How NNPC’s dividends to FG dropped by 89%, two years after PIA kicked in

The Nigerian National Petroleum Company (NNPC) Limited recorded a significant decline in dividends remitted to the Federal Government since implementing the Petroleum Industry Act (PIA), according to a new report by the Agora Policy, an Abuja-based think tank.

In a policy note on the need to amend the PIA to boost the federation’s petroleum revenue, Agora Policy said the act was supposed to attract investment into the country’s petroleum sector, enhance the regulatory and business framework, and boost revenue.

However, the Agora Policy said none of the aims have been achieved.

“After two years of implementing the PIA, evidence shows that the Federation has received significantly lower revenues from the petroleum sector, compared to the period before the law,” Agora Policy said.

BusinessDay findings showed the last full year before the implementation of the PIA, the Federation received $10.65 billion from sales of JV crude oil and $1.252 billion from sales of JV equity gas and feedstock, amounting to a total revenue of $11.902 billion from crude oil and gas sales from JV assets in 2021.

By contrast, in 2023, the first full year of the PIA implementation, the Federation received $399,000 from sales of JV crude oil, $701.287 million from sales of JV equity gas, and $1.13 billion as dividends from NNPCL, a total revenue figure of $1.833 billion.

“This is a drastic revenue reduction which clearly shows that the Federation has not materially benefited from the new arrangement with its JV assets after the PIA,” Agora Policy said.

The think tank group said it would have been expected that after becoming a private company, NNPCL would utilise its cost of collections or its management fees and retained profits to fund its operations.

“However, this has not been the case. After the PIA, NNPCL has calculated dividends payable to the Federation after deducting all operational costs from revenue to arrive at profits,” Agora Policy said.

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He added, “Thus, even after transitioning to a private company, NNPCL still operates like a public entity by utilising collected revenue to fund operational costs, and from the residual, a sum is paid as dividends to the Federation”.

Furthermore, the think-tank said due to the implementation of the PIA, NNPC has been deducting “60% of profit oil and gas from Production Sharing Contracts (PSCs)”.

“NNPC’s interpretation of sub-sections 9 (4) and 64 (c) of the PIA has resulted in the company deducting 30% for management fee, and an additional 30% for the frontier exploration fund, while the Federation gets the balance of 40%,” the organisation said.

“Again, similar to JV dividends, there were many months when the NNPCL did not remit the 40% balance.”

Agora Policy said it is also questionable why the owner of an asset the federation — receives only 40 percent of the profits from such assets — and receives nothing sometimes.

Agora policy recommended revisiting the transfer of JV assets to the NNPC to increase the Federation’s revenue from the petroleum sector.

It stated that. “The Federation is not getting maximum benefits from the post-PIA arrangement where JV assets are deemed owned by NNPC. It also suggested revisiting sub-section 54 (1) of the PIA to ensure the JV assets are returned to the Federation. Part of its recommendation includes reducing the PSC management fee for NNPC from 30 per cent to between four per cent and seven per cent, adding that in line with the collection fees of other revenue-generating agencies, sub-section 64 (c) of the PIA should be revisited to reduce the management or collection fee of NNPC from PSCs from 30 per cent to between four per cent and seven per cent.

The Agora Policy also urged that there must be a revisit the Need for Committing Huge Resources to Frontier Basins Exploration; it also urged the government to revisit Sub-sections 64 (c) 9 (4) of the PIA, Frontier Exploration Fund Administration Regulations 2022, the Frontier Basins Exploration Administration Regulations 2023: following from the last recommendation, there will be the need to amend, revise, or completely overhaul these laws relating to the Frontier Exploration Fund.”