INTERNATIONAL – Nigeria is considering selling shares in its state oil company, which dominates Africa’s biggest petroleum industry and has been central to corruption scandals that have wracked the West African nation since crude was discovered there in the 1950s.
Legislation two decades in the making is working its way through parliament that would make the Nigerian National Petroleum Corp. independent of government and cut its access to state funding. The move comes after Saudi Arabia in December sold 1.5% of its national oil company, creating a behemoth valued at nearly $2 trillion that vies with Apple Inc. for the title of the world’s most valuable company.
While Nigeria’s oil champion is dwarfed by Saudi Arabian Oil Co., it’s a giant at home, controlling an industry that generates about half of state revenue and 90% of export earnings. Tightly controlled by the Nigerian government since it was established in 1977, the NNPC has become notorious as a tool for political patronage, with opaque transactions helping fuel graft.
The company operates joint ventures with international energy companies that produce most of the nation’s crude and runs units that supply fuel to its more than 200 million people. It also owns leases to offshore blocks that contain two-thirds of Nigeria’s crude reserves.
Opening the Books
The National Petroleum Investment Management Services division, the NNPC’s biggest income generator, reported revenue of 5.04 trillion naira ($13 billion) in 2018 and profit of 1.01 trillion naira, according to accounts published in June that were the first in its 43-year history. Draft legislation presented to parliament on Sept. 29 seeks to make it “a commercially oriented and profit driven national petroleum company.”
The bill is seen as a landmark for the administration of President Muhammadu Buhari, who’s in a strong position after his 2019 election victory packed parliament with his allies.
Previous efforts to reform the company over the past two decades have stalled, including a proposed initial public offering in 2018. The plans have been revived after a plunge in crude prices led to a 60% slump in government revenue and the worst economic contraction in at least a decade.
The government in April borrowed $3.4 billion from the International Monetary Fund, the first from the Washington-based lender in its history. It’s since done away with costly petroleum and power subsidies that Buhari once defended as the state looks to free up revenue to run the cash-strapped government.
The new law falls short of a 2012 version that foresaw privatizing the company, and it omits a target date for selling shares or specifics on how much could be sold. But its submission to lawmakers demonstrates that the reformist camp in Buhari’s government is making progress with its agenda.
“This is a bill that comes with the authority of the presidency,” said Antony Goldman, founder and chief executive officer of Promedia Consulting, a political risk consultancy. It replaces an “outdated set of laws, layered one on top of each other since the 1950s, that are no longer fit for purpose,” he said.
According to the draft legislation, the NNPC would be replaced by a limited-liability company known as the Nigerian National Petroleum Co. that operates on a commercial basis. The state’s shareholding in the new entity would be held by the Finance Ministry. The bill also provides for an annual audit of the new oil company by an independent firm.
The government would have to approve any plans to privatize the company, according to the bill. A sale or transfer of shares would be at a “fair market value and subject to an open, transparent and competitive bidding process.”