PIB: Nigerian governors’ proposal on NSIA and ownership of NNPC in perspective

By Bassey Udo

Amid the various controversies trailing last week’s passage of the Petroleum Industry Bill (PIB) by the National Assembly, the Nigerian Governors’ Forum (NGF), the umbrella body of the 36 State governors, raised yet another it considered a fundamental concern over the ownership structure of the Nigerian National Petroleum Corporation (NNPC) as proposed in the draft petroleum industry law passed by the two legislative chambers, but pending harmonization and final assent into law by the President.
Although the governors said they supported the decision of the National Assembly to unbundle and commercialize the operations of the NNPC, they faulted the portion of the draft legislation giving its ownership entirely to the federal government, to the exclusion of the other tiers of government.
Part V, Section 53(1) of the draft PIB seeks to incorporate under the Companies and Allied Matters Act (CAMA) 2020 a limited liability company called “NNPC Limited. Section 53(3) of the proposed law vests the ownership of all shares in the proposed NNPC Limited in the Federal Government, to be held on its behalf by the Federal Ministry of Finance Incorporated and the Federal Ministry of Petroleum Incorporated in equal portions of 50 percent equity each on behalf of the Federation.
53(5) says the shares held by the Federal Government in NNPC Limited are “not transferable, either by way of sale, assignment, mortgage, or pledge, unless approved by the Federal Government and endorsed by the National Economic Council on behalf of the Federation.”
In effect, the proposed PIB reaffirms the provision in the Constitution conferring on the Federal Government the exclusive right to the ownership of all mineral resources in the country, including oil and gas resources, to the exclusion of the States and local government councils.

NGF’s proposal
But at the end of its 32nd teleconference on Wednesday, the NGF said given that the existing NNPC belongs to the federal government, the 36 States of the Federation, and the Federal Capital Territory (FCT) as well as the 774 Local Government Councils, the ownership of the proposed incorporated entity (NNPC Limited) should be transferred to a special purpose vehicle (SPV) mandated to “hold the interest of the three tiers of government.”
The NGF said in the communique signed by its Chairman and Governor of Ekiti State, Kayode Fayemi, that in their estimation the only institution currently best positioned to exercise that mandate was the Nigeria Sovereign Investment Authority (NSIA).
The NSIA is a corporate entity established by the Nigeria Sovereign Investment Authority (Establishment, etc. Act 2011) with the mandate to manage funds accruing from the export of the country’s crude oil in excess of the approved benchmark price in the annual budget.
The agency’s mission is to play a leading role in driving sustained economic development for the benefit of all Nigerians through the building of a savings base for the Nigerian people, enhancing the development of Nigeria’s infrastructure, and providing stabilization support for the country’s economy in times of unforeseen economic stress.
The NSIA exercises its mandate through the operation of three funds, namely the Stabilization Fund, which constitutes a 20 percent component of the Sovereign Wealth Fund, to provide cushion for the economy; the Future Generations Fund (40 percent), an inter-generational savings fund to cater for the interest of future generations of Nigerians, and the Nigeria Infrastructure Fund (40 percent), to invest in the development of domestic infrastructure towards improved quality of life for the people.
Owned by the Federal Government (45.83%), State Governments (36.25%), Local Governments (17.76%), and Federal Capital Territory (0.16%), the NSIA is empowered to receive, manage and invest funds in a diversified portfolio of medium and long-term assets on behalf of its owners preparatory to the eventual depletion of Nigeria’s hydrocarbon resources.
NSIA’s management of the Funds is in line with the Santiago Principles of the International Monetary Fund (IMF)/International Forum of Sovereign Wealth Funds (IFSWF), which it is a signatory. The principles embody a set of 24 voluntary guidelines that assign best governance practices for the operations of Sovereign Wealth Funds (SWF), including the principles of transparency, accountability, and good governance.

Previous proposal
The proposal by the NGF on an expanded role for the NSIA is, perhaps, not the first time. In 2017, the Nigerian Extractive Industries Transparency Initiative (NEITI), the government agency in charge of transparency and accountability in the extractive industries, equally made a similar proposal.
In a policy paper presentation titled, “The Case for a Robust Oil Savings Fund for Nigeria”, NEITI asked the Federal Government to transfer the management of the Excess Crude Revenue Account (ECA), and the Stabilization Funds to the NSIA for effective coordination.

NEITI
NEITI was of the view that such an arrangement would enable the country to develop a coordinated policy to save a portion of the country’s oil and gas revenue for the rainy day and manage for the benefit of future generations of Nigerians.
The ECA holds revenues realized from the sale of crude oil above the approved benchmark price contained in the Appropriation Act every year. The Stabilization Fund covers the equivalent of 0.5 percent of revenue in the Federation Account designated for the augmentation of the shortfall in the federal budget, to ensure stability in the economy in times of serious economic crisis.
NEITI said the NSIA was a good model the country could entrust with the coordination and management of the funds, in view of its established good governance structure and clarity of purpose as well as flexibility in the management of its investments.
Besides, NEITI said the Sovereign Wealth Institute’s transparency index rated the NSIA as one of the best in the world, with a score of 9/10, the best in Africa, and the second joint best in the world.
The NSIA has handled a number of investments under its portfolio that have generated significant returns suggesting that if the ownership of NNPC was added, it has the capacity to turn it around into a profit-oriented commercial enterprise committed to operate and earn profit for its investors and Nigerians like its peers in Malaysia, Norway, Brazil, and other places

NSIA’s pedigree
Since its establishment, NSIA’s seed working capital from the three tiers of government, in addition to earnings from its investments, is barely about $2billion. But NSIA has so far demonstrated capacity to deliver if given the mandate to take over the NNPC and managed as a part of its portfolios, to enhance value from the country’s hydrocarbon resources for the benefit of Nigerians.
In 2014, NSIA incorporated four subsidiaries to promote investments in five strategic sectors of the Nigerian economy, namely agriculture, real estate, motorways, power, and healthcare. These include NSIA Motorways Company Limited; NSIA Power Investment Company Limited; NSIA Health-care Investment Company Limited, and NSIA Real Estates Investment Company Limited.
About $100 million (about N16.2 billion) from the Infrastructure Fund was allocated to the power sector following an agreement reached with a private equity company to invest 200 percent of the amount in the sector.
Another $550 million (about N89.1bn) was set aside for funding power sector projects, with a Memorandum of Understanding (MoU) signed with AMA-Sinohydro to collaborate on investment opportunities in various projects, including hydro-electric power plants, multi-purpose dams, real estates, and transportation infrastructure.
On motorways, NSIA focused on the construction of the second Niger Bridge, with equities from Julius Berger Nigeria Limited and other partners. The agency was also involved in the construction of the Lagos-Ibadan Expressway and Abuja-Kaduna-Kano Highway under the Presidential Infrastructure Development Fund (PIDF) projects; construction of affordable housing in the Federal Capital Territory, and funding of agriculture finance run by Sahel Capital partners investing in shared infrastructure for smallholder farmers.
Also, NSIA was involved in the development of the $15 million 10 megawatts solar plant in Kano; the manufacture of 12 million 50 kilogramme bags of NPK 20:10:10 under the Presidential Fertilizer Initiative, to take the total fertilizer production from 44 blending plants to more than 30 million 50kg bags equivalent. This is in addition to the construction of 3000-hectare Panda Agric Farm in Nasarawa State under the UFF-NSIA projects initiative.
The NSIA 2018 annual report showed that between 2013 and 2018, its investments in various sectors of the economy earned an additional $51 million to the $300 million contributions by the three tiers of government to the Stabilization Fund.
In 2019, the NSIA audited financial report showed a profit of about N36.15 billion was realized from its investments during the year, despite the impact of the COVID-19 pandemic on its markets. The figure was lower 18.47 percent than the N44.34 billion profits realized in 2018.
During the year, Nigeria’s sovereign wealth fund grew its asset base to over N649.84 billion, about five percent higher than about N617.70 billion recorded in 2018.
Highlights of its activities and programmes for 2020 focused on the development of agriculture, healthcare, power, toll roads, and gas industrialization. On domestic infrastructure projects, projects were completed in the areas of motorways, agriculture, healthcare, and power, including the Cancer Centre at Lagos University Teaching Hospital (NLCC); the Advanced Diagnostic Centre in Aminu Kano University Teaching Hospital and civil and construction works at the Advanced Diagnostic Centre in Federal Medical Centre Umuahia (FMCU).
About 6.5 million 50kg bags of NPK 20:10:10 fertilizer was delivered to farmers across the country under the Presidential Fertilizer Initiative (PFI), raising total deliveries since the inception of the initiative to 20 million bags, while increasing the number of accredited participating blending plants from 18 in 2018 to 31 during the year.
The 2020 audited financial statement showed the NSIA posted about N160.06 billion, an increase of about 343 percent from its 2019 earnings, driven largely by a significant rise in foreign exchange gains as well as investments in international capital markets led by three fund managers: UBS (US Treasury), Goldman Sachs and Credit Suisse (Corporate Bonds).
Apart from the core income, which rose to N109 billion, from N33.07 billion recorded in the previous year, foreign exchange gains stood at N51 billion, while net assets climbed by a third from N579.54 billion to N772.75 billion.
NSIA has developed into about nine operating groups in different sectors of the economy, including 33 hospitals; partnerships with UFF-NAIC Agriculture Fund jointly owned by the NSIA and UFF Agri Investment, an Old Mutual Specialist Fund, a company supporting agriculture in Nasarawa State; running a 50-50 joint venture integrated feed mill; created InfraCredit, an infrastructure credit guarantee company, in partnership with GuarantCo, a Private Infrastructure Development Group company taking extra capital from other investors. This is in addition to other companies the NSIA has substantial shareholdings, like the Nigeria Mortgage Refinance Company.
Another joint venture investment from KFW, a German company, and an ammonia plant with OCB of Morocco, in partnership with the Akwa Ibom State government, as part of its fertilizer development programme.
The NSIA is currently working with the Central Bank of Nigeria (CBN) to revamp and revitalize the Nigerian Commodity Exchange, to restructure its operations, and make it function like its peers in other climes.

NGF’s concern
Perhaps, like NEITI, the NGF’s concern on who owns the NNPC goes beyond the fear of exclusion by the other tiers of government, if left exclusively in the hands of the federal government. The governors want to ensure that not only the interests of the states and local governments are assured, but a structure firmly put in place to regulate the operational and management controls of the NNPC as a business entity established to engage in commercial activities with a mindset and orientation to make a profit and declare returns to its investors.
Until recently, the situation in the NNPC over the management of the hydrocarbon resources at its disposal could not be said to be the best the country could afford.
The NNPC was established as a Nigerian state-owned oil company on April 1, 1977, to undertake the hydrocarbon exploration production and harnessing of Nigeria’s oil and gas reserves for sustainable national development on behalf of the Federal Government.
Beyond that, the Corporation was empowered to pursue operational interests in refining, petrochemicals, and products transportation as well as marketing, like its peers in other climes of the world.
Between 1978 and 1989, the NNPC constructed four refineries in Warri, Kaduna, and Port Harcourt, which currently have a combined refining capacity of 445,000 barrels per day, to meet the country’s daily fuel consumption capacity.
In 1988, the NNPC was commercialized and broken into 12 strategic business units (SBUs), covering exploration and production, gas development, refining, distribution, petrochemicals, engineering, and commercial investments.
Its subsidiaries include the Nigerian Petroleum Development Company (NPDC), in charge of the upstream exploration and production activities; Nigerian Gas Company (NGC), taking care of gas development; Products and Pipelines Marketing Company (PPMC), responsible for marketing and distribution of petroleum products; Integrated Data Services Limited (IDSL), for gathering and development data for its operations, and National Engineering and Technical Company Limited (NETCO), in charge of engineering and technical services.
Other subsidiaries include Hydrocarbon Services Nigeria Limited (HYSON), Warri Refinery and Petrochemical Company Limited (WRPC), Kaduna Refinery and Petrochemical Company Limited (KRPC), Port Harcourt Refining Company Limited (PHRC), NNPC Retail, Duke Oil, and the National Petroleum Investments Management Services (NAPIMS) in charge of investment interests of the Federal Government.
In 2016, NNPC’s operations were repositioned to transform the company into a global energy company, with the PPMC and NGC restructured into new commercial entities, namely Nigerian Gas and Marketing Company (NGMC), to handle gas marketing; Nigerian Gas Processing and Transmission Company (NGPTC), for gas processing and transmission; Gas and Power Investment Company (GPIC), for gas distribution to power projects; Nigerian Products and Marketing Company (NPMC), for gas products services, and Nigerian Pipelines and Storage Company (NPSC).
Until 2019, the operations of the NNPC were largely opaque. Transparency and accountability in its operational processes were lacking. The company habitually declared losses, even during periods of high crude oil prices at the international crude oil market.
For over 43 years of its existence, the NNPC never published its audited financial reports to Nigerians, compared to what was obtained among their contemporaries in Petronas of Malaysia, Statoil of Norway, and Petrobras of Brazil.
Despite running at a loss over the years, it did not matter much to successive management at the NNPC, as it was not managed as a commercial entity with a profit-making orientation and a responsibility to declare the same to its investors. Whether it made a profit or not, it was sure to have budget support from the Federal Government annually to pay for its joint venture partnership obligations.
That was why it was possible for the country to have three refineries with a combined refining capacity to meet the country’s petroleum products consumption requirements, yet the country spent the bulk of its foreign exchange on the importation of the products, with perennial consequences of an intermittent fuel supply crisis.
The proposal by the NGF might require a review of the country’s Constitution to achieve. But with the right political will and sense of purpose, it is worth giving serious consideration. With recent moves by the Revenue Mobilization, Allocation and Fiscal Commission (RMAFC) to adjust the country’s revenue allocation formula, the National Assembly could also consider the proposal by the NGF on the ownership of the NNPC as part of the ongoing reforms in the petroleum sector, to guarantee equity in the sharing of the national wealth among the three tiers of government.

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