Mixed reactions trail FG’s plan of 40% equity in NNPC JV

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NNPC

…says Equity reduction will not grow GDP

By Ikenna Omeje

Mixed reactions continue to trail the recent announcement by the Federal Government of its plans to reduce its stake in Joint Ventures (JV) to 40 per cent this year in the Nigerian National Petroleum Corporation (NNPC).

In a statement last month, the Minister of Budget and National Planning, Mr. Udoma Udoma,

said that the government will increase its efforts to improve its finances including the ”immediate commencement of the restructuring of the joint venture oil assets so as to reduce government shareholding to 40 per cent.”

Most of the international oil companies operating in the country such as Royal Dutch Shell, Chevron and ExxonMobil are in JV agreement with Nigeria through NNPC.

In his reaction to the move by the Federal Government, the Tech Director, Template Ltd, Mr. Zakka B.S, told Nigerian NewDirect via a text message on Tuesday, that the move by the Federal Government will have no positive impact on the country’s Gross Domestic Product (GDP).

He faulted the decision of the government, noting that losing the majority share would meansthat the government will be minority in everything that has to do with the running of the company.

“Reducing NNPC’s equity in the JV cannot lead to GDP growth in any way. Why should a sane government cede it country’s “controlling share” of national assets (natural resource in this case) to a foreign multinational coy).

“In business once you loose your controlling share, you automatically become a minority in virtually everything that has to do with the strategic running & execution of the company’s operations,” he said.

On his own part, Partner Lonadek, Dr. Ibilola Amao, said that the decision is a welcome development, adding that it will help to improve good corporate governance.

“I expect better corporate governance if this goes ahead. Makes a lot of sense if they can get the petroleum economics right while addressing the embarrassing issue of multiple taxation. This is good news,” he told Nigerian NewsDirect via a text message on Tuesday.

The President Muhammadu Buhari-led administration had in its Economic Recovery and Growth Plan released in 2017, said that it would reduce its stakes in JV oil assets, refineries and other downstream subsidiaries such as pipelines and depots.

The sale of 15 to 20 per cent stake in the JV assets means the government’s cash call payment would reduce.

At least half of the total revenue generated by the Federal Government from oil and gas sales in 2018 , was used for the payment of joint venture (JV) cash calls. Cash call payment for the development of joint venture oil and gas assets ate into the Federal Government’s revenue last year as a total of N1.829tn was paid, according to the NNPC, which represents the government in the JVs.

A sum of N3.11tn was generated by the government from the sale of crude oil and gas in 2018, out of which N1.829tn was transferred into the joint venture cash call account while the balance of N1.28tn went into the Federation Account, the NNPC data revealed.

The dollar allocation to the JV cash call account was $4.17bn (from oil and gas export receipt of $5.58bn) while the naira portion was N559.81bn (from domestic oil and gas sales proceed of N1.41tn).

The federation crude oil and gas lifting are classified into equity export and domestic, both of which are lifted and marketed by the NNPC and the proceeds remitted into the Federation Account.

The equity export receipts, after adjusting for JV cash calls, are paid directly into Federation Account domiciled in the Central Bank of Nigeria. Domestic crude oil of 445,000 is allocated for refining to meet domestic products supply.

Payments are effected to the Federation Account by the NNPC after removing crude and product losses, pipeline repairs and management cost incurred. The nation’s oil and gas production structure is split between JV (onshore and in shallow waters) with foreign and local firms, and Production Sharing Contracts in deep water offshore.

The NNPC owns 55 per cent of the JVs with Shell, and 60 per cent of all the others. Under the JV arrangement, both the NNPC and private operators contribute to the funding of operations in the proportion of their equity holdings and generally receive the produced crude oil in the same ratio. But the NNPC failed to meet its share of cash call obligations for many years, resulting in significant debts owed to oil companies.

In 2016, the international oil companies operating in Nigeria agreed to give the Federal Government a discount of $1.7bn from the $6.8bn cash call arrears owed by the NNPC.

The Group Managing Director of NNPC, Dr Maikanti Baru, said in June 2018 that the corporation had cleared all its outstanding cash call arrears amounting to $5bn, and that it had restored confidence in the country’s oil and gas industry.

According to the latest monthly report of the corporation, total oil and gas export receipt of $345.68m was recorded in December 2018 as against $605.71m in November 2018.

It said, “Of the export receipts, $137.08m was remitted to the Federation Account while $208.60m was remitted to fund the JV cost recovery for the month of December to guarantee current and future production.”

The NNPC added that N63.10bn, equivalent to $206.88m at a budgeted exchange rate of N305/$, was transferred to JVCR from domestic crude oil receipts.

It said, “Total export crude oil and gas receipt for the period December 2017 to December 2018 stood at $6.06bn. Out of which, the sum of $4.56bn was transferred to JV Cash Call as first line charge and the balance of $1.50bn was paid into the Federation Account.

“From December 2017 to December 2018, Federation Account and JV received the sum N928.85bn and N578.92bn, respectively.”

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