NNPC: Young Experts, Analysts Speak on Incorporation

NNPC: Young Experts, Analysts Speak on Incorporation

By Mohammed Dahiru Lawal 

Nigeria’s President Muhammadu Buhari recently approved the incorporation of the Nigerian National Petroleum Company (NNPC) to a Limited Liability Company and experts and analysts explain what this means for Nigeria. 

“This simply implies that NNPC would be operating as a private company with a Chief Executive Officer and a Board of Directors. With this, the NNPC would cease to be a state-owned oil firm and become a private oil company,” Ugochukwu Anthony Uwaegbu a budding Economic and Financial Analyst and a recent First Class graduate of Economics from Bayero University, Kano explains. 

According to him the development will ensure that NNPC Limited focuses more on generating maximum profits for its owners or shareholders while it can source for funds from private investors “rather than relying on government funding and it would be registered under the Companies and Allied Matters Act (CAMA) just like every other company in Nigeria,” Says Mr. Uwaegbu. 

“This is a big leap from its former status as a statutory corporation to a limited liability company, a more profit-oriented enterprise but for now ownership of all shares still lies solely with the federal government through the Federal Ministry of Finance and Federal Ministry of Petroleum Resources,” Abdulhaleem Ishaq Ringim, a political and public affairs analyst explains. 

Mr Femi Adesina, Special Adviser on Media and Publicity to President Buhari says the move “is in consonance with Section 53(1) of the Petroleum Industry Act 2021, which requires the Minister of Petroleum Resources to cause for the incorporation of the NNPC Limited within six months of commencement of the Act in consultation with the Minister of Finance on the nominal shares of the Company.”

PRNigeria reports that President Muhammed Buhari has been the Minister of Petroleum Resources since he assumed office as Nigeria’s leader in 2015 and retained the same position after his re-election in 2019.

Reacting to the restructuring, Professor Omowumi Iledare, the Ghana National Petroleum Corporation (GNPC) Professorial Chair in Oil and Gas Economics and Management, Institute for Oil and Gas Studies, University of Cape Coast, Ghana, in an interview with Vanguard said the development is a “great news indeed, if PIA requirements are met. This is the first test of the PIA, which defines who can be the non-executive chairman.” 

On whether Nigerians can now own shares with the incorporation, Mr. Olumide Gabriel Areo, a Discussant, Chatham House, Common Futures Conversation observed that information about this is still limited to the public. 

“This may take tangible time before it can be achieved. However, the interview conducted by Bloomberg with Mr. Male Kyari reported by Reuters on September 07, 2021 stated that an initial public offering (IOP) would be done after three years,” Areo explains. 

Expatiating, Mr. Ringim says, “for now, all shares are vested with the government. But the GMD of NNPC in a recent interview explained the fact that shares of the company may be sold to private shareholders as allowed by the law overtime.” 

However, Uwaegbu explains this further. 

“Mr. Mele Kyari was quoted to have said the company would consider an Initial Public Offering (IPO) within three years. An IPO involves the sales of a company’s shares to private individuals for the first time in the open market or to the general public.” 

He argues that in the place of an IPO, NNPC Limited for now, could decide to sell shares to Nigerians through a process known as private placement. 

“This placement involves the sales of a company’s shares to select individuals as opposed to the general public or in the open market. So in the short term it could be possible through this system if they so wish, but in the long term, they can own shares in the company when it goes public or when it is listed on the Nigerian Exchange Group – formerly known as the Nigerian Stock Exchange.” 

In what difference this makes with what was obtained before, Mr. Ringim believes that the NNPC will now be run as a profit-maximizing company even though it is still owned by the Government before it goes public. 

Putting this into perspective, Mr. Uwaegbu clarified that before now the NNPC does not pay Company Income Taxes (CIT), “but it would pay CIT when fully incorporated. Furthermore, currently, the NNPC does not issue or sale shares to individuals, but after its incorporation, Nigerians can purchase the shares of the company although this is subject to approval by the Federal Government and endorsement by the National Economic Council. Lastly, after incorporation, NNPC Limited would be required to declare and pay dividends to its shareholders.” 

As the NNPC is now expected to operate separately without government funding, for a long period of time, the financial performance of the NNPC has been very poor. It only declared a profit of N287 billion in 2020 for the first time in its 44-year history but the incorporation comes with more prospects, Mr. Areo believes. 

“The potentials could include; the efforts to ensure that there are floating abilities to enhance the core objectives of the NNPC, and allow it to have a tangible stake of 20% in the new refinery being developed by Dangote and this much has been reflected in Reuters report of August 4th,” he said. 

For Mr. Uwaegbu the incorporation would see Nigerians participate in the running of the affairs of the company as shareholders. 

“This would boost knowledge sharing, innovativeness and of the company. In the same vein, there is a potential for increased efficiency in the affairs of the company because poor financial performance would reduce investor confidence.

While Mr. Ringim believes that the restructuring will provide for more transparency and accountability, he is however wary of the fact that some Nigerians are still skeptical and believe the model may fail. 

“This is due to the over dependence of the country on the revenues obtained from the corporation as it was formally operated,” he thinks. 

With President Buhari’s approval, the NNPC would cease to become a state-owned oil company and would instead be a limited liability company and this is expected to come into effect in the next six months.

In accordance with the Nigerian tax laws, the company would be expected to pay Company Income Tax and would not be expected to contribute to the Federation account. 

With an already constituted board, Senator Ifeanyi Ararume serves as Chairman of the Board while Mele Kolo Kyari and Umar I. Ajiya are Chief Executive Officer, and Chief Financial Officer, respectively.

Other Board members are; Dr Tajudeen Umar (North East), Mrs Lami O. Ahmed (North Central), Mallam Mohammed Lawal (North West), Senator Margaret Chuba Okadigbo (South East), Barrister Constance Harry Marshal (South South), and Chief Pius Akinyelure (South West). 

“This will bring a new structure for the commercialisation of the NNPC and affect oil prices as well in the country and it is worthy of note that the NNPC no longer belongs to Nigeria as most of us may think or are obliged to serve Nigerians in respect to oil provisions as it was. Its owners can decide to sell it off when they deem fit,” Areo warns.

However, Mr. Uwaegbu strongly believes that if all that is supposed to be done are effectively carried out, NNPC Limited could be the next big company to emerge from Africa.