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CAMA: NNPC set to reap from commercialisation

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) means that the era of government ownership of the organisation is finally over and, like its peers in rich economies, on the right path to reaping the benefits of commercialisation, writes TONY CHUKWUNYEM

 

According to Investopedia, the top three biggest energy- producing companies in the world currently are state-owned enterprises controlled by national governments.

Although the Nigerian National Petroleum Company Limited (NNPC) is the biggest oil operator in Africa, it lags behind companies such as the Saudi Arabian Oil Company, also known as Saudi Aramco — the world’s largest oil company — which generated $294.9 billion in revenue in 2019, China National Petroleum Corporation (CNPC), which generated $376 billion in revenue in 2019 and Russia’s Rosneft that generated $111.9 billion in revenue during 2019.

However, analysts believe that NNPC is on the path to closing the gap between it and the aforementioned companies. Reason: On July 1 this year, NNPC fully transformed into an entity that would be regulated in line with the provisions of the Companies and Allied Matters Act (CAMA).

Compliance with PIA

The Corporate Affairs Commission (CAC) had, on September 21 last year, completed the incorporation of NNPC Ltd in accordance with the provisions of the Petroleum Industry Act (PIA)2021, which was signed into law by President Muhammadu Buhari on August 16, 2021. Indeed, Section 53(1) of the PIA 2021 requires the minister of petroleum resources to cause for 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.

With the registration by CAC, NNPC Ltd was floated with an initial capital of N200 billion making history as the company with the highest share capital in the country. Significantly, however, following the signing into law of PIA in August last year, the management of NNPC took proactive steps to prepare the organisation for its July 1, 2022 take-off as a CAMA company.

Specifically, several engagements took place between NNPC, the Nigerian Midstream and Downstream Petroleum Regulatory Authority, the Nigerian Upstream Petroleum Regulatory Commission, the Ministry of Petroleum Resources, Ministry of Finance, governors, legislators, host communities and other key stakeholders, to understand the impact of the changes that PIA would bring. Also, a PIA transition committee was set up to drive the transitioning of NNPC into a full CAMA company.

Furthermore, NNPC set up an in-house committee supported by renown reputable consultants (McKinsey, KPMG, PWC, Wood McKenzie and Olaniwun Ajayi LP) to define and implement the transition roadmap. This roadmap included valuation of the assets and liabilities, development of corporate governance frameworks, rebranding of NNPC to NNPC Ltd and change management. CAMA entity advantages Analysts note that with its transformation into a CAMA company on July 1, 2022,

NNPC is expected to become a commercially oriented and profit-driven national petroleum company independent of government and audited annually. What this means is that in terms of operations, NNPC would be managed like a private sector enterprise and unlike previously when it was owned by government, t NNPC 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 government. Also, where its operations impact prices of petroleum products, government will be expected to determine how the differential will be managed.

The implication of this is that the impact of prices will not automatically be transferred to the citizens as the government remains committed to providing energy security and sustaining the economy. Another key outcome of NNPC’s transformation into a CAMA company is that its operations will not be  subsidised by government because as a CAMA company, it would be expected to pay dividends to shareholders, which, in this case, is government.

Shedding light on this recently, the Group Managing Director of NNPC, Mele Kyari, said that PIA has provided better fiscal, commercial and regulatory frameworks to support competitiveness, investment and growth, while creating a fully commercial national oil company.

He said: “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 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 dividend, which will be decided by the board of directors of this company.”

 

In his address at the opening session of the Nigeria Oil and Gas Conference, which held on July 5 this year, NNPC GMD also spoke on the company’s transformation into an entity that would be regulated in line with the provisions of CAMA.

 

He emphasised that one of the things that will be different following NNPC’s transition to a CAMA entity 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. He explained further that NNPC would be managed like a private sector enterprise and, unlike previ  ously when it was owned by government, NNPC is expected to become more efficient in its operations.

 

This, he noted, 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. Kyari disclosed that President Muhammadu Buhari will officially unveil the new NNPC Ltd on July 19 and invited all players in the sector to be part of the epoch-making event.

 

He said: “On July 1, we crossed over to NNPC Limited, both technically and financially, on every aspect. Not only that, on the 19th of July, I’m inviting all of you to be present. Mr. President will unveil NNPC Limited to all of us on the 19th of July, and I’m inviting you.

 

“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 capitalized 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.” Industry stakeholders point out that with its transitioning into a CAMA company , the NNPC is also expected to enter new investments and partnerships in upstream assets to increase gas production in line with the decade of gas agenda.

They note that under the NNPC Ltd funding strategy for selected upstream investments, the company would be raising between $3.5 billion and $5 billion as corporate finance to fund major upstream investments.

 

The strategy would also see the company investing in assets to address integrity, bottlenecking and growth issues including rig-less activities and drilling campaigns in the oil industry, as well as financing its acquisition of interest in quality upstream oil and gas producing assets.

In addition, stakeholders believe that with NNPC’s transition into a CAMA entity, Nigerians will begin to see further expansion of downstream operations to ensure energy security, while modular refineries will be developed in addition to current investment in rehabilitation of existing refineries.

In fact, NNPC has already secured a $5 billion corporate finance commitment from the African Export Import Bank (Afreximbank) to fund major investments in Nigeria’s Upstream sector, a development that stakeholders see as a dividend of PIA and the incorporation of NNPC as a limited liability company.

Conclusion

Although, NNPC will clearly not close the gap between it and the Saudi Aramcos of this world in the short or even medium term, the consensus among analysts is that the company’s transformation into a CAMA entity means that it is on the right path to reap the benefits of commercialisation which propelled the world’s top national oil companies to their present positions.

 

 

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