NNPC: What you need to know as oil corporation becomes private-owned entity

NNPC: What you need to know as oil corporation becomes private-owned entity

The Nigerian National Petroleum Corporation (NNPC), Nigeria’s state-owned energy firm, has been rebooted as a commercial entity without relying on government funding and direct control.

The transition from NNPC Group to NNPC Limited is regulated in line with the provisions of the Petroleum Industry Act 2021 and was inaugurated by President Muhammadu Buhari.

The provisions of PIA (Petroleum Industry Act) 2021, have given the Nigerian petroleum industry a new impetus, with an improved fiscal framework, transparent governance, enhanced regulation, and the creation of a commercially driven and independent national oil company that will operate without relying on government funding and free from institutional regulations such as the Treasury Single Account, Public Procurement, and Fiscal Responsibility Acts.

“It will, of course, conduct itself under the best international business practice in transparency, governance, and commercial viability,” Buhari said.


What this means for the new NNPC

Created After The PIA

The migration to a limited liability company followed the provision of the Petroleum Industry Act (PIA). Given the many 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 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.

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In September 2021, the Corporate Affairs Commission (CAC) completed the incorporation of the NNPC.


Less Interference by Government

The government would no longer be in charge of the NNPC’s staffing, another novel aspect of the changeover.

At the company’s presentation, Buhari declared that NNPC Limited will function “free from institutional regulations; such as the Treasury Single Account, Public Procurement, and Fiscal Responsibility Act.”

According to Section 53(5) of the Act, transfers and mortgages involving government-owned firm shares must first receive approval from the national economic council and the government.

Additionally, it specified that any sale or transfer of shares of NNPC Limited made through securitization must be at fair market value and be subject to an open, transparent, and competitive bidding process.

The sale or transfer of the shares shall be on an equal proportion basis of shares held by the Ministry of Finance Incorporated and the Ministry of Petroleum Incorporated.


Less Regulations, More Business

Media sources claimed that the dissolved NNPC had raised the pricing at the gas pumps.

This was just hours before the launch of NNPC Limited. The change emphasizes the part the former company played in regulating pump pricing over time.

However, not any longer thanks to the creation of NNPC Limited.

Mele Kyari, the NNPC Group Managing Director at the time, declared that the new business will not be concerned with matters pertaining to price setting, subsidies, and the like.

In the case of the price of petroleum, this is a policy matter…The NNPC is going to be a supplier to the federation at a fee. So, the issue of at what price you sell petroleum will be the decision of the state,” Kyari had said.


No More Funding From Government

It is anticipated that once the NNPC becomes a commercial organization; the Federal Government would no longer provide money for the oil company’s programs. This had been the case since it was founded in 1977.

Additionally, the PIA requires NNPC Limited to operate on a commercial basis; as well as in accordance with the Companies and Allied Matters Act. The business shall be conducted in accordance with the law in a profitable and effective manner without the use of public funds. In addition to paying out dividends to shareholders; it must set aside 20% of profits as retained earnings in order to expand its operations.

In an interview aired on Channels TV on Monday, Kyari said the National Assembly would no longer need to pass the appropriation for the purpose of its contribution to the joint ventures, cash calls, and all other obligations in the various business agreements.

What that means is that the NNPC must now look for financing without recourse to the state. And indeed, the law is very, very clear that we will have no recourse to public funds,” he said.

Before the official transition, the oil firm had secured a number of funding commitments from investors.

The African Export-Import Bank (Afreximbank) and the NNPC agreed to a $1.04 billion agreement in November 2021 to increase oil production.

The oil company also obtained a $5 billion loan commitment from Afreximbank in January 2021. The fund is to finance significant investments in Nigeria’s upstream industry.

In order to keep NNPC Limited on the correct road; it is now anticipated that the business would close more deals and improve connections with investors, among other things.


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