The NNPC limited: The game-changer? By Tolu Aderemi, CIArb (UK)

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    Nigeria’s President, Muhammadu Buhari GCFR on Tuesday July 19, 2022 officially unveiled the new identity of the Nigerian National Petroleum Company Limited (“NNPC Limited”). This landmark event transforms the former State-owned corporation into a commercially-focused private oil & gas entity, now to be governed by the Companies and Allied Matters Act (‘CAMA’).

    The journey of the transition began six (6) months sequel to the enactment of the Petroleum Industry Act 2021 (“PIA/Act”) with an obligation of the Minister of Petroleum to incorporate a new entity to be known as Nigeria National Petroleum Company Limited (‘NNPC Limited’). This company, which will be governed by the Companies and Allied Matters Act (‘ÇAMA’), is expected to operate as a commercially-driven profitable oil & gas company, with accountability, transparency and technical competence at the center of its construct. The Ministers of Petroleum and Finance have already determined the number and valuation of the shares of this new entity. Performing and useful assets in the NNPC will devolve into the new entity by operation of law and the Nigerian government is expected to have subscribed to and paid for all the shares by virtue of the transfer of all its oil assets to the company. This shall form the initial paid-up share capital of the new entity.

    On September 22, 2021, the NNPC Limited was incorporated and on July 2, 2022, Nigeria’s President and the Minister of Finance, Budget and National Planning, transferred oil assets earlier held by the NNPC to NNPC Limited. This is in compliance with provisions of the Act which mandates the Ministers (of Petroleum Resources and Finance) to, within a period of 18 months, determine the assets, interests and liabilities of NNPC and cause the same to be transferred to NNPC Limited or its subsidiaries.

    Similar to Saudi Aramco, the largest oil & gas company by revenue, the NNPC Limited 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 financial statements and reward its shareholders with dividends. The new NNPC will no longer have recourse to budgetary allocations to fund its operations and neither will it be expected to remit monies into the Treasury Single Account or comply with provisions of the Public Procurement Act or the Fiscal Responsibility Act.

    Key Highlights

    1. Shares of NNPC Limited shall be held by the Ministries of Petroleum Incorporated (MPI) and Finance Incorporated (MFI) equally on behalf of the Federation (Federal, State, Local Governments). These shares cannot be divested, transferred, assigned, mortgaged or pledged unless approved by the Federal Government and endorsed by the Economic Council on behalf of the Federation.
    1. The new NNPC will continue to hold proprietary interests in assets transferred to it. It shall pay all fees, rents, royalties, profit oil share to 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 nonetheless sell on behalf of government but retain 30% of the proceeds as management fees. In the overall, the new entity shall retain 20% of its earnings for business growth.
    1. The Nigerian Fiscal Responsibility Act and the Public Procurement Act shall not apply to the operations of the NNPC Limited even though it (the NNPC Limited) 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.
    1. As far as assets/liabilities are concerned, the NNPC Limited is to warehouse useful assets already determined by the Ministers of Petroleum and Finance and in conjunction with their counterpart in the justice department (the Attorney General of the Federation/Minister of Justice), develop a framework in determining how the assets, interests and liabilities not transferred will be administered. The performing assets and liabilities will include the JV/PSCs/Other interests, NNPC employees and all pension obligations etc. All inherited subsisting contracts, bonds, documents, securities, and instruments of NNPC shall become effective and enforceable against and in favor of the new entity; ditto for all pending litigations and proceedings against NNPC.
    • Any asset(s), interest(s), or liability(ies) not transferred, will remain with the NNPC until extinguished or transferred to government.[1] NNPC will cease to exist after all assets and liabilities (in it) has been transferred or extinguished. Prior to the extinction of NNPC, NNPC Limited will be engaged as an agent to midwife the administration of all outstanding assets, interests and liabilities of the NNPC. This service will be at an agreed fee to the NNPC Limited. However, any debt related to outstanding cash calls under a joint venture arrangement and which has been transferred to the NNPC Limited, shall automatically become the debt of NNPC limited. Where not transferred,  it becomes the liability of government.
    • For business efficiency, NNPC Limited and its contracting parties operating Joint Operating Agreements (JOAs) in the upstream, may voluntarily restructure their relationship into an Incorporated Joint Venture (IJV)[2]. This model portrays NNPC Limited an independent entity with strong commercial orientation and transparent operations as its focus. 
    • NNPC Limited 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.

    Conclusion

    The enactment of the Petroleum Industry Act (‘PIA’) and the birth of the NNPC Limited is a testament of Nigeria’s preparedness to effectively compete in the global oil & gas space. The demands of transparency, accountability and demonstration of technical competence will however be strong indications of such readiness to take on the world.    


    [1] Section 54(3)

    [2] Section 65

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