Two years after its transformation to a commercial, profit-driven entity from a public corporation, the enabling guarantees secured from the Petroleum Industry Act and the Company and Allied Matters Act have remained inadequate in addressing the Nigeria National Petroleum Company Limited (NNPCL’s) governance dilemma resulting from the weak pillars of a transition that has retained government’s significant control. Ahmed Balarabe Sa’id reviews the level of NNPCL compliance with the laws establishing the oil company
After 46 years as government entity, a shift may have birthed new expectations in ways and means for the Nigerian National Petroleum Company Limited NNPCL. Among the many expected changes, is the regulation of the oil company under the extant provisions of the Companies and Allied Matters (CAMA) Act and its repositioning within the holistic institutionalization of the governance framework provided in the Petroleum Industry Act, (PIA) 2021.
With a capital base of 200 billion Naira at the threshold of transition, the journey to a commercially oriented, profit-driven national petroleum company had been preceded by the fulfilment of legal requirements within the stipulated 18 months, in line with section 54 (3) of the Petroleum Industry Act (PIA). The landmark incorporation, September 2021, closely followed the PIA which took effect two months earlier, both combining to raise optimism for Nigerians and global partners for a viable, competitive enterprise in line with global best practices. Former President Muhammadu Buhari’s avowed commitment to the transition and its eventual completion may have come with a sense of accomplishment, given his concerns over the then-corporation, back in 2015. Apparently expressing the sentiment of most Nigerians during his campaigns, Buhari had taken a jibe on the establishment, including pledging his desire to institute a probe, should he win election as President.
The urge to probe the then NNPC was not altogether out of place, even as some observers considered the President’s statement as merely political. Buhari, at the time, while citing the allegation of the missing $20 billion, said “$20 billion is too huge a sum and must be investigated”. Coming under major public scrutiny in 2013, the then-former Governor of the Central Bank of Nigeria (CBN), Sanusi Lamido Sanusi, had told the Senate Committee probing the allegation of unremitted funds that the NNPC shipped $67 billion worth of crude out, and only $47 billion revenue had returned to the federation, thus, failing to account for $20 billion made from the sale of crude oil to the Federation Account between 2012 and 2013; an allegation the Corporation, then, dismissed as baseless. Similarly, the Nigerian public was served the outcome of a forensic audit report on the Corporation by PriceWaterHouse Coopers (PwC) indicating gaps in the money books of the Corporation, which were equally denied. The scandalous allegations did not end with the Buhari regime and has cascaded, unabated, raising more concerns about ways and means identified with poor institutionalization of corporate governance in the Company.
In what has appeared to be a sustained pattern, the reenactment of lack of transparency and accountability has trailed the new NNPCL under the Bola Ahmed Tinubu administration. Like the administration before, this too has also retained the supervision of Petroleum Ministry under the Presidency. A motion raised in the House of Representatives by Uduak Odudoh of Ikot Abasi/Mkpat Enin/Eastern Obolo Federal Constituency, in July, described the NNPCL as “disrespecting and downplaying the collective intelligence of Nigerians” by willfully withholding public revenue of about N2 trillion, payable into the Federation Account from crude sales, royalties and taxes, even as the lawmaker acknowledged claims of N4 trillion owed the new company in subsidy payments, power debts and sundry charges by the federal government. Also, in its “2021 Oil and Gas Industry Report” released recently, the Nigeria Extractive Industries Transparency Initiative (NEITI) said that, the NNPCL failed to remit $9.85 billion to the Federation Account, representing 8.47% of the $23 billion total revenue generated by the federal government in the year. The report specifically noted that, the company could not account for $1.951 billion from the revenue it generated that year. The same report revealed that, the NNPCL owes N2.8 trillion tax revenues, representing 80% of the N3.5 trillion owed the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) in 2022.
Curiously, the public euphoria rising from President Buhari’s epochal 2015 statement, and the heightened public interest in the activities of the then NNPC, may have largely ignored the other numerous problems of the entity bordering on corporate governance, handed down. At that time, the retention of the Petroleum Ministry portfolio appeared to be a misnomer, it failed to represent a fitting response to the needed clean-up the administration elicited in the impressionistic ‘body language’ of the former President, against expected governance traditions. It conveyed a necessary means to a desired end, for a Corporation whose Board, by the provision of its statutes, should meet quarterly and on emergencies when necessary, but did not convene a single meeting for a long period, before the former President’s assumption into office.
After the enactment of the Petroleum Industry Act, President Buhari’s earlier appointment of a Board for the new government-owned oil and gas commercial institution took a twisty dimension. Industry stakeholders were shocked when they got the news of the replacement of the Board’s Chairman nominee event before the commencement of Senate screening of the list of nominees forwarded by the Presidency. In a 17th January 2023 letter signed by Boss Mustapha, the then Secretary to the Government of the Federation, relieving Sen. Ifeanyi Ararume from office as non-Executive Chairman of the NNPCL Board; a position exclusively governed and regulated by the provisions of Section 288 of the CAMA Act 2020, Section 63 (3) the PIA Act 2021 and the Memorandum of Association of the Company. In his suit challenging the action and seeking redress, Ararume demanded among others, the nullification of his removal, the setting aside of all decisions and resolutions which followed his removal, an order restraining the defendants from removing his name as a Director of the company, including the award of N100 billion as damages caused him, in addition. Ruling on the matter, Justice Inyang Ekwo of the Federal High Court, Abuja, while upholding the merit of Ararume’s prayers, said that, Buhari contravened provisions of the relevant laws and therefore acted “ultra vires, wrongful and illegal”. Ararume’s reinstatement, as ruled by the learned judge, also attracted an award of N5 billion for damage he suffered from the President’s action.
According to the judge, the laws guiding the NNPCL and the Petroleum Industry Act do not empower the President to arbitrarily remove a Director from the Board of the NNPCL, adding that, with the new status of the NNPCL under the Companies and Allied Matters Act, NNPCL is not a statutory agency under the federal government. The judgment acknowledged that, Ararume was denied the benefit of defending himself, even as there were no concrete allegations against him. The determination of a subsequent suit by the federal government challenging the earlier High Court ruling in favour of Ararume is being awaited, even as the company’s Board has since been dissolved among 152 other agencies and parastatals, in a letter dated 19th June, 2023, directing compliance with effect from 16th June, 2023: to “refer matters requiring the attention of the Boards to the President through the Permanent Secretaries of their respective supervisory Ministries, while such Permanent Secretaries are to route such correspondences to the President through the Secretary to the Government of the Federation”.
The development, particularly as it concerns the NNPCL, has reinforced the interrogation of the limitations of the current governance frameworks within the new enterprise orientation of the company. By its current classification as a petroleum company independent of government, the complexity of its peculiarity raises concerns, operating without a duly constituted Board since the dissolution of the last. The recent appointments of three Executive Vice Presidents of the company; Oritsemeyiwa A. Eyesan, Executive Vice President, Upstream; Olalekan Ogunleye, Executive Vice President, Gas, Power, and New Energy; Adedapo A. Segun, Executive Vice President, Downstream, rekindles the propriety of this concern in relation to its extant functions of a duly constituted Board. Sections 58 and 59 of the PIA Act require that, “there shall be a Board of the NNPC Limited, whose members shall be appointed by the President. The Board is to comprise of a Non-Executive Chairman, a Chief Executive Officer, a Chief Financial Officer, a representative each of the office of the Minister of Petroleum and Ministry of Finance not below the rank of a director. There shall also be six non-executive members with at least 15 years cognate experience in the petroleum industry to represent each geo-political zone of the country”. The provisions of the Act in sections 61 and 62 also emphasize that members of the Board “shall discharge their responsibilities in accordance with the highest standards, practices and principles of corporate governance and shall ensure that its annual audit is conducted by an independent, competent, experienced, and qualified, auditor”.
Equally, Section 63 of the PIA provides for specific responsibilities aimed at enhancing the commercial operations and best governance structure of the NNPCL. This is in addition to the responsibilities listed under the Companies and Allied Matters Act, 2020, and the section is to be inserted into the company’s memorandum and articles.
The constraining dynamics to all of these are significantly inherent in the overarching influence of the President over the entity and the pattern of ownership of the newly incorporated NNPCL. In an exclusive interview with Valuechain, former Minister of State for Petroleum Resources, Ibe Kachikwu observed that, withholding the Petroleum Ministry is a disservice to the President’s authority. According to him, the President is “entitled and empowered by the constitution and practice to structure the government whichever way he wants and believes reflects his own focus and concerns. However, I would not advice a President to hold both portfolios or for that matter or that of any other ministry either”. Prof. Kachikwu outlined six justifications for this: the arrangement creates a distraction; it prevents the minister of state from being able to run the sector; it creates room for presidential favoritism for close associates, as well as preventing a level playing ground in the industry. In addition, it prevents the President from being the needed appellate point if a Minister reaches a wrong decision and it chases away genuine global investors who see ‘alarm bells’. Finally, it creates sectoral rascality as the agency heads that need to report through the Minister of State with day-to-day oversight of the Ministry, would prefer to bypass that channel. He concluded by noting that, in the many decades of Nigeria’s experimentation with this model, power gets usurped by senior Presidential Aides, as the President cannot have the time required for the role nor the supervision that goes with it.
In the same vein, a Lagos-based Attorney, Peter Olaoye Olalere, who spoke to Valuechain on telephone, acknowledged that, being Minister of Petroleum, the President still has a lot of influence on how a national oil company should run. He noted however that, there are qualified people who can be appointed to serve as substantive Minister of Petroleum, as the current demand of the sector requires more than partial attention. While commenting on the delayed composition of the Board of the NNPCL; Barr. Olalere noted that, it is a matter of concern, but normal for a new government which programmes, policies including selection of appointees are still evolving. “You’re going to be having these kinds of trouble from time to time. The important thing is for the government to be right regarding corporate governance across national contexts. There is usually a period of time when it appears as if the experiment will stumble and fall because political interest can hardly ever be separated from the corporate governance journey”, he observed.
The ownership structure of the new NNPCL entity leaves a lot more to be desired of its autonomy from government control, as well. Although a public limited liability enterprise, its major shareholders remain government agencies, Ministry of Petroleum Incorporated and Ministry of Finance Incorporated. Section 59 (5) of the PIA Act provides that, when the NNPCL is no longer owned by government alone, the shareholders will appoint the Directors. The CAMA Act equally permits the flexibility of government ‘holding’ agencies, in this regard. Section 338 of the Act recognizes a holding company, thus: “(1) Subject to subsection (4) of this section, a company shall for the purposes of this Act be deemed to be a subsidiary of another company if (a) the company (i) is a member of it and controls the composition of its Board of Directors; or (ii) holds more than half in nominal value of its equity share capital; or (b) the first mentioned company is subsidiary of any company which is that other’s subsidiary. (2) For the purposes of subsection (1) of this section, the composition of the Board of Directors of a company shall be deemed to be controlled by another company if that other company by the exercise of some power, without the consent or concurrence of any other person, can appoint or remove the holders of all or majority of the Directors”.
By the existing governance frameworks, the shift from full government control before the incorporation of NNPCL two years ago may have enabled a quasi-government control in the current order. As stakeholders await the appointment of a new Board by the President, the fate of the company remains distant from ideal corporate governance traditions, in a transition still evolving. For now, it is, in the words of an observer, a work in progress- “a commercial competitive enterprise with its umbilical still with government”.
The many, laudable ongoing reorganisation in the company have been affirmed by stakeholders, as requiring a Board immediately in place. As they have indicated, Boards of some similar strategic entities were exempted from the dissolution order issued by the President, and some were reconstituted without any delay.