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Expectations As President Buhari Unveils NNPC Limited

By Adewole Kehinde

On July 1, 2022, the Nigerian National Petroleum Company Limited was legally transformed into a company whose operations and activities are regulated under the Companies and Allied Matters Act, CAMA.

The NNPC’s transformation into a CAMA company follows the implementation of the Petroleum Industry Act.

On July 19, President Muhammadu Buhari will unveil the corporate NNPC Limited, which will make decision-making and financing easier as well as procurement of the best assets for the corporatized oil and gas firm.

The Corporate Affairs Commission, CAC, on September 21, 2021; completed the incorporation of the NNPC Limited in accordance with the provisions of the Petroleum Industry Act, 2021, which was signed into law by President Muhammadu Buhari on August 16, 2021, following its passage by the National Assembly in July of the same year.

Section 53(1) of the Petroleum Industry Act 2021 requires the Minister of Petroleum Resources to cause the incorporation of the NNPC Limited within six months of the enactment of the Petroleum Industry Act in consultation with the Minister of Finance on the nominal shares of the company.

In line with that, the registration by the CAC, the NNPC Limited was floated with an initial capital of N200 billion, making history as the company with the highest share capital in the country.

The Group Managing Director of NNPC Limited, Mallam Mele Kyari, in his avowed openness and drive for transparency, had made proactive moves in preparation for the July 1 take-off as a CAMA company.

Speaking at the just concluded Nigeria Oil and Gas (NOG) conference in Abuja, Kyari said: “It’s just going to be another Shell or another Waltersmith and that means decision making will be easy and, coming back to the theme of this conference, financing will also be easy.”

On the prospects of the new NNPCL, Kyari said: “NNPC is here to be the partner of choice; we will be the biggest capitalised company in Africa; we will be the biggest indigenous oil and gas company in Nigeria; therefore, there will be no distinction between NNPC and the partners.” We are also acquiring assets, and we will acquire the best assets, “Kyari enthused.

It will be recalled that the NNPC Limited had set up a PIA transition committee with a specific directive to drive the transition of NNPC into a full CAMA company.

There was also an in-house committee backed by globally acclaimed consultants (McKinsey, KPMG, PWC, Wood McKenzie, and Olaniwun Ajayi, LP) to define and implement the transition roadmap.

The road map includes valuation of the assets and liabilities; development of corporate governance frameworks, rebranding of NNPC to NNPC Ltd; and change management.*/

The transition of the NNPC Limited into an entity that would be regulated in line with the provisions of the Companies and Allied Matters Act will largely position it as a partner of choice to all oil and gas companies globally.

“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.

He explained further that the NNPC Limited would be managed like a private sector enterprise and, unlike previously when it was owned by the government, the NNPC Limited is expected to become more efficient in its operations.

“This will enable the company to effectively maximise returns on investment for the 200 million Nigerians, ensure returns for shareholders, and pay taxes to the government,” Kyari noted.

The Petroleum Industry Act is largely expected to fully transform the nation’s petroleum industry into a hub of business operations. It will also attract huge amounts of capital globally into the country’s oil sector, strengthen cost recovery and ensure decent returns on investment.

The PIA is expected to promote good governance in the oil and gas sector in tandem with international best practices.

“It will assist us in having a very transparent, clearly competitive physical framework, where you can see opportunities on where you can put your money and also get some benefits back.”

“It will also refocus on gas development in our country, such that, as we know, gas is the new oil.”

“For over 20 years, we have made attempts to change our petroleum policies so that we will be in line with industry experts, which will lead to smarter opportunities. We have been very stagnant for over 24 years without any physical change.

“What happened in the last few days is simply a transformation of activities and a transformation of the environment for doing business, making our country very competitive,” Kyari said.

Since he came on board in 2019 as NNPC GMD, Mallam Mele Kyari, who has focused on ensuring the passage of the legislation, has been a major advocate of the need for the lawmakers to pass the bill, which he described as a game-changer for Nigeria’s oil and gas industry.

According to Kyari, getting the petroleum legislation passed is the right thing to do because investors will not invest their money if they are not sure of how they are going to get their investment back, and what benefits they can get from it, as well as how stable the investment climate is.

“We are aware that the whole world is becoming a petroleum territory and no country will survive unless you have a very competitive physical environment.”

“What is logic to us is to provide us with the best physical environment available in the world, to bring us to a place where the regulatory structure is also in line with best practises in the world, clearly separating the upstream from the midstream and downstream so that our focus can return to the part of the industry that will undoubtedly be the hub.”

For our investors, what this means is that there is clarity in our physical environment, there is also a very robust commercial framework, and there is also a competitive physical framework.

“So the combination of these three for new investors and existing investors means that they can now take the advantage of the industry. A friendly business environment will guarantee cost recovery and a decent return on investment for investors.

“The combination of these is that NNPC will be the house of opportunities, expand our partnerships, and be a very big opportunity for new investors and the country.” “I think this is a very exciting moment for us as a country,” Kyari reiterated.

In accordance with Section 54 of the Petroleum Industry Act, which states that bonds, securities, deeds, contracts, instruments, documents, and working arrangements pertaining to assets, interests, or liabilities transferred to NNPC Limited or any of its subsidiaries under subsection (1) will be effective and enforceable against the favour of NNPC Limited, President Muhammadu Buhari and Minister of Finance, Budget, and National Planning, Mrs. Zainab Ahmed, signed off on the transaction.

The signing off by the President and the Minister of Finance effectively means that all such assets, interests, and liabilities of the Corporation have been transferred to NNPC Limited in line with the provisions of the Petroleum Industry Act.

The President appended his signature on the instrument of transfer last week in preparation for the formal unveiling of the NNPC Ltd on July 19, 2022.

One of the things that will be different in the Nigerian National Petroleum Company Limited transition is that it will become a commercially oriented and profit-driven national oil company independent of the government and audited annually.

The Nigerian National Petroleum Company Limited would also be managed like a private sector enterprise, and unlike previously when it was owned by the government, the NNPC is expected to become more efficient in its operations. This will enable the company to effectively maximize returns on investment for the 200 million Nigerians, ensure returns for shareholders, and pay taxes to the government.

Going by the narration of Mallam Mele Kyari, he said the NNPC Limited will serve as a holding company for all its subsidiaries in the post-PIA era, meaning that the NNPC’s operations will not be subsidized by the government because, as a CAMA company, it would be expected to pay dividends to shareholders, which in this case is the government.

“So, these shareholders can decide, as the law provides that over time, they can reduce the shareholding into some private shareholding. That means it can be floated subsequently as a company that is quoted on the stock exchange. The intention at the very onset is not to go to that step, but there is a provision in the law that allows us ultimately to sell shares of this company.

“This is very simple. This company will pay taxes and royalties, which are revenues that accrue to the federation. So, every part of this country and every sub-national institution or government will benefit from it.

Secondly, this company will pay company income tax that also comes to the federation for the benefit of all. So, what is different is that this company will now have profit to make and declare a dividend, which will be decided by the board of directors of this company, Kyari noted.

The new NNPC is also expected to enter into new investments and partnerships in upstream assets to increase gas production in line with the decade of gas agenda.

In 2021, Nigerian National Petroleum Company Limited secured a $5 billion corporate finance commitment from the African Export-Import Bank to fund major investments in Nigeria’s upstream sector.

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.

The funding would also be used to finance part of the NNPC’s investment, including the acquisition of an interest in quality upstream oil and gas producing assets.

Going by Kyari’s projections, the Nigerian National Petroleum Company Limited will soon emerge as the fifth largest gas producer in the world given that the new legislation has provided business opportunities that will enable the NNPC Limited to earn more revenue for the country and attract foreign direct investment into the Nigerian energy sector.

There is no doubt that in the new dispensation the NNPC Limited is better positioned to play its role in ensuring energy security for the country.

Mallam Mele Kyari hailed President Muhammadu Buhari, for having the courage to ensure that the Petroleum Industry Act, despite various opposition, becomes law.

“I am sure all of us are aware of the struggles that we‘ve had to ensure we have the right fiscal and regulatory framework in place to make sure that companies operate in the best environment that is possible and very competitive.”

“We have struggled to have the right fiscal space not just for 20 years but since 1967. As you may be aware, in the Petroleum Profit Tax Act of 1967 and the Petroleum Act of 1969, there wasn’t any significant change from what you have from the Petroleum Tax Act and the Petroleum Act.

“This means that we have frozen our environment for over 50 years, and that took its toll, which is very visible in our recent history in the sense that in the last ten years, investment inflow into Sub-Sahara Africa and other countries into Nigeria has been just about $3 billion to $3.5 billion in real terms.”

“Not just in spending that we are seeing, in real capital expenditure that is designed to improve production. And the reason is very simple, we don’t have the right fiscal structure, we don’t have the right climate, we don’t have the right regulatory stability, and we don’t have the right framework where people can predict what will happen next.

And that’s why there is under investment, there is a lack of growth, and of course, it produced some other results, part of which is that many of our partners now, both dependent and independent, have not invested substantially.

“Nobody invested in new projects. And the end result was that when you get to some of these facilities, you will think that you are in a war zone. Many of them look like museums, and they are not designed to function.

“I don’t want to mention names of companies, but we know that in every major facility, except the new ones that are just being put in place, you have just discovered that something is wrong.

And all this is because there isn’t the right framework for business and they don’t have faith in our fiscal system, which does not justify why we did the little we have done.

“The reality is that is what led to the situation today.” But thank God, prosperity was thrown at us, and with all humility, let me put it straight that without President Buhari, we would not have had a PIA.

Because the passage of the legislation has been resisted over the years by the industry, the independent, the dependent, and the NNPC, sometimes for very simple reasons such as people losing power, control, and influence. And this makes us keep struggling over little issues, Kyari said.

As President Muhammadu Buhari unveils the Nigerian National Petroleum Company Limited on Tuesday, July 19, 2022, I see a new NNPC Limited that will make decision-making, and financing easier as well as procurement of the best assets for the corporatized oil and gas firm soonest.

Adewole Kehinde is the Publisher of Swift Reporters. He can be reached via 08166240846, 08123608662

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