Op-ed: What commercializing Nigerian National Petroleum Corp means for Nigeria’s oil and gas industry
On July 19, 2022, the Nigerian government made an official announcement confirming the complete transformation of the Nigerian National Petroleum Corporation (NNPC) into NNPC Limited (NNPCL). NNPCL is a brainchild of the Nigerian Petroleum Industry Act (PIA) which was passed into law in August 2021 .
The NNPC was a state-owned and controlled corporation licensed to operate in the country’s petroleum industry which utilized the country’s fossil fuel and natural gas reserves by partnering with foreign oil companies. The new NNPCL, while still wholly owned by the State, is intended to operate as a fully commercial venture without government funding (besides the initial capitalization) or control and is expected to be regulated by the Companies and Allied Matters Act 2020 .
In addition, NNPCL will now declare dividends to shareholders while retaining 20% of profits to grow its business . NNPCL is expected to sometime in the future , invite the public to purchase shares to raise equity capital for the business of the company especially as it would no longer have access to state funds in line with the objective to commercialize the corporation.
It is also expected that NNPCL would eventually achieve trading status on global stock exchange markets like its counterparts, including Saudi Arabia’s Arabian American Oil Company (ARAMCO) Brazil’s Petróleo Brasileiro (Petrobras) to name a few. NNPCL will also no longer be concerned with issues of petrol pricing and subsidy, neither will it continue to remit funds into the Federation Accounts Allocation Committee (FAAC) such that the company funds can be used to further its business rather than issuing national payouts.
Yet, while the introduction of the NNPCL promises to be advantageous to the country’s energy industry, realistically speaking, there are certain challenges that need to be promptly and properly addressed for the new NNPCL to function effectively and achieve its objectives. To mention a few, continued government influence, NNPC’s transfer of liabilities to NNPCL, corporate governance issues are at the top of concerns.
Government influence concerns
Unlike its state-owned counter parts Saudi’s Aramco and Petrobras of Brazil, the former NNPC had a structure that largely depended on government funding thus making it less competitive and less attractive to global investors especially International Oil Companies (IOCs) who were uncomfortable doing business with the Corporation due to fears of undue government influence, grotesque policies and unnecessary bureaucratic delays. While the new NNPCL is promised to be fully independent of government control, it remains wholly owned by the government and its initial capital will be completely provided by the government per the provisions of the PIA . Section 53(5) of the PIA also provides that all shares of the company held by the government will not be transferable or mortgaged unless approved by the government and the National Economic Council. To own is to control in any business enterprise so it is unclear how government influence would be avoided in NNPCL when it is wholly owned and capitalized by the government. A better approach would be to provide for 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 balance measures in place to avoid arbitrariness.
Furthermore, the PIA incorporates 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) under discuss states as follows:
Upon incorporation of NNPC Limited under section 53 of this Act, employees of NNPC and its subsidiaries shall be deemed to be employees of NNPC Limited 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 entitlements 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. It is understandable that the law makers were wary of leaving the employees of the former NNPC redundant upon the transition. However, the automatic retention of former NNPC staff is counterproductive because NNPCL essentially inherits its all of its predecessor’s employees, some of whom are controversially unqualified and redundant thereby stunting its growth potential.
The PIA goes further to provide for the appointment of a Board of the NNPCL whose appointment shall be done by the President of the country . Another interesting provision is Section 58(2)(r) which provides that the Board should among others consist of ‘six (6) non-executive members with at least 15 years post-qualification cognate experience in petroleum or any other relevant sector of the economy, one from each geopolitical zone’ effectively politicizing the appointment of these individuals to the board as opposed to appointments strictly based on merit. Perhaps realizing that the previous provisions on appointment to the new NNPCL Board may be inconsistent with the new NNPCLs ‘no government influence’ mandate, the law makers included a proviso in Section 58(5) stating that the provisions of the section would only apply where NNPCL remains wholly owned by the government after which the composition would then be determined by the new shareholders after sale of shares to the public. This may appear to resolve the evident problem, however the shares of the new NNPCL will not be made available to the public until an unknown time in the future which is not specifically stipulated under the Act.
Although NNPCL’s Chief Executive Officer intimated that the company would be ready for an Initial Public Offering (IPO) mid 2023, this is not set in stone as factors such as governmental 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 6 months timeline stipulated in the PIA. In any case, even if there are no delays in the estimated timeline for the sale of shares to the public, the IPO process, appointment of new Board members and other corporate procedure could take months at the earliest to effect. This means that the NNPCL would still be run by old NNPC officials pending formalization of all corporate procedures thus making the new NNPCL ‘government’ run for at least the foreseeable future. Effectively, this results in NNPCL failing its first mandate as a fully commercialized company i.e to be free of government influence and control.
Transfer of liabilities
Another concern is the provision of the PIA which transfers liabilities from the old NNPC to the new NNPCL. This is provided for under Section 54(1):
the Minister of Petroleum and the Minister of Finance shall within 18 months of the effective date determine the assets, interests and liabilities of NNPC to be transferred to NNPC Limited or its subsidiaries and upon the identification, the Minister shall cause such assets, interests and liabilities to be transferred to NNPC Limited.
Further provisions of the section discuss issues of assets that would remain with NNPC or the government, actions that may be brought against NNPCL, NNPC or the government etc. However, the mechanism for the determination of which assets and liabilities would pass on to NNPCL and which would be dealt with by the old NNPC/Government are not stipulated in the PIA, leaving much to the discretion of the Minister for Petroleum and Finance with some assistance from the Attorney General of the Federation in peculiar circumstances. Section 54(2) states as follows:
Assets, interests and liabilities of NNPC not transferred lo NNPC Limited or its subsidiary under subsection (1), shall remain the assets, interests and liabilities of NNPC until they become extinguished or transferred to the Government and six months following the determination under section 54 (1) of this Act, the Minister, the Minister of Finance and the Attorney-General of the Federation shall develop a framework for the payment of the labilities not transferred to NNPC Limited and if such determination for which assets, interests and liabilities to be transferred has not been concluded within the stipulated period of 18 months, all the assets, interests, liabilities of NNPC is deemed to be transferred to NNPC Limited after 18 months from the effective date.
A spruce way to deal with the inherited assets and liabilities from NNPC would have been to make provision for the creation of an SPV to specifically deal with these issues, especially with respect to the liabilities rather than burden the NNPCL with the old NNPC’s mammoth liabilities in its formative years when it should be focused on its growth. It is hoped that the Ministers would devise suitable mechanisms to deal with these in the most efficient and least invasive way possible.
Corporate Governance considerations
As a corporate entity, NNPCL will be governed by Nigeria’s corporate laws as enshrined in the Companies and Allied Matters Act (CAMA). Of particular importance are some of the corporate governance principles contained in CAMA which are there to ensure international best practice in the day-to-day operations of Nigerian corporations including provisions on separations of the role of Chairman and Chief Executive Officer, appointment of Independent Directors, limitation of multiple directorships, disqualification from appointment as a director, disclosure provisions among others. It is expected that upon the IPO of NNPCL, it would become a Public Limited Liability Company (Plc) and thereby subject to more stringent corporate governance and disclosure policies even beyond the statutory requirements under CAMA .
Some of the corporate governance sections under CAMA include provisions which state that every public company must have at least three (3) independent directors appointed in line with the required qualifications stipulated;  Directors may not serve on the board of more than five (5) public companies at a time; disqualified directors now include directors that were removed from the Board;  and attendance of Board meetings is now a factor for re-election . On its disclosure obligations, NNPCL is expected to ensure that information on the Memorandum and Articles of Association of the company is accessible to the public and potential investors. The shareholding structure , shareholders , authorized share capital, exact date of incorporation e.t.c all need to be fully disclosed to the public to ensure compliance with the provisions of the PIA and CAMA. Records of the minutes of the meeting where the first directors are appointed, board resolutions for the nomination of the Chairman e.t.c all need to be public knowledge to ensure complete transparency and fulfil all international best practice disclosure obligations.
Worthy of note is Section 60-63 of the PIA which attempts to cater for some corporate governance concerns of the new NNPCL. However, the provisions seem to be merely advisory and no liabilities are imposed for any failure to carry out such responsibilities. Thus, recourse is to be had to CAMA and its regulatory body, the Corporate Affairs Commission (CAC) for the enforcement of these provisions in addition to the provisions of CAMA.
On the whole and having considered some salient issues with respect to the new NNPCL, there are some who believe that the transformation of the NNPC into NNPCL is merely a name change and that there would be no material difference from the old structure especially as the NNPC has operated as a highly institutionalized corporation for the last 45 years. Whether they are right or wrong, only time will tell.
However, it is important to remain optimistic that with the right corporate administration, NNPCL can create an environment that would not only grow the country’s economy but also attract both local and foreign investment thereby making it a major player in the global energy market.
 Section 53(1) of the PIA states that ‘The Minister shall within six months from the commencement of this Act, cause to be incorporated ender the Companies and Allied Matters Act, a limited liability company, which shall be called Nigerian National Petroleum Company Limited (NNPC Limited)’
 Section 64 of the PIA lists the objectives of the NNPCL.
 Section 53(7) of the PIA
 NNPCL’s Chief Executive Officer at the official announcement of the new NNPCL intimated that the company would be ready for an Initial Public Offering by mid 2023. Retrieved from https://bit.ly/3c1Hk1V on August 1, 2022.
 Section 53(2-4) of the PIA states that ‘The Minister shall at the incorporation of NNPC Limited, consult with the Minister of Finance to 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 the Government shall subscribe and pay cash for the shares (3) Ownership of all shares in NNPC Limited shall be vested in the Government at incorporation and held by the Ministry of Finance Incorporated and the Ministry of Petroleum Incorporated in equal portions on behalf of the Federation and the Ministry of Petroleum Incorporated is incorporated under the provisions of the Eighth Schedule to this Act (4) The Ministry of Finance Incorporated and the Ministry of Petroleum Incorporated in consultation with the Government, may increase the equity capital of NNPCL.
 Section 1 of the PIA provides that the property and ownership of petroleum within Nigeria and its territorial water, continental shelf and exclusive economic zone is vested in the Government of the Federation of Nigeria.
 Section 58(2) of the PIA.
 That is, Nigerian Code of Corporate Governance (NCCG) issued in 2018 by the Financial Reporting Council of Nigeria (FRCN) and the Securities Exchange Commission Guideline’s (SCCG) and revised reporting template issued in 2021.
 Section 275 of CAMA 2020.
 Section 283(c) of CAMA 2020.
 Section 284(2) of CAMA 2020.
 In compliance with section 53(2) which provides that The Minister shall at the incorporation of NNPCL consult with the Minister of Finance to determine the number and nominal value of the shares to be allotted, which shall form the initial paid-up share capital of NNPCL and the Government shall subscribe and pay cash for the shares.
 In compliance with Section 53(3) of the PIA which states that ownership of all shares in NNPCL shall be vested in the Government at incorporation and held by the Ministry of Finance Incorporated and the Ministry of Petroleum Incorporated in equal portions on behalf of the Federation and the Ministry of Petroleum Incorporated is incorporated under the provisions of the Eighth Schedule to this PIA.