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NNPC’s N200b capital pushes up Oil & Gas investment

The Nigerian National Petroleum Company (NNPC) Limited is now  Companies and Allied Matters Act (CAMA)-regulated enterprise. The NNPC Limited was floated with an initial capital of N200 billion to provide better returns to shareholders, enhance oil industry operations and improve Nigeria’s revenue base.

As a private sector enterprise, NNPC Limited is expected to create improved and more transparent operational framework for Nigeria’s oil and gas industry while sustaining confidence of local and foreign investors. The move, backed by the Petroleum Industry Act (PIA) will enhance NNPC Limited’s operational efficiency and profitability.

The conversion of the Nigerian National Petroleum Company (NNPC) Limited from public to private sector enterprise was considered impossible several decades ago.

That explains why not too many people saw the reforms and unbundling of the NNPC  into commercially-oriented and profit-driven smaller units coming.

Then on September 2021,  the Corporate Affairs Commission (CAC) completed the incorporation of the NNPC Limited in accordance with the new Petroleum Industry Act (PIA), a law that had taken almost 20 years to bring to fruition.

With the hurdles off the way and official documentation completed as specified in Section 53(1) of the law,  the operationalisation of the Act to transofrm the troubled petroleum industry in the country commenced.

The PIA was signed into law by President Muhammadu Buhari on 16th August, 2021, following its passage by the National Assembly in July of the same year.

Specifically, Section 53 (1) of the Petroleum Industry Act 2021, requires the Minister of Petroleum Resources to cause for the incorporation of the NNPC Limited within six months of the enactment of the PIA in consultation with the Minister of Finance on the nominal shares of the Company.

With the registration by the CAC, the NNPC Ltd was floated with an initial capital of N200 billion.

Group Managing Director of the NNPC, Mallam Mele Kyari, said NNPC Ltd is expected to become a commercially-oriented and profit-driven national petroleum company that would be the envy of all players in the sector.

He disclosed that the NNPC would be managed like a private sector enterprise that is more efficient in its operations, effectively maximize returns on investment for the 200 million Nigerians, ensure returns for shareholders and pay taxes to the government.

Kyari said that President Muhammadu Buhari will officially unveil the new NNPC Ltd on July 19 and invited all players in the sector to be part of the epoch-making event.

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, he said the firm may be required to declare dividends to its shareholders as well as withhold 20 per cent of profit as retained earnings to grow its business like any other incorporated entity incorporated under the CAMA.

“Consequently, our company, the NNPC Limited will be unveiled on 18th of July 2022 by our president, and I invite you to join us in Abuja Nigeria for the historic event as we create the largest corporate entity in Africa,” he told a gathering of oil and gas professionals recently.

Speaking separately in a recent interview on a national television, he stated that when the NNPC is fully commercialised, the company will no longer render free services to the federal government.

Kyari noted that from then, all services rendered to the government by the NNPC limited or its subsidiaries will come at a cost to government, including the remittance of federation crude account funds.

He stated that the NNPC was on course towards its final lap of completion, explaining that it will no longer have access to government funding, but would survive based on its internal resilience and efficiency.

“First of all, the PIA is very clear that within six months, we must incorporate the NNPC as a company that is bound by the CAMA. The meaning of this is that you must be fully commercial, you must be profitable.

“It means that you will have no access to any other results, other than from your own production and your own productivity. So, that means that NNPC will be the different company that it has to be.

Kyari said that when NNPC becomes a limited liability company, it will operate in a competitive environment, with the sole aim of making profits.

He pointed out that the NNPC decided to be more transparent in its operations because of the perception of Nigerians that the company operates in a very opaque environment, explaining that even for its lenders, the condition of accountability remains sacrosanct.

“We know for sure, that historically many people have doubts about what NNPC does. Our shareholders think that we are an opaque company, that we are not representing them well, and that we don’t know what we are doing”.

“We know that trust is very essential for our business. We also know that our partners, you know, financial institutions, even commercial partners would like to see and know what we are doing, so that they can invest in our company.

“So we know that making transparency and accountability, a primary focus of our activities will serve the best interests and will also enable our partners to see what we are doing, so borrowing will become easier for us,” he added.

Understanding the PIA

The PIA directs license holders to establish Host Community Development Trust(s) (HCDT) to manage community-related projects and issues within areas of operations.

Thus, existing Corporate Social Responsibility and community Memorandum of Understanding (MOU) must transfer projects and assets into these trusts.

For funding, the PIA sets a three per cent charge on the preceding year’s operating expenditures for upstream activities and two per cent for midstream and downstream activities. These activities focus on Petroleum product depots, Refineries, Gas processing plants, Fertiliser plants,
Compressed Natural Gas (CNG), Liquified Petroleum Gas (LPG) depots, and Liquified Natural Gas (LNG).

The implementation of the contents of the PIA will see to the incorporation of a commercial and profit-focused NNPC Limited under Companies and Allied Matters Act (CAMA), with ownership vested in the Ministry of Finance Incorporated (and Ministry of Petroleum Incorporated) on behalf of the Federation to take over assets, interests and liabilities of NNPC. This structure is expected to pave the way for the eventual sale of shares to Nigerians.

Views from stockholders

Analyst at Renaissance Capital, Nikolas Stefanou,  gave new insights on what NNPC should do. “As international investors, in particular the majors, are divesting their exposure from Nigeria’s upstream sector, the onus now is on the indigenous companies and NNPC to inherit operatorship, invest and grow production.

According to him, the majors’ divestment theme is not new in Nigeria and has been ongoing for over a decade now, leading to the creation of many indigenous companies, some of which invested and increased production from the acquired assets (the success stories), while some others achieved little progress.

“For stakeholders in Nigeria’s upstream sector, the hope is for a Nigerian oil sector renaissance to follow post the majors’ divestments, with indigenous companies successfully taking over by investing in and growing production,” he said.

The report titled: ‘Nigerian O&G- The stakes are high’,  Stefanou, disclosed that  issues like under-investment in Nigeria’s oil sector, combined with low infrastructure uptime and sabotage/oil theft will be corrected by the NNPC current status.

In emailed report to investors titled: ‘2022 Outlook: A Gentle But Steady Recovery’ , Head, Equities at FBNQuest Capital,  Olubunmi Asaolu, said the PIA attempts to create a new and more transparent framework for Nigeria’s oil and gas industry.

He disclosed that locally, there were significant changes in the oil and gas industry. The most obvious was the passage of the PIA into law because its passage was the most substantial piece of legislation for the industry in decades. The new law’s scope is wide-ranging but focuses on building a more efficient, profitable, and energy future-relevant industry.

“The PIA incorporated the national oil company, NNPC. It established two new regulators, the Nigerian Upstream Regulatory Commission (the Commission) and the Nigerian Midstream and Downstream Regulatory Authority (the Authority). This establishment was through combining functions of the now-defunct Department of Petroleum Resources, the Petroleum Institute, the Petroleum Equalization (management board) Fund, and Petroleum Products Pricing Regulatory Authority,” he said.

In addition, the PIA will create a more competitive fiscal environment for the country and has eliminated investor doubts on fiscal terms.

The Executive Director, Civil Society Legislative Advocacy Centre (CISLAC), Auwal Musa Rafsanjani, called for increased public trust and investors’ confidence in the NNPC following the reforms in the sector.

He said the PIA  law stipulates that NNPC be fully commercialized within a process that is also stipulated in the law.

He said the impact on the economy is looking good. “With the public being shareholders in the establishment will entail the public will benefit from the dividends of the business so also the government who holds 60 per cent of the shares. There is a potential of better management of the institution as it will be managed prudently as a private business,” he said.

Laos speaking, the President, Nigeria Gas Association (NGA), Ed Ubong said the PIA is the key that can transform the oil and gas sector, describing it as the biggest achievement of this government.

Speaking during the 5th Nigeria International Energy Summit (NIES 2022) held in Abuja, with the theme: “Revitalising the Industry: Future Fuels and Energy Transition”, he said that  the PIA  plays a major role in driving the Nigeria gas agenda.

Company and Allied Matters Act  

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, 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 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 take decisions without constant recourse to the powers that be.

Analysts explained that 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.

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.

It is also expected to expand its downstream operations, while modular or small-scale refineries will be developed in addition to current investment in rehabilitation of existing refineries to ramp up in-country refining.

Also, 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.

The NNPC recently  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 will 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).

NNPC’s profitability / transparency 

The NNPC recently released its 2020 Audited Financial Statements (AFS) which showed N287 billion group profit, up from N1.7 billion loss position in 2019.

The publication of the NNPC’s Audited Financial Statements on its website followed President Muhammadu Buhari’s declaration of N287 billion Profit After Tax (PAT) in the year 2020 for the corporation.

While announcing the outstanding feat a little over a fortnight ago, President Buhari, who is also the Minister of Petroleum Resources, had said: “I have further directed the Nigerian National Petroleum Corporation to timely publish the Audited Financial Statements in line with the requirements of the law and as follow up to our commitment to ensuring transparency and accountability by public institutions”

Kyari, had at various times since the President’s declaration of profit, attributed the turnaround to aggressive cost cutting, automation of the system and renegotiation of contracts downwards by about 30 per cent, among other tough measures.

Analysts said Nigerians, the economy, shareholders and other stakeholders will benefit from the new reforms at NNPC centre on transparency and efficiency of operations.

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