security, financial security and growth and development
“The questions is how will the new NNPC Ltd, be able to navigate through the impending challenges. In order for us to achieve that, we need to work in tandem with the reality and demands of today.
The Nigerian National Petroleum Corporation (NNPC) was established on April 1, 1977. In addition to its exploration activities, the Corporation was given powers and operational interests in refining, petrochemicals and products transportation as well as marketing.
In 1988, the NNPC started the process of being a commercial entity developing into Strategic Business Units, covering the entire spectrum of oil industry operations: exploration and production, gas development, refining, distribution, petrochemicals, engineering, and commercial investments.
This gave birth to several entities including Nigerian Petroleum Development Company (NPDC), Nigerian Gas Company (NGC), Pipelines and Products Marketing Company (PPMC), Integrated Data Services Limited (IDSL), National Engineering and Technical Company Limited (NETCO), Hydrocarbon Services Nigeria Limited (HYSON).
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Others are the Warri Refining and Petrochemical Company Limited (WRPC), Kaduna Refining and Petrochemical Company Limited (KRPC)
Port Harcourt Refining Company Limited (PHRC), NNPC Retail Limited and Duke Oil.
Further efforts to reposition the corporation towards commercial operation took off in 2016, following the repositioning efforts of the Corporation to become a global energy company leading to the PPMC and NGC being restructured to give birth to new commercial entities such as the Nigerian Gas and Marketing Company (NGMC), Nigerian Gas Processing and Transmission Company (NGPTC), Gas and Power Investment Company (GPIC), Nigerian Products and Marketing Company (NPMC) and the Nigerian Pipelines and Storage Company (NPSC).
The new NNPC structure will lead to dissolution of unprofitable ventures and restructuring of operations and personnel to cut out waste and inefficiency. For a state-oil firm that hasn’t really been under pressure to make profit, commercialisation presents new challenges.
The new NNPC has clearly drawn up what it expects will drive it to profitability in the scale of Aramco but these plans will struggle with the reality of a country where to keep PMS costs down, the NNPC is spending almost its crude oil revenue to subsidise petrol.
Worse still, diesel prices are trending north towards N1000 per litre a development that is crippling industries and roiling small businesses from telecoms to gas stations.
Airline operators recently threatened to down tools over rising cost of aviation fuel and they turned on the NNPC and the government to provide some sort of relief.
However, a commercial NNPC will improve its capacity to raise cash. While, the Federal Government will still own all the shares, held by the ministry of finance and petroleum resources on its behalf, the new NNPC will run as a commercial entity with annual audits by independent auditors and improve corporate governance.
In the new oil law, NNPC shares cannot be sold unless approved by the government and the National Economic Council but its its peers like Saudi Aramco, Equinor and Petrobras that are listed on the stock market will have more options for financing.
The PIA sets the NNPC Ltd objective to carry out petroleum operations on a commercial basis, comparable to private companies in Nigeria carrying out similar activities and exempts from obligations to Public Procurement Act, Fiscal Responsibility Act and Treasury Single Account.
Analysts say the removal of the obligation to answer t to these agencies will help the NNPC Ltd cut through red tape in government bureaucracy when it comes to project financing and remittances to the federation.
“While these revisions does not mean the NNPC Ltd may not struggle initially but from a corporate financing point of view, it could easily project finance and issues with federation account should no longer be a burden to the company,” said Ayodele Oni, energy lawyer and partner at Bloomfield law firm.
The new law places some restriainst that could impede commercial operations such as the requirement that the NNPC will be a supplier of last resort for security reasons.
The law provides that the government may from time to time resort to NNPC Ltd for strategic national security interventions, especially where the private commercial entities decided to withdraw from such operations due to unprofitable economics.
The language of the proposed law admits government’s policies that would be detrimental to the NNPC’s ability to remain profitable. The government would define what constitutes energy security and decide the fee to pay the NNPC Ltd.
The government has been spending a fortune to drill oil in the north where deposits are limited and plagued by insecurity and building pipelines hoping industries meet grow to meet them.
