NNPC Plc – Nigeria Should Take NNPC Public To Boost Transparency

A new probe has raised an alarm that there may be new funds “hiding” somewhere in NNPC (Nigerian National Petroleum Corporation) which are yet to be remitted to the Federation Account. (NNPC is the oil corporation through which the federal government of Nigeria regulates and participates in the country’s petroleum industry.) The missing amount is estimated to be worth N30 billion.

An account reconciliation activity for crude oil transactions found gaps in the corporation’s reporting and remittances to the Federation Account for the month of October 2017.

State governments had boycotted the Federation Account Allocation Committee (FAAC) meeting on November 23, accusing the NNPC of cutting corners in reporting and remitting of receipts from oil in the period under review. The states insisted on thorough collation and reconciliation through representatives agreed upon by all the parties.

The ensuing investigation and reconciliation uncovered the sum of N58.369 billion in unremitted funds and forced the state-owned company to issue fresh payment mandates to the Central Bank of Nigeria (CBN) to fund the Federation Account as well as the joint venture production (JVP) Account by the same amount.

The Guardian learnt that N30 billion of the N58.369 billion meant for remittance was allegedly withheld, as it could not be traced in the Federation Account

Simply, NNPC is still struggling to develop the capacity to reconcile its books with the Nigerian people. This may not be corruption; it could simply be lack of process, within a very complex Corporation, and the interrelationships it maintains with different segments of the Nigerian government, from the Federal Ministry of Finance to the Central Bank of Nigeria. It is a broken process and if General Buhari cannot fix it, it means we need to have a new strategy as a nation.

Yes, there is a way we can deal with this problem: take NNPC public and get its business done in the stock market. That way, all the missed and hidden money will be checked by market dynamics with dedicated experts looking at these numbers, more passionately, because they have fiduciary stakes in them..

NNPC Needs Capital

Nigerians may not know: NNPC does go to markets to raise capital. It just got a new one, closing  $3.7 billion through alternative funding arrangement. This is clear evidence that NNPC needs capital to run its operations, and I do think that a publicly traded exchange can make the process of raising capital better. Besides, it has gone to the bond markets in the past; so, nothing is really new going to the capital market to look for capital.

THE Group Managing Director of the Nigerian National Petroleum Corporation, NNPC, Dr. Maikanti Baru, yesterday said the corporation has secured $3.7 billion in alternative financing agreement in the last three years.

Baru, who disclosed this at the 35th  Annual Conference of the Nigerian Association of Petroleum Explorationists, NAPE, in Lagos, said securing external funding arrangement was crucial to sustaining oil and gas production in Nigeria and ensuring the survival of Nigeria’s energy future.

Benefits of listing NNPC

There are many benefits for taking NNPC public. Some are:

• Governance: Taking NNPC public will improve its governance especially if it is listed in a foreign exchange like London Stock Exchange and New York Exchange besides Nigerian Stock Exchange. That improved governance will help its impacts to the Nigerian people. I do think it will return higher value to Nigerians compared to what we get today. But there is risk: you do not want excessive market activism on a national corporation.
• Liquidity in NSE: The Nigerian Stock Exchange will benefit with a listed NNPC. It will bring liquidity in the exchange. I promise you that NNPC Plc will bring many Nigerian retail investors back to the bourse.
• Human Welfare: Through better governance and transparency, Nigerians will win through improved human welfare: yes, more money will be remitted and paid to the Nigerian people, on time.
• Financials: The NNPC financial management will have higher discipline with severe implications, as deviating from standards can be considered a financial crime.
• Capital Funding: NNPC and Nigeria will likely raise billions of dollars which can go a long way to finance important capital projects. An IPO by NNPC will bring liquidity to modernize our infrastructure. It will be a great moment in our history if the leadership utilizes the money well.
• Profit-Center: In markets, NNPC will be managed as a profit-center where the leadership will be tasked to run it efficiently so that Nigeria and the investors will make money. Today, it is largely a cost-center with no meaningful balance sheet.
• Investors Win: I do not have the total reserves of NNPC and the correct books to calculate how much profit it could make in a year, but I know that we could be looking in billions of dollars. Also, we need to know the present revenue and cost elements to model the profits.  But no matter what, NNPC makes money and investors will see glory. If they do not presently make money, no one will be talking of missed remittance into the Federation Account.

The Challenges to Listing

It will be very hard for Nigeria to list and still be a member of OPEC (Organization of Petroleum Exporting Countries), an intergovernmental organization for some oil producing countries. Listing means that Nigeria is going for market forces and the whole construct of reducing production, to inflate barrel pricing, could be challenged by some investors [most will want you to keep pumping]. Also, foreign exchanges may not welcome plans to artificially manipulate prices, through supply suppression, as such could be illegal based on market guidelines. (Yes, oligopoly is not an Igbo word [Igbo is my native Nigerian language], it is an English word, and that means, it happens. But some foreign exchanges can make life tough if you do it the way OPEC does it. Yet, Petrobras Brazil has been handling the issues for years. I know that NNPC Plc can find a way to handle such also if the issue arises. )

Another issue will be auditing and preparing NNPC books for IPO. That one will be a very tough order and a big challenge for Nigeria. We will have to note our reserves capacity, total revenue, our profitability, taxes, etc. You need those pieces to model the profitability of NNPC Plc and potential dividend it could pay to investors. Disclosing the production capabilities and revenue, every quarter, may be tough and that is why I do not think we will have NNPC Plc. Nigeria is NNPC and NNPC is Nigeria: some things are better left classified, unfortunately.

But note that since NNPC is Nigeria, if we list NNPC, it means that we have listed Nigeria for the world to see. This is the main reason why NNPC Plc will not happen.

For investors, there could be risks as companies like Petrobras (Brazil) and Gazprom (Russia) have shown that energy companies, owned by states never give up control, after privatization. They always run them in secrecy pushing investors into hopelessness. That is why NNPC Plc may not be a slam dunk if Nigeria wants to take it public. Nigeria will be pushed to allow managers to manage it well for markets to cheer: doing that will not be easy.

The Valuation

Nigerian can get a valuation of $300 billion for NNPC Plc (lol): that is not even half of Apple’s. Yet, we can start there, and on the first day of trading take it all the way to $350 billion. We like big numbers. Imagine the possibility of the valuation of NNPC Plc becoming higher than our GDP. If we manage NNPC Plc very well, we can see many good things. (The numbers I am dropping here is not science, as I do not have access to NNPC books, to estimate its EPS, profitability etc.)

I will suggest we list in London Stock Exchange and Nigerian Stock Exchange. The Nigerian Stock Exchange has no liquidity to accommodate NNPC. So, we can have a really small amount there. At about $40 billion total market capacity, Nigerian Stock Exchange cannot offer any help to NNPC Plc. NNPC Plc needs a big ocean and unfortunately, we do not have that in Nigeria. So, we can hit London, Hong Kong or New York where total market values go in trillions of dollars.[This could be dangerous as activist investors will like to mess NNPC Plc up in foreign lands. Maybe, we just leave all in NSE, and hope they pump money home to take the advantage.]
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All Together

NNPC is not Transcorp which killed the dreams of many investors when it tanked in the Nigerian Stock Exchange. Transcorp, unlike NNPC, did not have any asset when it started. It was a business people invested based on promises and expectations. But NNPC has one of the best assets in continental Africa. NNPC is Nigeria and it generates products which are exported around the world. It is a rainmaker, generating more than 80% of Nigeria’s foreign exchange. A listed NNPC will be massively (globally) oversubscribed and will drive huge capital accumulation in Nigeria. It will be a moment of glory. But yet, more money has never improved Nigeria. So “selling” NNPC to the market may not change anything in the long-term. That is the most unfortunate thing about Nigeria, and the reason why NNPC Staff, the Labour Union and students will say “HELL NO, DO NOT DO IT”.

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