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‘Why NNPC will not go public despite losses’

By Kingsley Jeremiah, Abuja
29 December 2019   |   4:35 am
At a time when national oil companies across the world are launching Initial Public Offerings (IPOs) and raising capital from public investors to outsmart the volatility in the oil and gas industry


At a time when national oil companies across the world are launching Initial Public Offerings (IPOs) and raising capital from public investors to outsmart the volatility in the oil and gas industry, the Nigerian National Petroleum Corporation (NNPC) remains unprepared to list on the Nigeria Stock Exchange despite entering the mode three years ago.

When it came on board, President Muhammadu Buhari-led administration hinted at listing the corporation on the stock market as a way of doing away with its losses.

Referred to as a perpetual loss-making entity, the NNPC, unlike other state-owned oil firm recorded losses in the region of N600b from January 2015 to December 2018.

Details of financial records published on the company’s website revealed that it repeatedly failed to meet projected profits, as its subsidiaries, particularly the refineries, running cost of the headquarters, and other arms always lead to whopping deficits. In the midst of this, the corporation’s financial dealings are opaque, its operations inefficient, just as it lacks transparency and accountability.

Just recently, Saudi Arabia’s Saudi Aramco got listed on Tadawul- Saudi Arabia’s stock market with an initial public offering (IPO) valued at about $2t.

It is now regarded as the biggest in history as it comfortably overtook Apple Inc. (AAPL.O) as the world’s most valuable listed firm, and also beating Alibaba Group Holding Ltd’s record of $25b listing in 2014.

The acting Director-General, Securities and Exchange Commission (SEC), Mary Uduk, had said the organisation was looking to attract the NNPC and the Nigeria LNG to the Nigerian Stock Exchange (NSE) following successes recorded in the dual listing of the shares of MTN Nigeria and Airtel. 

But stakeholders, who believe that the NNPC has huge assets and value, which if well managed could bring a huge returns for the country’s economy, noted that there was a lot of work to be done to put the company on the right tract.

However, the move may never happen unless the Federal Government takes strategic and timely decisions on issues bedeviling the corporation. 

While Buhari sent a fact-finding delegation to Saudi Arabia, suggesting interest in going the way of Saudi authorities, and also adopting aspects of Aramco’s businesses, some stakeholders insist that the current structure and state of the NNPC were far from meeting the standards needed to go public.

For instance, they noted that a company making efforts to go public would, not sell petroleum products at N145 when it costs above N180 at the international market, stressing that there must be a level of readiness within the management of the corporation, which clearly shows that the organisation is actually preparing to be listed.

For Saudi’s Aramco, the success story is years-long strategic and futuristic planning, which involved investing in Europe, America, and other places and running a world-class firm devoid of sentiments, federal character, tribalism or religion.

A visit by The Guardian to the firm along with key stakeholders from Nigeria earlier this year showed a workforce hired from across the world, including Nigerians in some key positions. Its operations were fully automated, and unlike Nigeria, projections as much as 20 years were known, while financial and operational records were audited on time and open with hedged risk.

Programme Coordinator of the Nigeria Natural Resource Charter (NNRC), Tengi George-Ikoli, expressed optimism that NNPC could be as profitable as Saudi Aramco, but there was a compelling need to revise the model of the company.
“Some areas that come to mind are the lack of clarity of NNPC’s commercial roles muddled with regulatory roles and its limited capacity to raise external funding due to its current structure,” she said.
George-Ikoli noted that the Petroleum Industry Governance Bill (PIGB), by clearly delineating the regulatory and commercial roles, and encouraging commercial efficiency provided a somewhat solution that would make going public seamless, but the bill is still in limbo after being denied assent by the President last year.
George-Ikoli said: “The hope is that the PIB anticipated in the first quarter of next year would propose a national oil company that could grow to be as profitable as other national petroleum companies.”

Lead, Extractives and Open Data, Policy Alert, Iniobong Usen, also believes that the foundation for any IPO for the NNPC must begin with a strong organisational overhaul, which could start with the PIGB.

To him, “profitability is a function of revenue and cost. Nigeria’s cost of production is three times that of Saudi Arabia and Saudi Arabia produces five times what we produce daily. 
To increase profitability, the government would have to address some factors that increase the cost of production, which include insecurity in the oil-producing regions, improper governance structures, fiscal policies, local content issues, bureaucracy, overlapping national oil company functions and corruption. 

Usen noted that investment into the company must be made in cutting-edge, with the technology used to drive down the cost of production.

With the NNPC being an opaque behemoth with several flaws, Managing Partner, The Chancery Associates, Emeka Okwuosa, stated that the operations of the company have to be more accountable and transparent, with a strong commitment to reducing corrupt practices.

“We are losing several millions of dollars in investments due to the non-passage of the PIB, and several of our big partners in the oil industry like Shell /Mobil are pruning down and selling off their assets in Nigeria.
“It is not yet Uhuru for the NNPC. The Federal Government has to show seriousness in passing the PIB and not paying lip service to reforms in the oil and gas sector. We have a long way to go before NNPC can be as profitable as Saudi Aramco,” Okwuosa said.

For Chair in Petroleum Economics and Management at the University of Cape Coast, Ghana, Prof. Wunmi Iledare, all of what Saudi Aramco is currently doing have been detailed in the PIGB, especially divestment, shares and other funding.

Iledare said: “People have the wrong interpretation of what the issue is. I have shares in Guaranty Trust Bank but I am not the owner of Guaranty Trust Bank, I am just a shareholder. So, what Saudi Aramco is doing is to raise money through public offering and there’s nothing stopping the NNPC from doing that without necessarily losing the operational control.

“People that lack knowledge uses some terms to increase sentiments and douse patronage. It is actually in the interest of the NNPC to minimise political influence beyond the policy direction, and that’s why we’ve always called for a technical board for the NNPC.”

PricewaterhouseCoopers’s Associate Director, Energy, Utilities and Resources, Habeeb Jaiyeola said there was a need for an environment as good as what Saudi Aramco is currently working in to ensure a profitable NNPC.

That environment to him could only be obtainable through reforms that would create a mechanism that makes the sector to yield profits and benefits.

Jaiyeola said: “Saudi Aramco is one of the most profitable firms in the world. What they do and their reforms are known to the world. They allow fair play. There is easy access for private sector to play in. There’s also competition. A lot of these have to be within NNPC.”