The Petroleum Industry Act And The Transition Of NNPC Into A CAMA Company.

By Hassan Sadisu Imam

ABSTRACT   

The Nigeria’s President Muhammadu Buhari GCFR  on 19^th July 2022 officially Unveiled the new identity of the NNPC Limited. This Landmark event transformed the fomer state-owned corporation into a commercially focused private oil and Gas entity now to be governed by CAMA Act. The Journey to the transition began 6 Months Sequel to the Enactment of Petroleum Industry Act (PIA) 2021 with an Obligation of the Minister of Petroleum to Incorporate a new entity to be known as Nigeria National Petroleum Company Limited (NNPC LIMITED).

One Month to its Transition to a Commercial Entity the (NNPCL) has Executed the Agreement for the Renogotiated Production Sharing Contracts (PCS) with Five Oil Mining Leases (OMLs). When Consummated its believed the Agreement would Unlock over $5billion in revenue to the government from the Country’s Oil resources. These renewed (PSCs) would provide several benefits such as Improved Long-term relationship with contractors, Elimination of Contractual Ambiguities especially Gas terms to enable contract renewal among others. The NNPCL will now operate as a commercially- driven private company Limited by Shares and will be expected to pay taxes chargeable to its income, file audited annual financial statement and reward its shareholders with dividend. The new NNPCL will no longer have recource to budgetry allocation to fund its operation and neither will it be expected to remit monies into the treasury single account or comply with the provisions of public procurement Act or the Fiscal Responsibility Act.

INTRODUCTION

The Corporate Affairs Commission CAC had on September 21 2021 completed the Incorporation of the NNPCL in accordance with the provisions of the Petroleum Industry Act (PIA) 2021. Section 53(2) of the PIA requires the Minister of Petroleum Resources to cause for the Enactment of the NNPCL in consultation with the minister of Finance on the Nominal Shares of the Company. The NNPCL was floated with an Initial Capital of 200 billion making history as the company with the highest share capital in the country. There was also an in-house Committee backed by Globally acclaimed Consultants (Mckinsey, KPMG, PWC, Wood Mckenzie and Olaniwun Ajaji, LP) to define and Implement the transition roadmap. The roadmap include valuation of the assets and liabilities, development of corporate governance frameworks, rebranding of NNPC to NNPCL and change of Management.

The transition of NNPCL Into an entity that would be regulated in line with the provisions of CAMA 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 NNPC transiton is that its expected to become a commercially-Oriented and profit-driven national petroleum company that would be the envy of all players in the sector. The NNPCL would be managed like a private sector enterprise and unlike previously when it was owned by the government, the NNPCL is espected to be more efficient in its operations, this will eneble the company to effectively maximize returns on investment for the 200million Nigerians, ensure returns for shareholders and pay taxes to the government. As a commercial entity the NNPCL would just be service provider to the government rather than shouldering the responsiblity of importation and allowing it hurt the company’s bottom line.

Despite being a major source of revenue, Nigeria’s oil sector sadly lags behind other Sectors in terms of GPD contribution to the detriment of the economy. over the years Nigeria’s economic performance had been unimpressive and hadn’t matched other major oil producing OPEC countries. The PIA if implemented diligently will help facilitate Nigeria’s economic development by attracting and creating investment opportunities for local and international investors. Thus, under the new dispensation the NNPCL will no longer be under the total control of the government but will henceforth operate like other business concerns in the oil industry such as Shell, Chevron, Seplat, with the sole aim of making profit.

FOCAL POINTS.

• The Nigerian Fiscal Responsibility Act and the Public Procurement Act shall not apply to the operations of the NNPCL eventhough the NNPCL is now vested with the concession of all production sharing contracts (PSCs), Profit Sharing Ventures as well as Risk Service Contracts on behalf of the federation.
• As far as the Assets and Liabilities are concerned the NNPCL is to warehouse useful assets already determined by the Ministers of petroleum and Finance and in conjuction with their counterparts in the justice department (The AG of the Federation/ Minister of justice) and also develop a framework in determining how assets, interests, and liabilities not transfered will be administered. The performing assets and liabilities will include the JV/PSCs, other interest, NNPC Emloyees and all pension obligations, All inherited subsisting contracts, bonds, documents, securities, and instruments of NNPC shall become effective and enforceable against and in favour of the new NNPCL and for all pending litigations and proceedings against the NNPC.
• Shares of the NNPCL shall be held by the ministries of petroleum incorporated (MPI) and Finance Incorporated (MFI) equally on behalf of the federation. These shares can not be divested, transfered, assigned, mortgaged or pledged unless approved by the federal government and endorsed by the Ecoomic Council on behalf of the Federation.
• The new NNPCL will continue to hold proprietary interest in assets transfered to it, it shall pay all fees, rents, royalties, profit oil shares to the Government like every other oil company. it shall lift and sell royalty oil and tax oil on behalf of the upstream regulatory Commission for an agreed fee whilst for matters relating to profit oil and profit gas it shall nonethless sell on behalf of the government but retain 30% of the proceeds as management fees. In the overall the new entity shall retain 20% of its earning for business growth.
• Any assets, interest or liability not transfered will remain with the NNPC until extinguished or transfered to the government. NNPC will cease to exist after all assets and liabilities in it has been transfered or extinguished. Prior to the extinction of NNPC the NNPCL will be engaged as an agent to midwife the administration of all outstanding assets, interest and liabilities of the NNPC, This service will be at an agreed fee to the NNPCL. However, any debt related to outstanding cash calls under a joint venture agreement and which has been transfered to the NNPCL shall automaticallty become the debt of the NNPCL, where not transfrered it becomes the liability of the government.  

• For business efficiency NNPCL and its contracting parties operating joint operating agreement (JOAs) in the upstream may voluntarily restructure their relationship into an incorporated join venture (IJV), This model portrays NNPCL as independent entity with strong commercial orientation and transparent operatiomns as its focus. Lastly, NNPCL Shall now have the right to natural gas production, manage all PSCs at an agreed fee, ensure energy security for Nigeria and become a supplier of last resort. 

CHALLENGES THAT NEED TO BE ADDRESSED FOR THE NEW NNPCL TO FUCTION EFFICIENTLY.

1. i. Transfer of liabilities:

The provisions of PIA which transfers liabilities from the old NNPC to the new NNPCL, The provision under section 54(1) provides that

The Minister of petroleum and the minister of finance shall within 18months of the effective date determine the assests, interests, and liabilities of the NNPC to be transfered to the NNPCL or its subsidiaries and upon the identification, the ministers shall cause such assets, interests and liabilities to be transfered to the NNPC Limited.    

The provision of the section did not discuss the assests that would remain with the NNPC or the government, Actions that may be brought against the NNPC, NNPCL or the government, Thus, the mechanism for the determination of which assests and liabilities would pass on to the NNPCL and which would be dealt with by the old NNPC or government are not stipulated in the PIA leaving much to the discretion of the minister of petroleum or  Minister of finance with some assistance from the the AG of the federation in  peculiar circumstances.

Furthermore, Section 54(2) state as folows

       Assests, interest and liabilities of NNPC not transfered to NNPCL or its subsidiaries under subsection (1) shall remain the assests, interestband liabilities of NNPCL until they became extinguished or transfered to the Government and six months following the determination under section 54(1) of this Act the minister of petroleum, Minister of finance and AG of the federation shall develop a framework for the payment of the liabilities not transfered to the NNPCL and if such determination for which the assests, interest and liabilities to be transfered has not been concluded within the stipulated period of 18 months, all the assests, interest and liabilities of the NNPC is deemed to be transfered to the NNPCL after 18months from the effective date.  

A spruce way to deal with the inherited assest, interest and liabilities from the NNPC would have beeen to make provisions for the creation of Special provision to specificallly deal with these issues, especially with respect to liabilities rather than burden the NNPCL with the old NNPC’s mammoth liabilities in its formative years when it should focus on its growth. its hoped that the ministers would devise suitable mechanism to deal with these in the most efficient and least invasive way possible.

ii Government Influence Concerns.

The new NNPCL was promised to be fully independent of government control but it remains wholly owned by the government and its initial capital was provided by the government. Section 53(5) of the PIA also provides that all the shares of the company held by the government will not be transferrable or mortgaged unless approved by the National Economic Council.

Thus, to own is to control any business enterprise so its unclear how  government influence will be avoided in NNPCL. A better approach would be to provide a mechanism that splits the shares between the government and the public in a particular ratio such that while the government may understandably retain controlling shares to protect national interest, there are checks and balances measures in place to avoid arbitrariness.

Furthermore, the PIA incorporate an automatic transfer of all existing employees under the former NNPC into the new NNPCL with no vetting procedure for these employees in place.

Section 57(1) provides that

Upon incorporation of NNPCL under section 53 of this Act, employees of NNPC and its subsidiaries shall be deemed to be employees of NNPCL on terms and conditions not less favorable than that enjoyed prior to the transfer of service and shall be deemed to be service for employment-related entitlment as specified under any applicable law.

This means that NNPCL will have substantially the same employees as the former NNPC which is tantamount to pouring new wine into old wineskins. its understandable that the law makers were wary of leaving the employees of the former NNPC redundant upon the transition. However, the automatic retention of the former  NNPC staffs is counterproductive because NNPCL is essentially inheriting its all predecessors employees some of whom are controversially unqualified and redundant thereby stunting its growth potentials.

Another interesting provision is Section 58  & 59 which provides that the board should among others consist of six non-executive memebers with atleast 15years post-qualification cognate experience in petroleum or any other relevant sector of the economy, one for each geo-political zone, effectively politicizing the appointments of these individuals as opposed to appointment strictly based on merit. Although the NNPCL chief Executive Officer affirmed that the company would be ready for an initial public offering (IPO) mid 2023, this is not set in stone as factors such as government and bureaucratic delays in organization may extend this timeline. Afterall it did take almost a year to fully effect the provision to incorporate the new NNPCL as opposed to the six months timeline stipulated by the PIA.

In any case even if there are no delays in the estimated timeline for the shares to the public, the IPO process, appointment of new board memebers and other corporate procedure could take months. that means the NNPCL would still be run by old NNPC officials pending formalization of all corporate procedures thus making the NNPCL “Government run” for atleast the foreseeable future. Effectively this result in NNPCL failing its first mandate as a fully commercialised company. i.e to be free of government influence and control.

CONCLUSION

While the country was waiting for PIA Nigeria’s oil and gas industry lost about $50billion worth of investments. Infact, between 2015-2019 KPMG states that only four percent of the $70billion investment inflows into africa’s oil and gas industry came to Nigeria eventhough the country is the continent’s biggest producer and largest reserves. but all these had become past with the new entity. The NNPC of old regime where some characters thought access to political power and influence granted them automatic control over the resource management company, such a system would not be acceptable under the new mode of doing business. The NNPCL is expected to do things differently to attract investment, promote innovation, eliminate corruption and in-efficiency and ensure clarity.

it must measure up like SAUDI ARABIA’S ARAMCO, and BRAZIL’S PETROBRAS. What is also new is that while the NNPCL may still have relationship with the government, the same government can no longer have control over the staffing of the NNPCL. The control of the minister of finance and petroleum will be limited. As a commercial entity the NNPCL is beholden to its shareholder, competence and quality will determine recruitment. The old practice of anyone in government sending notes for NNPC allocation or position  would be untenable under the new arrangement, nobody can send notes anyhow. The federal government would be entitled stricltly to return on its shares.

As a CAMA company Nigerians can now sue the company, so what Nigerians are asking is absolute transperency and  accountability in line with global best practices and the Goals of the Extractive Industries Transperency Initiative (EITI) with over 50 countries including Nigeria pledging allegiance.

REFERENCES

1. NNNPC Transition: A New Dawn For a New Era by Ruqayyah Saidu Published on 3^th August 2022.
2. As National Oil Company Transforms Fully to Commercial Entity. https://www.google.com/amp/s/www.thisdaylive.com/index.php/2022/07/19/nnpc-transition-group-cfo-expected-to-intensify-internal-checks-control/amp/
3. https://african.business/2022/07/apo-newsfeed/history-made-as-nigerian-national-petroleum-company-nnpc-transitions-into-a-limited-liability-company-ensuring-corporate-governance-and-long-term-sustainable-value.

4.The NNPCL: The Game Changer by Tolu Aderemi Published 31^th July 2022.

5. Nigeria: Renewing Nigerias’ Hope in New NNPC Published on 26^th July 2022. https://allafrica.com/stories/202207260415.html

6.https://statehouse.gov.ng/news/new-nnpc-will-guarantee-national-security-president-buhari-declares/

7. NNPC: New Status, Old Problems July 25, 2022 https://hallmarknews.com/nnpc-new-status-old-problems/

8.https://www.theheritagetimes.com/nigeria-nnpc-ltd-to-supply-dangote-refinery-crude-oil-for-20-years/

9.https://thedefenderngr.com/nnpcl-a-transition-long-overdue-bmo/

10.Unveiling a New NNPCL With High Expectations: The Guardian Newspaper Published on July 19, 2022.

HASSAN SADISU IMAM is a Lawyer who graduated from the prestigious Ahmadu Bello University Zaria Kaduna Nigeria; He has a keen interest in Constitutional Law and Various aspects of Commercial Law. He has authored many articles on diverse contemporary legal issues; He can be reached via;

Tel: 09023945495 , Email: hassanlimanesq@gmail.com