A COMPREHENSIVE ANALYSIS OF THE COMMERCIALISATION OF NNPC
Author: O. M. Atoyebi S.A.N FCIArb. (U.K.)., Contributor: Love Ebekhile
Founded in 1977, the Nigerian National Petroleum Corporation (NNPC) has been a Federal Government instrument of regulation and supervision of the Nigerian oil and gas industry, which is the backbone of the Nigerian economy. It has served as more than just a supervisory body, and often engages in commercial petroleum activities ranging from exploration to marketing and sales.
The need for resource control and reform in the oil and gas sector resulted in the enactment of the Petroleum Industry Act (PIA) by President Muhammad Buhari in 2021[1] [1]. The Act generally overhauled the regulatory compliance of the oil and gas industry in Nigeria and put in place, a new framework for the governance, regulation and operation of the NNPC.
On the 19th of July, 2022, 45 years after witnessing the establishment of the original NNPC as the Minister of Petroleum, President Muhammadu Buhari performed the momentous unveiling of the new NNPC Ltd which is in line with the PIA. This transition transformed the NNPC into a limited liability company (Ltd) thus making it a profit-making, independent and commercial venture under the Company and Allied Matters Act[2] [2].
This article seeks to offer a comprehensive analysis of the new position of the NNPC and its implications for the Nigerian Petroleum Industry.
Is the NNPC now a private body?
The NNPC is now effectively commercialized, and although often mistaken for privatisation, commercialisation has different consequences. Commercialization is the conversion of a company into a commercial venture where its goods and services acquire a monetary value, while privatisation means that a private company shall be taking over some or all of the ownership of the company[3] [3]. NNPC has been commercialised not privatised, this is evidenced by the retention of the words “Nigerian National” in the new name of the company.
Mele Kyari, CEO of NNPC, with his former title being the GMD, expatiated on the effect of this change beyond nomenclature. The company now progresses with the vision to be the dynamic global energy company of choice, and its mission is to reliably deliver energy while continuously creating values for all stakeholders. Some other implications for the company’s operations include:
- Declaration of Profit
Being a limited liability company, the NNPC is now responsible to its shareholders. Part of such responsibility includes the declaration of profits. Sect 53(7) provides that the NNPC shall now operate as a Companies and Allied Matter Act (CAMA) entity, declare dividends to its shareholders and retain 20% of profits as retained to grow its business. - Subsidy and Price Control
The new NNPC Limited will now have no concern with issues of petrol price determination, subsidy and the like. It shall now be the business and decision of the state with the duty of the NNPC Ltd being to commercially supply the product to the government. The state shall become a customer of the company, with services being provided at a fee. - Staffing and Financial Autonomy
The NNPC shall no longer be dependent on government sources for funds. Its revenue shall be generated from its commercial services, and any services provided to the Federal Government will be for a fee.[4] [1] Sect 53 (7) provides that NNPC Ltd and any of its subsidiaries shall conduct their affairs on a commercial basis in a profitable and efficient manner without recourse to government funds. This independence continues into the employment of workers at NNPC Ltd. With the incorporation, the government shall no longer have control of the staffing of the NNPC[5] [2]. - Transfer of shares
Sect 53(6) of the PIA provides succinctly on the transfer of shares in the new company. It states that any transfer of shares shall be at a fair market value and subject to an open, transparent and competitive bidding process. The sale or transfer of the shares of NNPC Ltd shall be on an equal proportion basis of shares held by the Ministry of Finance Incorporated and the Ministry of Petroleum Incorporated. It is also expected that the NNPC may decide to go public later in future, and is expected to start the sale of shares to the public by 2024[6] [3]. - Non-transferable shares
Sect 53(5) of the PIA stipulates that shares of the company which are held by the government are not transferable by way of sale, assignment, mortgage, or pledge, unless approved and endorsed by the government and the National Economic Council on behalf of the Federation[7] [4]. - FAAC Remittance
It was the previous norm that state governors would gather on a monthly basis, to receive their entitled shares of the oil and gas sector through the Federation Accounts Allocation Committee (FAAC). This is however now halted as it was made clear during the unveiling ceremony that the NNPC Ltd shall no longer remit any money to the FAAC, to be shared amongst the three tiers of government.
CONCLUSION
These and more changes which are now expected from the new NNPC Ltd, serve as a leap of joy for the stakeholders of the company. NNPC Ltd shall now be free from regulatory and government restrictions to compete at the same level with its foreign peers like Saudi’s Arab-American Oil Company (ARAMCO) and Malaysia’s PETRONAS Global, while actively making a profit and contributing to the revenue of the country. This is a step towards a brighter economic future for Nigeria.
[1] Nigeria and The New NNPC by This Day via https://www.thisdaylive.com/index.php/2022/07/19/nigeria-and-the-new-nnpc/amp/ [5]
[2] Sect 53(1) of Petroleum Industry Act 2021
[3] Can Privatisation and Commercialisation of Public Services Help Achieve the MDGs? By K.Bayliss, T Kessler, 006 I https://gsdrc.org/document-library/can-privatisation-and-commecialisation-of-public-services-help-achieve-the-mdgs/ [6]
[4] “EXPLAINER; Child of PIA, no more government funding what to now about NNPC Limited” by The Cable via https://www.thecable.ng/explainer-child-of-pia-no-more-government-fundig-what-to-know-about-nnpc-limited [7]
[5] supra
[6] NNPC to sell shares to public by 2024 by Ronald Adamolekun for Premium Times via https://www.premiumtimesng.com/news/more-news/483561-nnpc-to-sell-shares-to-public-b-2024.html [8]
[7] Sect 53(1) supra