Explainer: Will states lose out as NNPC positions for IPO?

The Nigerian National Petroleum Company Limited (NNPC) is owned by the federation but all the shares of incorporated NNPC is vested in the ministries of petroleum and finance, a structure that raises concern about states’ interests as the company considers offering its shares to the public.

Passed last year, the Petroleum Industry Act (PIA) provides that ownership of the shares in NNPC will be vested in the government at incorporation and held by the Ministry of Finance Incorporated (MoFI) and the Ministry of Petroleum Incorporated (MoPI) in equal portions on behalf of the Federation.

Before the PIA became a law, state governments, through the Nigerian Governors Forum (NGF), had kicked against the structure. They recommended that since the corporation is owned by the three tiers of government, the new incorporated entity (NNPC Limited) should be owned by a vehicle that “holds the interest of the three tiers of government”.

They argued that the institution that is positioned to carry out this mandate is the Nigeria Sovereign Investment Authority (NSIA).

Many stakeholders have lauded the ownership structure of the NSIA. The NSIA Act, which created the institution in 2011, empowers the organisation to receive, manage and invest funds in a diversified portfolio of medium and long-term assets on behalf of the Federal Government, state governments, the Federal Capital Territory (FCT), and Local Governments Area Councils in preparation for the eventual depletion of Nigeria’s hydrocarbon resources.

To give effect to the mandates, the NSIA established three main funds: the Stabilisation Fund, the Future Generations Fund and the Nigeria Infrastructure Fund.

The role of the Stabilisation Fund is to provide budget support in times of economic stress; the Future Generations Fund is an inter-generational savings fund for future generations of Nigerians, while the Nigeria Infrastructure Fund is to invest in domestic infrastructure.

But lawmakers decided to jettison this strategy. They rather vest ownership on two government ministries on behalf of the federation.

“This makes it plain that the Federation is the beneficial owner of the shares in NNPC Limited,” said Wolemi Esan, deputy managing partner at Olaniwun Ajayi LP.

Esan said the Supreme Court has been consistent in its view that the Federation refers to the federating units, comprising all the states and the FCT.

“In the context of the PIA, therefore, it is clear that state governments (being federating units) have an ownership interest in NNPC Limited, through MoFI and MoPI.”

Regarding what this would mean for the NNPC in an initial public offer (IPO), he said: “Whether any direct benefit will accrue to the state governments from the proposed IPO of NNPCL will largely depend on the structure of the IPO, If the IPO is structured as an ‘offer sale’, such that the shares held by MoFI and MoPI are what, or part of what, are being offered to the public, then the state governments will be entitled to a share of the proceeds.”

“However, where the proposed IPO is structured as an ‘offer for subscription’, then no direct benefit in terms of share of proceeds, will accrue to the state government,” he said.

Taiwo Oyedele, partner at PwC Nigeria, contends that although the MoFI and MoPI jointly hold the shares in NNPC, they do so in a fiduciary capacity for the Federation.

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This is the reason for the requirement to seek the approval of the National Economic Council for the disposal of the shares in NNPC, thereby according to the subnational level of government a say in any privatisation of the NNPC.

“In any case, any proceeds or gains from the sale of NNPC shares and other sources must be remitted to the Federation account. This effectively makes the states joint beneficial owners of the NNPC despite the Federal Government alone being the legal owner,” he said.

Analysts have called for a more effective ownership structure for the NNPC, one similar to the NSIA or the Niger Delta Power Holding Company (NDPHC), which allows state governments to sit on the board of the companies.

NDPHC is incorporated under the Companies and Allied Matters Act as a private limited liability company with shareholding fully subscribed to by the federal, state and local governments with a mandate to manage the power projects tagged ‘National Integrated Power Projects’.

State governments have no representation on the board of the NNPC and are not involved in critical decisions about the company.