Will states lose out as NNPC positions for IPO?
Nigerian National Petroleum Company Limited (NNPC) is owned by the federation, but all shares of the incorporated NNPC are vested in the ministries of oil and finance, a structure that raises concerns about state interests as the company considers offering their actions to the public. .
Passed last year, the Petroleum Industry Act (PIA) provides that ownership of NNPC shares will be vested in the government upon incorporation and held by the Ministry of Finance Incorporated ( MoFI) and the Ministry of Petroleum Incorporated (MoPI) in equal shares. on behalf of the Federation.
Before the PIA became law, state governments, through the Nigerian Governors Forum (NGF), had kicked the structure. They recommended that since the corporation is owned by all three levels of government, the newly incorporated entity (NNPC Limited) should be owned by a vehicle that “owns the interest of all three levels of government.”
They argued that the institution that is positioned to carry out this mandate is the Nigerian Sovereign Investment Authority (NSIA).
Many stakeholders have praised the NSIA’s ownership structure. The NSIA Act, which created the institution in 2011, empowers the organization to receive, manage, and invest funds in a diversified portfolio of medium- and long-term assets on behalf of the Federal Government, state governments, the Federal Capital Territory ( FCT), and Local Government Area Councils in preparation for the eventual depletion of Nigeria’s hydrocarbon resources.
To give effect to the mandates, the NSIA established three main funds: the Stabilization Fund, the Future Generations Fund and the Nigerian Infrastructure Fund.
The role of the Stabilization Fund is to provide budget support in times of economic stress; the Future Generations Fund is an intergenerational savings fund for future generations of Nigerians, while the Nigerian Infrastructure Fund is for investing in national infrastructure.
But lawmakers decided to scrap this strategy. They prefer to award ownership to two government ministries on behalf of the federation.
“This makes it clear that the Federation is the beneficial owner of the shares in NNPC Limited,” said Wolemi Esan, Deputy Managing Partner of Olaniwun Ajayi LP.
Esan said the Supreme Court has been consistent in its view that the federation refers to the federative units, which comprise all the states and the FCT.
“In the context of the PIA, therefore, it is clear that the state governments (which are federated units) have an ownership interest in NNPC Limited, through MoFI and MoPI.”
Regarding what this would mean for NNPC in an initial public offering (IPO), he said: “Whether NNPCL‘s proposed initial public offering will yield any direct benefit to state governments will largely depend on the structure of the public offering. initial. it is structured as an ‘offer to sell’, so that the shares held by MoFI and MoPI are what, or part of what, is offered to the public, then state governments will be entitled to a share of the proceeds.”
“However, where the proposed IPO is structured as a ‘subscription offering,’ the state government will not gain any direct benefit in terms of profit sharing,” he said.
Taiwo Oyedele, a partner at PwC Nigeria, argues that although the MoFI and MoPI jointly own the NNPC shares, they do so as trustees of the Federation.
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This is the reason for the requirement to seek approval from the National Economic Council for the disposal of NNPC shares, so that the subnational level of government has a say in any privatization of NNPC.
“In any case, any proceeds or proceeds from the sale of NNPC shares and other sources must be remitted to the Federation’s account. This effectively makes the states joint beneficiaries of the NNPC even though only the Federal Government is the legal owner,” he said.
Analysts have called for a more effective ownership structure for NNPC, one similar to NSIA or the Niger Delta Power Holding Company (NDPHC), which allows state governments to sit on the board of companies.
NDPHC is incorporated under the Companies and Allied Act as a private limited liability company with fully subscribed participation by the federal, state and local governments with the mandate to manage energy projects labeled ‘National Integrated Energy Projects’.
State governments have no representation on NNPC’s board and are not involved in critical decisions about the company.