By Oladehinde Oladipo
The transformation of the Nigerian National Petroleum Company Ltd (NNPC) into an entity that would be regulated in line with the provisions of the Companies and Allied Matters Act (CAMA) is expected to provide a leeway for the commercial entity to be run as a private company without government interference.
This is in accordance with the provisions of the Petroleum Industry Act (PIA) as Section 53(1) of law requires the Minister of Petroleum Resources to set up structures for 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.
Here are major changes that will occur:
Mele Kyari becomes Group Chief Executive Officer
The transition to NNPC Limited means the nomenclature of the Group Managing Director (GMD) of the national oil company would also change to the Group Chief Executive Officer (GCEO), in line with the PIA 2021.
BusinessDay learnt that consequently, the GCEO would now 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 governances by CAMA.
However, the title GCEO comes with additional responsibility for measurable performance, upholding the highest level of professionalism and accountability while acting as the company’s representative in all strategic engagements globally.
This is a significant departure from the way NNPC used to operate as a corporation where most of the major decisions would have to pass through Federal Executive Council (FEC) approvals, among others.
Unlocking private capital
The provisions of CAMA could provide an easier path to unlocking private capital for the state-owned firm that would help finance its projects and bigger national ventures.
It will expand the corporation’s ability to enter into new deals, raise capital from financial institutions to fund projects and tackle funding shortfalls with joint ventures.
“One of the things that will be different as the NNPC transitions is that it is expected to become a commercially oriented and profit-driven national petroleum company that would be the envy of all players in the sector,” Kyari said.
Already, the NNPC had secured a $5bn corporate finance commitment from the African Export-Import Bank to fund major investments in Nigeria’s Upstream sector.
The NNPC’s $5bn corporate finance commitment from Afreximbank is seen by oil industry stakeholders as a dividend of the Petroleum Industry Act and the incorporation of the NNPC as a limited liability company.
Under the NNPC Ltd funding strategy for selected upstream investments, the Company would be raising between $3.5bn and $5bn as corporate finance to fund major upstream investments.
A new board for NNPC Limited
There shall be a board of the NNPC Limited, whose members shall be appointed by the President. The board is to comprise a Non-Executive Chairman, a Chief Executive Officer, a Chief Financial Officer, and a representative of each of the offices of the Minister of Petroleum and Ministry of Finance not below the rank of a director.
Committee for Corporate governance
NNPC Limited had explained that it was fully committed to effective corporate governance, accountability, appropriate risk management and sustainable value in the face of the energy transition.
To achieve this strategic requirement, four committees would be set up by the Board of NNPC Limited comprising, the Board Establishment Committee (BEC), Board Finance, Strategy, and Investment Committee (BFSIC), Board Sustainability Committee (BSG) and Board Audit Committee (BAC).
The responsibilities of the committees are as follows: Board Audit Committee will carry out oversight functions covering internal and external audit, enterprise risk management and internal controls, financial reporting, ethics, and compliance.
The Board of Finance, Strategy and Investment Committee will carry out oversight functions covering strategic planning, financing strategies and capital allocation, investment framework, performance reporting and Information Technology;
The Board Establishment Committee will carry out oversight functions covering corporate governance, nomination and capacity development, succession planning and remuneration of directors, and
The Board Sustainability Committee will carry out oversight functions covering long-term sustainability, HSE, energy transition and Corporate Social Responsibility among others.
Transfer of Employees and Conditions of services
Section 57 of the PIA provides for the wholesale transfer of the employees of the NNPC and its subsidiaries to the NNPC Limited with the same, or similar conditions of service they so far enjoyed as such employees are deemed as employees of the new company.
With the transition, existing contracts and Joint Operating Agreements (JOAs) with NNPC Limited will be evaluated and transferred in line with agreed principles to ensure business continuity.
Speaking on the development, Muda Yusuf, Chief Executive Officer, Centre for the Promotion of Private Enterprise (CPPE), said the transition would now absolve the state-owned oil company from political interference and bureaucratic bottlenecks.
“We will see an NNPC that is independent and autonomous and an NNPC that would be decoupled or insulated from political interference and bureaucracy,” Yusuf said.
He averred that with the amount of assets owned by the Company, tax payments on these assets may likely surpass its remittances to FAAC
“Because of the amount of assets the NNPC has, either oil and gas assets, the kind of revenue that will be coming from taxes is likely to be more than the amount they remit monthly to FAAC.
“That is if they allow these things to go through because it is a major transformation they want to do,” he added.
The National Operation Controller of Independent Petroleum Marketers Association of Nigeria (IPMAN) Mike Osatuyi said: “The Federal Government has declared 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 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 privatisation of NNPC would enable it negotiates 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.
Significantly, the migration to a limited liability company followed provision of the Petroleum Industry Act (PIA). Given the 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 NNPC Limited within six months of the enactment of 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 NNPC.
What is also new with the transition is that the government will no longer have control over the staffing of 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.
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 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 NNPC to a commercial entity, it is believed the Federal Government would put an end to funding the oil firm’s projects as obtainable since it was established in 1977.
For Kyari, NNPC’s transition would heighten demand for transparency and give Nigerians a greater sense of belonging to the oil giant, with domestic footprint.(BusinessDay)