The landmark event that officially changes the oil firm from a wholly state-run entity to a commercial oil company, limited by shares is expected to be managed as a private energy enterprise unlike the former corruption-ridden government organisation.
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 NNPC completed its incorporation in September last year weeks after the the PIA was signed into law by President Buhari.
The NNPC Limited was then floated with an initial capital of N200 billion making history as the company with the highest share capital in the country.
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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.
President Muhammadu Buhari Tuesday, formally unveiled the new status of NNPC limited liability company, from the old Nigerian National Petroleum Company (NNPC).
This is because despite huge oil and gas deposits, Nigeria continues to fall short on oil production.
But, all that is expected to change following the signing of Petroleum Industry Act (PIA) and subsequent unveiling by President Buhari as the law changes NNPC from a statutory agency to a commercial entity.
Section 54 of the Act states: “Assets, interests and liabilities of NNPC not transferred to NNPC Limited or its subsidiary under subsection shall remain the assets. interests and liabilities of NNPC until they become extinguished or transferred to the Government and six months following the determination under section 54 (1) of this Act, the Minister, the Minister of Finance and the Attorney-General of the Federation shall develop a framework for the payment of the liabilities not transferred to NNPC Limited and if such determination of which assets, interests and liabilities to be transferred has not been concluded within the stipulated period of 18 months.
“NNPC shall cease to exist after its remaining assets, interests and liabilities other than its assets, interests and liabilities transferred to NNPC. Limited of its subsidiaries under subsection (1) shall have been extinguished or transferred to the government.”
As a commercial entity, NNPC Limited is also expected to pay taxes and dividends to its shareholders like other companies. The change of status gave birth to new opportunities and the NNPC Limited is expected to deliver on many mandates.
The new entity is expected to list on the stock exchange with the sale of shares to the public, like Petrobras of Brazil and Aramco of Saudi Arabia.
The company will offer its shares to the public via an Initial Public Offering and must be approved by the government and endorsed by the National Economic Council on behalf of the Federation. Any such transfer of NNPC shall be at a fair market value and subject to an open, transparent, and competitive bidding process.
Profit-driven entity, with increased
investment in Nigeria’s energy sector
One of the most outstanding highlights of this transition is that the NNPC is expected to become a commercially oriented and profit-driven national petroleum company. The PIA has designated NNPC Limited and its subsidiaries to conduct their affairs on a commercial basis in a profitable and efficient manner.
Mele Kyari, the group managing director of the company, said the company would be managed like a private sector enterprise, and unlike when it was owned by the government, is expected to become more efficient in its operations.
He said the transition would drive more investments in Nigeria’s oil and gas sector by positioning it as a partner of choice for investors . Kyari, speaking at the 2022 oil and gas conference recently in Abuja, explained that the PIA provides better fiscal, commercial and regulatory frameworks to support competitiveness, investment and growth, while creating a fully commercial oil company.
“The meaning of this to our industry is that you’re going to have the partner of choice, the partner that will support you, the partner that will be the largest capitalised company in Africa. Not only that, a partner that will be born of best practice, of everything that you can think of because we’re going to be a CAMA company. We are going to be another Shell, decision making would be easy, finances will also be easy,” he had said.
The Act provides the company shall declare dividends to its shareholders and retain 20 percent profits as retained earnings to grow its business. The new structure of NNPC Limited is intended to boost the confidence of investors in the sector, encourage them to invest much needed capital in the sector and acquire shares in the Company when its IPO is announced to the public.
Increased government revenue
The transition of NNPC to a limited liability company is expected to increase the revenue base of government as the PIA has mandated that where the NNPC Limited has a participating interest or 100 percent interest in a lease or licence, it shall pay its share of all fees, rents, royalties, profit oil shares and taxes and any other required payments to government.
Kyari projects that the NNPC will soon emerge the fifth-largest gas-producing in the world, explaining that the new legislation has provided business opportunities that will enable the NNPC Limited earn more revenue for the country and attract foreign direct investment into the energy sector.
It is expected that funds generated from sale of shares will be used in the diversification of the economy and for provision of much needed infrastructure in the country.
New management structure, nomenclature
The NNPC Limited will have a new structure. The group managing director will become the group chief executive officer and will be directly responsible for the overall growth of all the subsidiaries and the holding company (NNPC Limited) and the Group CEO, being the chief accounting officer, is empowered to make decisions in line with established governance by CAMA.
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The PIA also provides that NNPC Limited shall have a Board which shall perform its duties in accordance with the Act, CAMA and the Articles of Association of the Company. The Board shall be appointed by the President and composed of; a non-executive chairman; chief executive officer; chief financial officer; a representative of the Ministry of Finance not below the rank of director; and six non-executive members with at least 15 years post-qualification cognate experience in petroleum or any other relevant sector of the economy.
New funding sources
The NNPC Limited is expected to get funding from private sources other than government. Section 65 of the Act encourages NNPC Limited and its joint venture partners to explore the use of incorporated joint venture companies.
With the registration by the CAC, the NNPC Ltd was floated with an initial capital of N200bn making it the company with the highest share capital in the country. The NNPC has also secured a $5 billion corporate finance commitment from the African Export Import Bank to fund major investments in Nigeria’s upstream sector. Industry stakeholders described this as a dividend of the Petroleum Industry Act and the incorporation of the NNPC as a limited liability company.
Improved transparency and governance
The NNPC had for many years operated at a loss despite the huge investment of public funds into it; this is coupled with secrecy around its financial records for a long time. The Act is expected to promote good governance in the oil and gas sector in tandem with the international best practices. The Company will operate as a commercial entity and will be audited periodically.
Also, in line with the provisions of the Act, the company’s Board shall also ensure that the Company’s annual audit is conducted by an independent, competent, experienced, and qualified auditor.
Section 65 of the Act also stipulates that the NNPC Limited shall adopt the Incorporated Joint Venture Company (IJVC) model for its operating agreements with partners. The IJVC shall be an independent entity with strong commercial orientation and transparent operations as its focus as against the hitherto opaque government institution it was.