NEWS ANALYSIS: Four things to know about NNPC Limited
By Babatunde Akin-Moses
- NNPC is taking on this new legal status (it is changing from a government agency to a limited liability company), thanks to the Petroleum Industry Act (PIA) which was passed in 2021. The PIA provides the legal basis for this transformation, making the NNPC Limited (NNPCL) Africa’s largest National Oil Company today.
- NNPCL has not been privatised…at least not yet. It’s just been converted into a limited liability company which is solely owned by the Federal Government. The idea is that NNPCL should run as a commercial entity, driven to make profits like any other company.
- According to its management, NNPCL will eventually be listed on the Nigerian Exchange (NGX), to enable Nigerians and investors own stake in NNPCL. When this happens, we can say NNPC has been privatised. Interestingly, the rules for listing as a public company in Nigeria can be tricky. For example, companies intending to list, require a certain level of pretax profit under certain standards. Luckily for NNPC, it turned a profit in 2020, and its management says it was also profitable in 2021 (the financials aren’t public yet). In any case, NNPC can probably still list under a category where being profitable isn’t necessary (provided other listing conditions are met of course).
- NNPCL says it will continue to carry out its current services for the FG, only that it will now charge fees to the government since it is a separate entity. The company says it does not have the power to discontinue subsidy on its own, as it is now a company that is distinct from the government. Since the NNPC was commercialised to make it more efficient financially and operationally, I feel the introduction of a fee (along with continued subsidy expense) that wasn’t there before is a contradictory move. Especially when it doesn’t look like other expenses have been cut. In any case, we will see how it plays out.
NNPC has not done great financially over the years. It seems to have only been profitable in 2 (or 3) years, out of its 45 years of existence. Seeing that NNPCL is now free of the obligations of a government agency like Treasury Single Account (TSA), Fiscal Responsibility Act (FRA), etc, it will need very solid corporate governance oversight for checks and balances.
With the right team, strategy and actions, this might be the first step on our way to chilling with other state owned oil giants like Sinopec and Saudi Aramco in the future
