A Comprehensive Analysis of NNPC Commercialization -By Oyetola Muyiwa Atoyebi & Love Elizabeth Ebekhile

The need to control resources and reform the oil and gas sector resulted in the enactment of the Petroleum Industry Act (PIA) by President Muhammad Buhari in 2021.[1]. The Act generally overhauled the regulatory compliance of the oil and gas industry in Nigeria and established a new framework for the governance, regulation and operation of the NNPC.

Keywords: NNPC, NNPC LTD, Marketing, Privatization, Oil

INTRODUCTION

Founded in 1977, the Nigerian National Petroleum Corporation (NNPC) has been an instrument of the federal government to regulate and supervise the Nigerian oil and gas industry, which is the backbone of the Nigerian economy. It has served more than just a watchdog and often engages in commercial petroleum activities ranging from exploration to marketing and sales.

The need to control resources and reform the oil and gas sector resulted in the enactment of the Petroleum Industry Act (PIA) by President Muhammad Buhari in 2021.[2]. The Act generally overhauled the regulatory compliance of the oil and gas industry in Nigeria and established a new framework for the governance, regulation and operation of the NNPC.

The 19e July 2022, 45 years after witnessing the establishment of the original NNPC as Minister of Petroleum, President Muhammadu Buhari made the momentous unveiling of the new NNPC Ltd which is compliant with the PIA. This transition transformed NNPC into a limited liability company (Ltd), making it a for-profit, independent, commercial enterprise under the Company and Allied Matters Act.[3].

This article aims to offer a comprehensive analysis of the new position of the NNPC and its implications for the Nigerian oil industry.

Is the NNPC now a private body?

NNPC is now effectively commercialized and, although often confused with privatization, commercialization has different consequences. Commercialization is the conversion of a company into a commercial enterprise where its goods and services acquire a monetary value, while privatization means that a private company will take over all or part of the ownership of the company.[4]. NNPC was commercialized and not privatized, this is evidenced by the retention of the words “Nigerian National” in the new name of the company.

Mele Kyari, CEO of NNPC, with his former title being GMD, expanded on the effect of this change beyond nomenclature. The company is now moving forward with the vision of being the dynamic global energy company of choice, and its mission is to reliably deliver energy while continuously creating value for all stakeholders. Other implications for business operations include:

  1. Profit statement

Being a limited liability company, NNPC is now accountable to its shareholders. Part of this responsibility includes profit reporting. Section 53(7) provides that NNPC will henceforth operate as a CAMA (Companies and Allied Matter Act) entity, declare dividends to its shareholders and retain 20% of retained earnings to expand its business.

  1. Subsidy and price control

The new NNPC Limited will no longer have to deal with issues of petrol pricing, subsidies etc. This will now be the business and decision of the state, with the duty of NNPC Ltd being to commercially supply the product to the government. The State becomes a client of the company, the services being chargeable.

  1. Staff and financial autonomy

NNPC will no longer depend on government sources for its funds. Its revenue will be generated by its commercial services, and all services provided to the federal government will be chargeable.[5] Section 53(7) provides that NNPC Ltd and any of its subsidiaries shall conduct their business on a commercial basis profitably and efficiently without recourse to public funds. This independence continues in the employment of workers at NNPC Ltd. With incorporation, the government will no longer have control over the staffing of NNPC.[6].

  1. Sale of shares

Section 53(6) of the PIA deals briefly with the transfer of shares into the new company. It stipulates that any transfer of shares must be made at fair market value and subject to an open, transparent and competitive bidding process. The sale or transfer of the shares of NNPC Ltd will be made on the basis of an equal proportion of shares held by the Ministry of Finance Incorporated and the Ministry of Petroleum Incorporated. NNPC is also expected to decide to go public later and is expected to start selling shares to the public by 2024.[7].

Section 53(5) of the PIA provides that shares of the company which are held by the government are not transferable by way of sale, assignment, mortgage or pledge, unless approved and approved by the government and the National Economic Council at the federation name[8].

It was the previous norm that state governors met monthly to receive their shares of the oil and gas sector through the Federation Accounts Allocation Committee (FAAC). This however has now stopped as it was made clear at the unveiling ceremony that NNPC Ltd will no longer pay money to the FAAC, to be shared between the three levels of government.

CONCLUSION

These changes and others that are now expected from the new NNPC Ltd, are a leap of joy for the company’s stakeholders. NNPC Ltd will now be freed from regulatory and government restrictions to compete on par with foreign counterparts like Saudi Arabian American Oil Company (ARAMCO) and Malaysia’s PETRONAS Global, while actively earning profits and contributing to the country’s revenue. This is a step towards a better economic future for Nigeria.

AUTHOR: Oyetola Muyiwa Atoyebi, SAN, FCIArb. (UK).

Mr. Oyetola Muyiwa Atoyebi, SAN is the Managing Partner of OM Atoyebi, SAN & Partners (OMAPLEX Law Firm) where he is also the Team Leader of Emerging Areas of Legal Practice.

Mr. Atoyebi has extensive expertise and knowledge of energy and environmental law, which has enabled him to advise and represent his vast clientele in a myriad of high profile transactions. He holds the honor of being the youngest lawyer in the history of Nigeria to be awarded the rank of Senior Advocate of Nigeria.

He can be reached at [email protected]

COLLABORATOR: Love Elizabeth Ebekhile.

Love is a member of the corporate/commercial team of the law firm OMAPLEX. She also has remarkable legal expertise in energy law.

She can be reached at [email protected]


[1] Nigeria and the new NNPC by this day via https://www.thisdaylive.com/index.php/2022/07/19/nigeria-and-the-new-nnpc/amp/ [2] Nigeria and the new NNPC by this day via https://www.thisdaylive.com/index.php/2022/07/19/nigeria-and-the-new-nnpc/amp/ [3] Section 53(1) Petroleum Industry Act 2021 [4] Can privatization and commercialization of public services help achieve the MDGs? By K.Bayliss, T Kessler, 006 I https://gsdrc.org/document-library/can-privatisation-and-commecialisation-of-public-services-help-achieve-the-mdgs/ [5] ” EXPLAIN ; Child of PIA, more government funding than to do now about NNPC Limited” by The Cable via https://www.thecable.ng/explainer-child-of-pia-no-more-government-fundig-what-to -know -about-nnpc-limited [6] above [7] NNPC to sell shares to public by 2024 by Ronald Adamolekun for Premium Times via https://www.premiumtimesng.com/news/more-news/483561-nnpc-to-sell-shares-to-public-b-2024 .html [8] Section 53(1) above


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