Chineme Okafor, writes that the ‘new’ company that has emerged from the old Nigerian National Petroleum Corporation could do well for itself, and make Nigeria the major winner of its metamorphosis
If the ‘new NNPC’ Limited longs to be unlike its predecessor, the choices before it are clear but not quite simple: it has to do ‘positive politics’ and stay brave in its choices. If it does these, it stands a great chance at gifting Nigeria another globally acclaimed energy business trophy after the hugely successful Nigeria LNG Limited.
Primarily, this piece concerns itself with the potentials for extensive value creation with the new company that comes from the now defunct NNPC. It argues that there is a model – the NLNG – for the new company, and that this model has so far leveraged ‘positive politics’ and brave choices to create opportunities and values for Nigeria. The ‘new NNPC’ therefore does not need to re-invent the wheel; it could as well ‘plug and play’ this for profitability.
But first, from the paradigm of political scholars, politics anywhere and time concerns itself with power distribution in the society which also includes the distribution of opportunities and values. This piece thus conceptualizes doing ‘positive politics’ to embody not just power distribution as the case may be, but the progressive processes desirable to drive the operations of the ‘new NNPC’ to profitability.
These processes will mostly reflect on the new company’s governance choices – embracing a commercial-oriented disposition; distribution of opportunities – independence of its strategic business units (SBUs) to create values from brave choices; and social influences – posture as a conscientious entity fulfilling its obligations such as tax remittances to the Nigerian state.
It then implies that simply embracing the new law – Petroleum Industry Act 2021 (PIA) may not be a sure proof that the ‘El Dorado’ Nigeria may be seeking with the new NNPC is within its reach but choosing to just become and operate as a conscientious going concern could lead the new company to profitability and give Nigeria sustainable value from her hydrocarbon resource. Nigeria is not without caches of ‘reformative laws’ anyway, the PIA inclusive, however the ‘new NNPC’ should use it to get it right, if it does not, it would mean that Nigeria has wasted well over a decade of its time and energy getting the oil sector reform law passed.
Fortunately, Mele Kyari, its head who has midwifed this transition, is reputed for being brave with difficult choices. For example, he against the ‘usual playbook’, opened the financial books of the unprofitable old behemoth – NNPC – for the first time in 2020 after about 43 years of its operation, and Nigerians were able to confirm some of the thoughts they held about the corporation’s business choices, some of which were indeed unprofitable, irrational and nothing to be proud of when compared with its peers.
Kyari, also nudged the old NNPC towards more levels of transparency when it signed up to the global Extractive Industries Transparency Initiative (EITI) openness framework which expects that it will ‘promote understanding of natural resource management, strengthen public and corporate governance, reduce corruption, and provide data to inform greater transparency and accountability in the oil, gas and mining sectors.’ So, he should if kept in charge, be able to get the ‘new’ company to begin to do ‘positive politics’ and stay brave in its choices. If not, he should set the ball rolling for a difficult but worthwhile path.
What is keenly expected?
As soon as the PIA became a law and planned reforms were enunciated, Nigeria’s Corporate Affairs Commission (CAC) reportedly incorporated the NNPC Limited in September 2021. The government also signed off its commencement and formally launched the company in July 2022.
Section 53(1) of PIA 2021 had mandated that the petroleum resources minister instigate the incorporation of the NNPC Limited within six months of the PIA enactment. This was to happen in consultation with the minister of finance, specifically as it concerned the nominal shares of the company.
Section 54(9) of the law also provided for what the initial capitalisation of the NNPC Limited should be, and which is that it will not be less than its financial requirements to effectively discharge its commercial duties and deal with the obligations and liabilities transferred to it.
Additionally, the PIA mandates the ‘new NNPC’ to do its businesses on commercial terms as supported by the country’s Companies and Allied Matters Act (CAMA). It will thus operate strictly on commercially viable basis, without depending on government for financial supports.
The company will declare dividends to its shareholders and retain certain percentage of its incomes – about 20 per cent – to grow its businesses, in addition to other self-sourced funds. This will clearly move the ‘new’ entity within the band of living out the goals for which there were repeated calls for the reform of its predecessor.
Capturing this, Kyari explained in a recent television interview, “what that means is that the NNPC must now look for financing without recourse to the state. And indeed, the law is very clear that we will have no recourse to public funds.”
He also mentioned that the ‘new’ company will no longer depend on the national parliament to debate on and approve its budget mostly for its joint venture cash calls contribution, amongst other obligations. Having to do without the often-illogical bureaucracies of the parliament where different forms of arm-twisting had become a norm, would also buoy the company’s capacity and commitment to do positive politics, and pursue profitability.
“We’re already on the positive trend,” Kyari said in the television interview, adding that, “by the middle of next year, I’m very, very confident that this company will be in a place to say we’re ready for IPO [Initial Public Offers], and it will be the decision of the nation to go private completely in the sense that we can now sell their equity, which is different from being owned by the generality of Nigerians.”
So, there are many expectations but the ‘new NNPC’ is simply expected to at least become a mirror of what the NLNG is – value-oriented. This piece has advisedly used this example due to its ‘local’, palpable, and not out of reach context. A good number of Nigerians at least know one or more value-based stories attached to the NLNG.
Who would be winners?
With the principles of the PIA and resolve to be different from its predecessor, the ‘new NNPC’ could begin fresh, turn the corner, and open itself for value creation and associated accolades just the way the NLNG has done it over the years of its operation. With such posture, it will make Nigeria the biggest winner of its transformation from an unsustainable to a value-based, profit-making company. Its impacts thus on Nigeria’s oil industry – upstream, midstream, downstream – could be far-reaching.
The NLNG is consistently celebrated on the strengths of its sustainable profitability and fine business processes. This happens even with the old NNPC holding a 49 per cent shareholding in it for Nigeria; the new company could leverage first-hand the strong competitive drive of the NLG to become profitable.
With the new NNPC, the relationship with NLNG would be enriched further, each benefiting from the new drive and evolving business processes. Owing to the shareholders’ arrangement, at the senior management level, there are two executives, the Managing Director (Shell) and the Deputy Managing Director (NNPC). The others are General Managers with the following composition: Shell (1), NNPC (3), Total Energies (1) and NLNG Direct Staff (4). By this arrangement, the sharing of critical skills and knowledge is guaranteed and will even count more for NNPC as it enters a new era.
For context though, it is perhaps important to state some of the profitability milestones that NLNG has recorded since it began operating in 1999, and which could be the story of the new NNPC if it adapts the model. It has maintained its production of 22 metric tonnes per annum (mtpa) of Liquefied Natural Gas (LNG), and 5mtpa of Natural Gas Liquids (NGLs) from its six trains plant complex on Bonny Island, and from which it has reportedly generated more than $100 billion in revenue since 1999.
It has reportedly paid about $18 billion as dividends to the federal government of Nigeria through the old NNPC, in addition to $15 billion paid for feed gas purchases to the government. Another $9 billion have been paid as taxes in the forms of Companies Income Tax (CIT), tertiary education tax, withholding tax and Value Added Tax (VAT) by the NLNG, as well as N51 billion worth of pay as you earn (PAYE), regulators’ levies and fees to governments across tiers in Nigeria.
Further on the value of NLNG to Nigeria, the company has remained quite influential in the country’s domestic Liquefied Petroleum Gas (LPG) market, supplying about 40 per cent of the market demand with all its LPG production reserved for the market. With its Train-7 line which is expected to attract an estimated $10 billion worth of investment when completed, the NLNG will raise its capacity
from 22mtpa to 30mtpa, and this would come handy with the growing global demand for LNG.
Ultimately, if the new NNPC continues the path already threaded by NLNG, it would gift to Nigeria another energy operator, able to earn value and accolades enthroning and implementing fine processes. Coming even at a time when global energy security discourse has become intense, and demanding of fine and penetrative players, the new NNPC could link finely with NLNG to make the most of Nigeria’s vast natural gas reserves, of which 200 trillion cubic feet (TCF) is proved while 600TCF is scoped to be proven. Gas is the preferred alternative to fossil, making the expansion drive of the NLNG (Train-7) interesting. Demands for more feedstock gas and products – LNG, NGLs, LPG – will be high, and a well-run NNPC will be indispensable. Working with upstream companies to bring more gas to support Nigeria’s gas monetisation drive amongst other benefits from its other operations is one example of the kind of future before a well-run NNPC.
