Interrogating the many implications of NNPC Limited

As the Nigerian National Petroleum Company Ltd transitions into an entity that will be regulated in line with the provisions of the Companies and Allied Matters Act (CAMA), KINGSLEY JEREMIAH, examines the implications for the economy and stakeholders.

Last week, President Muhammadu Buhari, going by the provisions of the Petroleum Industry Act (PIA) unveiled a new NNPC Limited as the company legally transitioned into a company that will be regulated under the CAMA.

While there have been divergent views over the development, the President believes that the new development is the pathway to energy security in the country and by extension, the continent.

The Corporate Affairs Commission had in September 2021, completed the incorporation of the NNPC Ltd, months after Buhari signed the PIA into law.

Section 53(1) of the Petroleum Industry Act 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.

With the registration by the CAC, the NNPC Ltd was floated with an initial capital of N200 billion, coming from both the Ministry of finance and of petroleum resources.

Coming about 45 years after its creation, most Nigerians are currently looking forward to an end to the era of loss-making while envisaging a new national oil company that would compete with the likes of Saudi Aramco, now judged the most valuable in the world with a market valuation of $2.43 trillion.

With the new move, there are new opportunities for Nigeria through the NNPC. Apart from the possibilities of raising finance through Initial Public Offers across the world like other national oil companies, there are chances for the company to operate efficiently, and effectively and become more productive.

That however depends on the political will and competence of the handlers of the company. It is important to note that NNPC has operated not only as the last resort but also heavily influenced by political decisions. At present, the company is burdened by subsidies for petroleum products, large numbers of redundant staff and obsolete refineries.

The Group Chief Executive Officer of NNPC Limited, Mele Kyari, announced that the company had adopted a strategic initiative to achieve the mandate of energy security for the country by rolling out a comprehensive expansion plan to grow its fuel retail presence from 547 to over 1,500 outlets within the next six months.

He assured stakeholders and the global energy community that the new company was endowed with the ‘’best human resources one can find anywhere in the industry.

‘’NNPC Limited is positioned to lead Africa’s gradual transition to new energy by deepening natural gas production to create low carbon activities and positively change the story of energy poverty at home and around the world,’’ he said.

According to him, the transition will enable the Company to effectively maximize returns on investment for the 200 million Nigerians, ensure returns for shareholders and pay taxes to the government.

Managing Partner, The Chancery Associates, Emeka Okwuosa, said the transition of NNPC was heartening, noting that the company should be allowed to settle in.

He said Federation Accounts Allocation Committee (FAAC) ought to have been stopped a long time ago, adding that it made states very lazy, indolent and heavily dependent on contributions.

“Now they will start sourcing for other avenues of funds to increase their internally generated revenue,” Okwuosa said.

He expressed optimism that the no-business-as-usual realities have already sounded alarm bells for states to become innovative and encourage frugality, due process and streamlining of operational costs.

“The new NNPC is a watershed development after 44 years as a Government parastatal/agency. We now hope there is no interference from the Government and it is a profit and commercially driven entity.

An economist, Prof. Segun Ajibola, said it is now important for the NNPC to take courage to imbibe the culture and ethos of a private sector-led business, focusing on the primary objective of profit.

He equally advised the company to allow good corporate governance principles to influence its decisions and actions, adding that suboptimal decisions, which are often influenced by primordial considerations, must give way.

“By doing so, we are likely to see NNPC transformed to a more efficiently run company, playing its critical role of regulating an oil and gas sector that goes to the very heart of Nigeria’s economy,” Ajibola said.

An energy expert, Henry Adigun, is worried that the company is currently keeping thousands of redundant staff, especially those in the refineries. He stated that though the company is transiting, months of transition mode did not address the loss-making entities in the company.

Former Director-General of the Lagos Chamber of Commerce and Industry (LCCI), Dr Muda Yusuf, insisted that for the new NNPC to become like Aramco in the coming years, political will and a total operational shift would be needed.

According to him, the redundant staff and entities must give way while the company must make efforts to be listed internationally, including offering shares to Nigerians.

Yusuf said: “I am expecting a very profitable company. We also want to see the most valuable company. I am also hoping for it to be listed on the international stock exchanges around the world.

“But what is important in all of this is that the business model must be right. We need a business model that moves beyond political interference, interference from bureaucracy and a model that will dilute ownership and ensure that the management of the company is in the hands of professionals.”

Executive Secretary, Nigeria Extractive Industries Transparency Initiative (NEITI), Dr. Orji Ogbonnaya Orji, while applauding the transitioning of NNPC, said: “Nigeria needs a business-oriented NNPC to deliver the country’s energy needs, energy transition, energy security, diversification of its economy and the building of a sustainable energy future for the country.”

He further explained that the immediate challenge that the new NNPC needs to tackle is to free Nigeria from fuel importation.

He commended the new team at NNPC and the present administration for the political will to get this reform done, expressing confidence that the company will live up to its obligations as a supporting firm of the global EITI.

He also reiterated his call on the Federal Government to replicate the same feat for the solid minerals sector.

Energy lawyer, Madaki Ameh noted that the new NNPC may translate to putting new wine in old wineskins if the move is not followed by necessary actions.

Madaki said while the staff remains the same as well as their operational modus, the company, as a consistent loss-making organisation, may not change.

“I don’t see how the change will catapult NNPC Ltd into a profitable business. It is early days yet, but the optimism has to be a cautious one, so that Nigerians will not be disappointed, again,” he noted.

The issue of FAAC has also been of serious concern to most stakeholders, as the NNPC will no longer remit to the account.

The FAAC usually shared to the three tiers of government monthly, had been under threat lately following huge payment of subsidy on the premium motor spirit (PMS) otherwise known as petrol by the NNPC under the old order.

However, the transitioning of the NNPC to a limited liability company would henceforth permanently halt it from contributing to the FAAC.

The transition of the company has also thrown up fresh issues from the Petroleum Industry Act (PIA), particularly on sections of the Act dealing with the ownership of the NNPC and taxes.

Past President, Chartered Institute of Bankers of Nigeria and Professor of Economics, Babcock University, Segun Ajibola, also concurred that the prevailing development would affect the financial viability and survival of most states, adding that most of the states were currently economically unviable.

“A sizable portion of inflows to the Federation Account (and by extension FAAC) comes from remittances by NNPC. If FAAC is hampered, many states may not be able to survive financially. Most of the states lack the capacity for immediate response to revenue shortfalls that FAAC shocks may engender, at least in the short run. It may be impossible for some states to meet even basic financial obligations such as salaries, overheads, etc not to talk of capital expenditure,” Ajibola said.

The scholar added that the transformation of NNPC to a private limited company would breed innumerable issues on the inherited assets and liabilities.

He admitted, however, that “most of these concerns can be properly dimensioned by utilising existing laws, rules and regulations as they affect such transformation; and by imbibing best corporate governance practices.”