The Gap

How the new NNPC is poised to operate

How the new NNPC is poised to operate

The NNPC has been in the news in recent days following its relaunch or, better still, rebranding. It was all pomp and pageantry as President Muhammadu Buhari unveiled what has been termed the new NNPC Limited before a multitude of jovial guests at a ceremony in Abuja on July 19, 2022.

Before the event of July 19, NNPC had the sole responsibility for upstream and downstream developments, as well as regulating and supervising the oil industry. While it is still empowered to fulfil some of these responsibilities, the addition of “limited” signifies that this institution has now metamorphosed from an eminent public, state-owned corporation into a limited liability company.

However, there are questions about the status of this NNPC Limited, whose predecessor was enmeshed in all manner of controversies. Is NNPC Limited truly new? Is it truly a private entity? If it is a private entity, is it privatised or commercialised? Can the new company shake off the baggage that its predecessor was tainted with for over four decades and begin a new era of accountability, transparency, and profitability?

What is NNPC?

Before July 2022, the NNPC was the Nigerian National Petroleum Corporation. The NNPC operated as a state-owned corporation, Nigeria’s National Oil Company (NOC). The company was mandated by law to ensure Nigeria’s national energy security in all sectors of the petroleum industry, whether in the upstream sector (discovery, extraction, and production of oil) or the downstream sector (refining of crude oil and delivery of the refined petroleum product in retail quantity to final consumers).

However, following President Buhari’s assent of the Petroleum Industry Act (PIA) in September 2021, the name of the NNPC changed to the Nigerian National Petroleum Company Limited. Although it is still Nigeria’s NOC, NNPC Limited has transformed into a for-profit oil company and not the public corporation that solely existed for the public good as it was before.

The transition from NNPC to NNPC Limited was formally completed in July 2022. This will be elaborately explained shortly.

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History of NNPC

The NNPC (Nigerian National Petroleum Corporation) was created on April 1, 1977, by the military administration of General Olusegun Obasanjo. It was incorporated following a merger of the Nigerian National Oil Corporation – established in 1971 – and the Federal Ministry of Petroleum and Energy Resources. The NNPC was saddled with regulatory responsibilities to manage the oil industry in Nigeria.

By law, the NNPC oversees the joint venture between the Federal Government and several foreign multinational corporations, including Royal Dutch Shell, Agip, ExxonMobil, TotalEnergies, Chevron, and Texaco (which is now controlled by Chevron).

In August 2021, the National Assembly passed the Petroleum Industry Bill (PIB) after years of deliberations, rejections and revisions. The signing of the PIB meant that the much-needed reform of the country’s oil sector incessantly called for by stakeholders in the sector was about to happen, and the major player to undergo such a process was the NNPC.

The reform became a reality a month later when President Buhari signed the PIB into law, becoming the Petroleum Industry Act (PIA). With the PIA effectively becoming law, parts of the legislation’s provision were being implemented. A key component of it was the change of NNPC from a public corporation managed by the government to a private entity controlled by its shareholders.

However, in January 2022, it was announced that the removal of fuel subsidy would not commence in February 2022 as planned, thereby delaying the implementation of the Act. Section 205 of the Act stipulates that the downstream sector of the oil industry should be deregulated.

But on July 1, 2022, President Buhari began the implementation of the Act as he authorised the transfer of assets from the Nigerian National Petroleum Corporation (NNPC) to its successor company, the Nigerian National Petroleum Company Limited (NNPC Limited).

This policy decision formally activated the transition of NNPC from a state-owned company to a limited liability company. The process was completed on July 19, 2022 when the President unveiled NNPC Limited to Nigerians, declaring that the company is now a commercial and independent NOC free from government interference.

Corruption at NNPC

The “old” NNPC exhibited elements of disjointed organisation and a high level of inefficiency and corruption. For years, several reports indicated discrepancies in the financial books of Nigeria’s national oil company. Parts of this unscrupulousness were uncovered by the ad-hoc committee of the House of Representatives set up in 2012 to probe the country’s fuel subsidy regime.

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According to the House committee, it uncovered an unhealthy, corrupt-ridden oil industry as it established that there was a deliberate understanding between the NNPC and some of its subsidiaries not to keep a reliable information database about the subsidy payment scheme.

The committee further established that the NNPC accumulated over N703 billion to itself as an overpayment for the subsidy regime, while the now-defunct Petroleum Products Pricing Regulatory Agency (PPPRA), then a subsidiary of the corporation, had an excess payment to itself of over N312 billion (House of Representatives, RESOLUTION NO.HR.1/2012).

This meant that the major government agencies responsible for regulating the downstream sector of the oil industry were also culpable of corruption.

There are other instances when the NNPC has been fingered in fraudulent acts. For example, just a year before the House ad-hoc committee investigated and presented its findings; the Federal Government had commissioned KPMG, a multinational audit firm, to conduct a forensic audit on the NNPC. The auditors discovered that between 2007 and 2009 alone, the NNPC over-deducted funds in subsidy claims to the tune of N28.5 billion. This was billions of naira that should ordinarily be remitted to the federation account; instead, it was illegally deducted.

Another major allegation against the corporation was made in 2013 when Sanusi Lamido Sanusi, the then Governor of the Central Bank of Nigeria (CBN), in a letter to then President Goodluck Jonathan, claimed that the NNPC had not remitted over $49.8 billion in proceeds of crude oil sales to the federation account. The NNPC responded, saying that no money was missing.

Following the discrepancy, a reconciliation committee comprising several governmental institutions was inaugurated to look into the claims and counter-claims. The committee found out that an estimated $10.8 billion was unremitted, while the CBN, at a hearing held by the Senate Committee on Finance in February 2014, stated that it could only confirm receipt of $47 billion out of $67 billion revenue by the corporation between January 2012 and July 2013.

As a result of the disparity in figures, the then finance minister recommended to the government that another forensic audit should be conducted on the NNPC. The report of this audit, conducted this time by PwC, another global big-name audit firm, uncovered that the total cash remitted into the Federation accounts concerning crude oil liftings was $50.81 billion and not $47 billion as earlier stated by the CBN and that the NNPC provided information on the difference leading to a potential excess remittance of $0.74 billion. The auditors, however, said there was still some form of duplicity for the period under review and recommended that the NNPC and NPDC refund $1.48 billion to the Federation Account.

In 2016, the Auditor-General of the Federation came out with another bombshell, informing the National Assembly that an official audit found out that the NNPC refused to remit the sum of $16 billion and that the corporation provided no explanation for the missing funds.

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The new NNPC

As mentioned repeatedly, the NNPC is now a new entity, as it is now known as Nigerian National Petroleum Company Limited (NNPC Limited). The transformation from the “old” NNPC to the “new” entity was formalised on July 19, 2022.

The new NNPC was birthed by President Buhari’s signing into law of the Petroleum Industry Act (PIA) in September 2021.

Speaking at the ceremony, President Buhari, who is also the Minister of Petroleum Resources, said NNPC Limited “will operate as a commercial, independent and viable National Oil Company (NOC) at par with its peers around the world”. He also stated that the company will now be accountable to over 200 million shareholders, inferring that it will now be controlled by Nigerians who will own shares in the company, rather than being controlled by the government.

The President further revealed that the new NNPC shall be free from institutional regulations such as the Treasury Single Account (TSA), Public Procurement, and Fiscal Responsibility Acts and that it will operate without relying on government funding.

Also speaking, Timipre Sylva, Minister of State for Petroleum Resources, disclosed that the NNPC will now operate as a profitable commercial entity and declare dividends to its shareholders, as well as demonstrate a higher level of performance and accountability to Nigerians.

Responding to questions from journalists after the event, Mele Kyari, Chief Executive Officer, NNPC Limited, said the transition means that Nigerians will “now (see) a private company” that is “a smarter, more responsive and much more accountable company that must act within the premises of all regulations that are in Nigeria for private companies”.

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Is the NNPC privatised or commercialised?

This is the multi-million dollar question that has dominated social media since NNPC Limited and has been asked by millions of Nigerians.

According to the Federal Government and its backers, the NNPC is a private entity, meaning it has been privatised. Privatisation is the transfer of government-owned shareholdings in a designated enterprise to private shareholders comprising individuals, groups, and corporate bodies. The statements by President Buhari and Minister Sylva about NNPC Limited being controlled by private shareholders and not the government boost the argument about the company being privatised.

In reality, however, NNPC Limited is still a government-owned entity. Even though it is no longer a public corporation (a legal entity created by a special Act of the Parliament for the administration of certain public programmes, with its capital provided by the government), it is still controlled by the government. The President still appoints the board and the executive management of the company, and it is a company still in the realm of the public sector. Therefore, it cannot be said to be fully independent, as claimed by the government.

The major difference is that NNPC Limited is now a commercial entity, which means that it is now more concerned about making profits, streamlining its costs and operations, and maintaining its books professionally. This is akin to commercialisation. Commercialisation is the process by which nationalised corporations are expected to fund themselves to become self-sufficient and make profits. In this form of business ownership, the government will retain ownership while the entity is expected to make a profit to remain in business,

The immediate aforementioned scenario is what is currently happening with NNPC. While it is still a self-sufficient company controlled by the government, it is expected that it will become fully privatised once it launches the process for its Initial Public Offer (IPO), which would lead to Nigerians purchasing shares in the company. It is expected that the NNPC, as stated by Kyari, will, henceforth, “pay our taxes, royalties and deliver dividends to our shareholders.”

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NNPC leadership

Chairman, Board of Directors:

  • Margery C. Okadigbo

Directors:

  • Ahmed Aliyu (Permanent Secretary Federal Ministry of Finance)
  • Pius O. Akinyelure
  • Henry Ikem-Obih
  • Tajudeen Umar
  • Mohammed Lawal
  • Lami Onayi Ahmed
  • Constance Onukwugha

Executive management

  • Mele Kolo Kyari – Chief Executive Officer/Director
  • Umar I. Ajiya – Chief Financial Officer/Director

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Gabriel is a trained political scientist, and a qualified and versatile communications professional who has worked as a journalist and Public Relations executive. He has a knack for content creation and development and is a keen digital native interested in all things good.
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