PIB: Lawmakers seek to make NNPC profitable but concerns remain

Lawmakers have finally passed the PIB, a huge law aimed at reorganising the petroleum sector writing new provisions that could help the national oil company compete with peers but concerns still remain.

BusinessDay’s analysis reveals that provisions related to suspension and removal of NNPC Ltd board members ensuring they comply with their fiduciary duties could strengthen governance in the oil company.

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Section 64 (a) says a key objective of the NNPC Ltd is to carry out petroleum operations on a commercial basis, comparable to private companies in Nigeria carrying out similar activities including exemptions 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 bill provides for the NNPC Ltd and other parties to joint operating agreements in respect of upstream petroleum operations restructuring voluntarily their joint venture operating agreements into incorporated joint venture company.

Lawmakers stressed that the IJVs shall be an independent entity having a strong commercial orientation and transparent company operations for the IJV shareholders with clear rules for accountability. This will remove the impression that they are a quasi government organization.

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The PIB makes the process of privatizing the NNPC a tad tougher because it will now secure the approval of the Federal Government and the endorsement of the National Economic Council. The shares could be sold at fair market value but government will retain a significant proportion.

Lawmakers gave the Petroleum Minister and the Finance Minister 18 months from when the bill becomes law, for them to determine the assets, interests and liabilities of NNPC to be transferred to NNPC Limited or its subsidiaries.

However, Oni maintains that the devil is in the details. “The NNPC must have an excellent corporate corporate governance for the politicians not to make a nonsense of its conversion to a company under the Companies and Allied Matters Act.

Further review of the new bill validates analysts concern. Some provisions in the passed bill may appear innocuous but could prove troublesome later on.

For example, section 64 (k) states that the NNPC will “carry out the task requested by the Commission or Authority on a fee basis and generally engage in activities that ensures National energy security in an efficient manner, in the overall interest of the Federation.

The lawmakers explained 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 rather than fixing issues with exploration in the Niger Delta with huge volumes of oil deposits.

Section 64 (m) states : “ NNPC Ltd will be the supplier of last resort for security reasons. All associated costs shall be for the accounts of the federation.”

For many, this would resurrect the ghost of the subsidy programme that had led to a mind-boggling waste of government resources.