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 With 100% FG stake, new PIB does not promise a profitable NNPC

With 100% FG stake, new PIB does not promise a profitable NNPC


In the revised Petroleum Industry Bill (PIB), the Federal Government will retain 100 shares of a newly created Nigerian National Petroleum Corporation (NNPC) Ltd, an ownership structure that failed to deliver value in the past and could make it inefficient tomorrow.

The PIB under review by lawmakers proposes turning the NNPC into a limited liability company. The government will determine the number and nominal value of the shares to be allotted, which shall form the initial paid-up share capital of NNPC Limited and will subscribe and pay cash for the shares.

The Ministry of Finance will own the shares on behalf of the government. The shares would not be transferable including by way of sale, assignment, mortgage, or pledge unless approved by the Government.

Since the constitution vests control of mineral resources found in the country in the Federal Government on behalf of the federation, it reserves the right to manage the resources, but forty years after running the NNPC, the result cries for change.

A few weeks ago, some oil companies released their 2021 first-quarter results and reported earnings similar to pre-pandemic levels.

Saudi Arabia’s national oil company, Saudi Aramco reported net income for the first quarter this year of $21 billion, up 24 percent year-on-year, and free cash flow of $18.3 billion.

But NNPC was so broke it wrote to the Accountant General of the Federation, saying it could not honour its commitment under FAAC in April and May during a bruising N100 billion monthly subsidy spend.

To manage the ensuring national anxiety, the NNPC, through Kennie Obateru, its spokesperson, quickly issued a statement saying it “is conscious of its role and was doing everything possible to shore up revenues and support the Federation at all times.”

Analysts have on several occasions called for the adoption of the Nigeria LNG Ltd model to run the NNPC. Even Mele Kyari, the NNPC GMD, last year prescribed the NNLG model to operate the creaking refineries.

Under the NLNG shareholding, NNPC is the single largest shareholder at 49 percent, but there are three International oil companies, Shell with 25.60 percent, Total 15 percent, and Eni with the remaining.

The IOCs have a combined majority but the Federal Government gets the largest dividend even though it doesn’t control the board. Decisions are made by competent professionals and meddling politicians are kept away through its watertight guarantees and assurances.

The NLNG is an incorporated joint venture unlike the traditional unincorporated joint ventures in the upstream sector. The incorporated joint venture is both the company and the business, unlike the traditional joint ventures where the companies are different from the joint venture.

Another factor responsible for the NLNG model’s success is that the company is licensed to fund itself. It goes out to the financial and capital markets to raise funds for its operations, unlike the traditional joint ventures where equity contributions fund the business.

In the early days the shareholders put in $5.50 billion but this was a loan and has been paid back. The company is independent today.

“We do not have cash call issues because we are self-funding. We have a standalone balance sheet, a standalone profit, and a loss account. We have published all monies earned in the last 20 years in the fact and figure book. Transparency and accountability are key factors in the success of the NLNG model,” Tony Attah NLNG managing director said at a recent virtual conference.

The model is immune to external influences. The senior executives report to the board of directors, the ultimate governing body of the company. There is little interference in terms of the day to operations of the business.

Some analysts say applying some of these principles like separating ownership from management, ceding management to experts, and giving them key performance indicators will improve NNPC’s fortunes.

“The government already has businesses it has significant stakes, if it runs the NNPC this way, it will remove undue political influence and improve performance,” says Ayodele Oni, an energy lawyer, and partner at Bloomfield law firm.

Various Nigerian governments own stakes in companies apart from the NLNG. The Lagos and Benue state governments own shares in Julius Berger Nigeria for example.

Privatisation has been proven successful in the telecoms sector but didn’t achieve success in the power sector largely due to government meddling.

The Eleme Petrochemicals Limited, for example, was a 100 percent subsidiary of NNPC was a loss-yielding plant only capable of functioning at 25 percent of installed capacity when it was privatised in 2006.

Barely two years after, it ramped capacity utilisation to 100 percent and was recording N20billion profit after tax.

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