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NNPC’s transition: Launching global oil giant with domestic footprints 

The inauguration of Nigeria National Petroleum Corporation (NNPC) Limited is one of the significant events the year. The new phase came with promises of transparency, accountability, responsibility to the people and    profit sustainability.

The new commercial-oriented and profit-driven  entity, to be audited annually will be independent of government, although government bodies remain its shareholders. Like Saudi Aramco, its Saudi Arabian counterpart, NNPC Limited  is expected to go public next year and give returns on investment to domestic and global investors.

Tales of big business ventures in the month of July 2022 will be incomplete without highlighting the conversion of Nigeria National Petroleum Corporation (NNPC) into a Limited Liability Company.

The NNPC Limited is now at the centre of global oil business, with great expectations on how the new private entity will impact the Nigerian economy and  play significant role in the global oil sector.

The unveiling of NNPC Limited by President Muhammadu Buhari was the highpoint of long-years of planning and decision making to make NNPC a more commercially viable private entity with greater transparency and impact on the lives of the people.

As a commercial venture, NNPC is expected to strengthen the capacity and market relevance of Nigeria’s oil industry and align it to global best practices.

The new phase in NNPC saw the emergence of its new logo an indication of a new direction and vision in the entity. The old logo was replaced with the new logo across its petrol outlets, to flag off a rebirth that would reposition the company to deliver “energy for today, and energy for tomorrow”.

At the inauguration held at the presidential banquet hall in Abuja, President Buhari said the oil firm has been changed from a wholly state-run entity to a commercial oil company, limited by shares.

The NNPC Limited is expected to be managed as a private energy enterprise to bring about the desired results expected by all stakeholders.

“We are transforming our petroleum industry to strengthen the growth today July, 19 2022,” Buhari said.

“NNPC Limited now will operate as a commercial oil company with over 200 million shareholders with integrity and excellence.”

The official unveiling came weeks after the corporation transitioned into a company whose operations will be regulated by the Companies and Allied Matters Act (CAMA). The legal transition, based on the new Petroleum Industry Act, took effect July 1.

The NNPC completed its incorporation in September last year weeks after the the Petroleum Industry Act (PIA) was signed into law by President Buhari.

What followed was the floating of the NNPC Limited with an initial capital of N200 billion, making history as the company with the highest share capital in the country.

The new entity is expected to become a commercially oriented and profit-driven national petroleum company independent of government, although government bodies remain its shareholders. It will be audited annually.

Buhari said by chance of history, he was privileged to lead the creation of the Nigerian National Petroleum Corporation on July 1, 1977. Forty-Four years later, he was again privileged to sign the Petroleum Industry Act (PIA) in 2021, heralding the long-awaited reform of our petroleum sector.

“The provisions of PIA 2021 have given the Nigerian petroleum industry a new impetus, with an improved fiscal framework, transparent governance, enhanced regulation and the creation of a commercially-driven and independent National Oil Company that will operate without relying on government funding and free from institutional regulations such as the Treasury Single Account, Public Procurement and Fiscal Responsibility Acts,” Buhari said.

“It will, of course, conduct itself under the best international business practice in transparency, governance and commercial viability.”

“Coincidentally, on the 1st of July 2022 authorized transfer of assets from the Nigerian national petroleum corporation to its successor company, the Nigerian national petroleum company limited, and steered the implementation leading to the unveiling of Africa’s largest national oil company today.

“I, therefore, thank Almighty God for choosing me to consistently play an important role in shaping the destiny of our National Oil Company (NOC) from the good to the great.

“NNPC Limited will operate as a commercial, independent and viable NOC at par with its peers around the world, to sustainably deliver value to its over 200 Million shareholders and the global energy community, while adhering to its fundamental corporate values of Integrity, Excellence and Sustainability.”

The Minister of State for Petroleum Resources, Timipre Sylva, said the unveiling of NNPC Limited was a new dawn in the quest for the growth and development of the Nigerian oil and gas industry, opening new vintages for partnerships.

“While the country was waiting for the PIA, Nigeria’s oil and gas industry lost about $50 billion worth of investments. In fact, between 2015 and 2019, KPMG states that “only 4 per cent of the $70 billion investment inflows into Africa’s oil and gas industry came to Nigeria even though the country is the continent’s biggest producer and the largest reserves,” Sylva said.

“We are setting all these woes behind us, and a clear path for the survival and growth of our petroleum industry is now before us. With the PIA assuring international and local oil companies of adequate protection for their investments, the nation’s petroleum industry is no longer rudderless.

“The PIA avails us with the golden opportunity to strengthen our institutions, improve our regulatory and fiscal frameworks and attract the much-needed investments. Some of the golden opportunities presented by the reforms are coming at a time when the global energy conversation is moving towards gas as a cleaner energy fuel,” he added.

He said the NNPC Limited will operate as a profitable commercial entity and declare dividends to its shareholders.

“I have no doubt that the leadership of this brand new Limited Liability Company is super-charged to meet the high expectations,” he said.

The NNPC, Group Managing Director Mele Kyari said the national assembly would no longer need to pass the appropriation for the purpose of its contribution to the joint ventures, cash calls, and all other obligations in the various business agreements.

“What that means is that the NNPC must now look for financing without recourse to the state. And indeed, the law is very, very clear that we will have no recourse to public funds,” he said.

Before the official transition, the oil firm had secured a number of funding commitments from investors.

Also, with NNPC Limited, it is no longer business as usual for the management and board of the company.

Apart from profit-seeking, NNPC Limited is expected to operate above board by mandatorily making disclosures for every financial year.

The rebranded Corporation has an initial shareholders Fund of N200 billion which for now is evenly held by the Ministry of  Finance and the NNPC. It has 11 shareholders with Mele Kyari retaining his position as the Group Managing Director with Senator Mary Okadigbo as Chairman

Listing NNPC shares on NGX

The NNPC Limited is expected to go to the market by the middle of  the year 2023 to raise money from the public, which opportunity will of course initially be dominated by Nigerians.

An IPO will allow a proper valuation of the national oil company and diversification of the shareholder base to include institutional and retail investors rather than just the Federal government.

“We are convinced that by the middle of next year, this company will be IPO-ready, which means that you will have the system, processes and a company that is accountable to its stakeholders and shareholders,” Kyari said.

It will be good to court international investors to give the organisation desired International outlook to underscore the fact that best practice would be the order of the day.

“We expect that preparatory to taking the company to the

market that proper evaluation will be professionally undertaken to determine the actual net worth of the company,’ analysts said.

Like Saudi Aramco, its Saudi Arabian counterpart, it is expected that NNPC Limited may decide to go public later in future.

Saudi Aramco went public in December 2019 — the biggest IPO at the time – after raising a record $25.6 billion by selling three billion shares, amounting to 1.5 percent of the company’s value.

Kyari said the Initial Public Offering will help Nigeria keep pace with the global energy transition in a bid to unlock its benefits.

“IPO already means this company is going to be profitable. It  represents a view of how things can be done better to align with best practices in the industry, trying to see how we can latch on the existing framework for energy transition that is ongoing all the world,” he said.

The NNPC achieved N287 billion profit for 2020, its first ever since it was set up in 1970s. In the long run, this is going to be a great company and great companies always go for IPO.”

Other stakeholders speak

National Operation Controller, Independent Petroleum Marketers Association of Nigeria (IPMAN), Mike Osatuyi,  said, “The Federal government has declared the NNPC Ltd. as a limited liability company, limited by shares. If it is a company limited by shares, the government will have its own dividends by the end of the year. Let’s give them time for transition and restructure.”

An expert in the oil and gas sector, Henry Abiodun, said the privatization of NNPC will enable it negotiate independent businesses and source for deals, and entrench more disclosures on how its operations are run.

“It will be independently run, and open its book more now to the public, like its peers, Brazil’s Petrobrass, Saudi-Aramco and other publicly qouted national oil firms do. The transition would enhance competitiveness and lead to the gradual phase-out of petroleum subsidy,” Abiodun said.

Very significantly, the migration to a limited liability company followed the provision of the Petroleum Industry Act (PIA). Given the many obstacles clogging the defunct Nigerian National Petroleum Corporation (NNPC), stakeholders clamoured for reforms to induce profitability, transparency and overall development. Hence the signing of the PIA in 2021.

Section 53(1) of PIA 2021 requires the minister of petroleum resources to cause 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.

In September 2021, the Corporate Affairs Commission (CAC) completed the incorporation of the NNPC.

What is also new with the transition is that the government will no longer have control over the staffing of the NNPC.

NNPC Limited will operate “free from institutional regulations, such as the treasury single account, public procurement, and fiscal responsibility act,” Buhari said at the unveiling of the company.

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Section 53 (5) of the Act stipulates that shares of the company held by the government are not transferable or mortgaged unless approved by the government and national economic council.

It further stated that by way of securitisation, any sale or transfer of shares of NNPC Limited shall be at a fair market value and subject to an open, transparent and competitive bidding process.

The sale or transfer of the shares shall be on an equal proportion basis of shares held by the Ministry of Finance Incorporated and the Ministry of Petroleum Incorporated.

Following the transition of the NNPC to a commercial entity, it is believed the federal government would put an end to funding the oil firm’s projects as was obtainable since it was established in 1977.

The PIA also mandates NNPC Limited to conduct its affairs on a commercial basis in line with the Companies and Allied Matters Act. According to the law, the company will run on a commercial basis in a profitable and efficient manner without recourse to government funds. It shall declare dividends to shareholders and retain 20 percent of profits as retained earnings to grow its business.

For Kyari, NNPC’s transition would heighten demand for transparency and give Nigerians greater sense of belonging to the oil giant, with domestic footprints.

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