OrderPaperToday – In order to unlock the potential benefits of Nigeria’s petroleum sector, the National Assembly, last week, passed the long-awaited and controversial Petroleum Industry Bill (PIB).
In a seemingly planned move, both chambers of Nigeria’s bicameral legislature passed the phoenix bill same day. There has been much excitement on this development but it appears it is not yet uhuru.
The hostcom demon roars…
There was a sticking thumb however. The senate failed to meet the expectations of the hosts communities as it only approved three percent of the operating expenditure (opex) of companies in the previous year as contributions to the proposed Hosts Communities Development Trust Fund.
This was a reduction it from five percent recommended in the report of the National Assembly joint committee on the bill.
Senators in the majority voted for 3% contribution to the host communities, following an amendment to clause 240 (2) by Senator Ahmad Babba Kaita (APC, Katsina North), which was seconded by Senator Ibrahim Gobir (APC, Sokoto East).
This development did not gone down well with senators from the oil-producing region of the country as they made frantic efforts to demand an upward review. They met a brick wall from their colleagues. Reactions have continued to trail this development, the latest of which, being the decision of the Southern Governors Forum to reject the senate proposal.
Part of the issues that contributed to the long journey to the passage of the PIB is host communities. The Government, host communities, and operators could not agree on the best way to address the concerns of the host communities. While the host communities are demanding more to deal with the issue of the environmental degradation because of oil explorations, the government believes that it has done enough in this area, due to involvement of all the agencies that are involved in the development of the Niger Delta region. Chapter 3 of the bill introduces the Petroleum Host Community Development (PHCD) which has the following objectives:
To foster sustainable prosperity within host communities; provide direct social and economic benefits from petroleum operations to host communities; enhance peaceful and harmonious co-existence between licensees and host communities; and to create a framework to support the development of host communities.
Other notable highlights…
Frontier basins and NNPC limited – The National Assembly in passing the PIB approved a funding mechanism of 30 percent of the proposed Nigeria National Petroleum Corporation (NNPC) Limited’s oil and gas profits in the production sharing, profit sharing, and risk service contracts to fund exploration of frontier basins in Northern Nigeria as against the 10 percent, stakeholders in the Niger Delta suggested.
This is sequel to the proposed commercialization of the NNPC to make it profit-oriented and removing its role as both a player and regulator as the current the case. The passed bill stipulates that the NNPC will be a limited liability company incorporated by the federal ministry of finance on behalf of the federal government. This is to be done six months after the commencement of the Act. Incidentally, the southern governors also kicked against this, recommending instead, that the proposed company be domiciled with the Nigeria Sovereign Investment Authority owned by all tiers of
Powers of the minister – The Minister of Petroleum Resources, in accordance with the passed PIB, retains a general oversight and supervisory role over all facets of the petroleum industry. This remains unchanged from the previous governance regime under the Petroleum Act. Specifically, the Minister is empowered to formulate, monitor, and administer the Federal Government’s policy over the petroleum industry. The Nigeria Upstream Regulatory Commission and Nigeria Midstream and Downstream Petroleum Regulatory Authority proposed in the passed bill are required to report to the minister, ensuring his effective oversight powers over the industry. However, there have been important deviations from the previous regime, as the minister’s sole power to grant or revoke oil licenses have been curtailed. The bill specifies that the Commission provides recommendations to the minister before he or she can exercise such powers. The key question, however, is whether the minister, who currently is the President, would be bound by the recommendations of the Commission in the award of licences; and also given that the President can remove any member of the Commission. The changes notwithstanding, it seems that the minister will continue to exercise a significant influence in the industry.
The Commission and Authority as Regulators – Part of what the PIB seeks to achieve is the establishment of the Nigerian Upstream Regulatory Commission as well as the Nigeria Midstream and Downstream Petroleum Regulatory Authority as dual regulators for the entire industry. Section 4 of the PIB establishes the Commission to have primary regulatory powers and oversight over the technical, operational, and commercial activities of the upstream petroleum industry. The Commission will regulate all technical activities in the upstream sector by enforcing, administering, and implementing all laws, regulations, national and international policies, standards, and practices relating to the sector. The Commission is also to enforce compliance with the conditions of all leases, licenses, permits and authorisations issued to companies in the sector. Such technical activities include seismic operations, drilling operations and design, construction, and operation of upstream facilities, among others. A similar set of powers and responsibilities are given to the Authority to regulate activities in the mid and downstream sub-sectors of the industry.
Section 29 of the petroleum bill establishes the Authority to have technical and commercial regulation of midstream and downstream petroleum operations in the midstream and downstream segments of the petroleum industry. The Authority’s functions include the regulation of petroleum liquid operations, domestic natural gas operations and export natural gas operation. It is also to determine the appropriate tariff methodology for processing of natural gas, transportation and transmission of natural gas, transportation of crude oil and bulk storage of crude oil. The Authority is empowered to issue regulations in pursuance of its regulatory oversight powers. Interestingly, the PIB seems to suggest that the sole power to grant, issue, modify, cancel, or terminate all licenses, permits and authorisations for midstream and downstream petroleum operations, is vested in the Authority. This is also departure from the previous regime whereby such powers were typically vested in the Minister. The sources of funds to the Authority are fees earned from servicing licenses, 1% levy to be imposed on the wholesale price of petroleum products in Nigeria. The stated intention of the PIB is to move away from regulated prices to those determined by market. Therefore, experts are sad that multiplicity of levies and charges may act to distort that reality.
Forfeiture of Funds – The host community will forfeit its entitlement to any contribution to the extent of the cost to repair damages to the petroleum and designated facilities or disruption to production activities within the host community caused by an act of vandalism, sabotage, or civil unrest. Therefore, the amount to be contributed by the settlor to the Trust shall exclude the computed cost of such repairs or disruption in petroleum productions. This was where the South-South Senators peg their argument for an upward review of the percentage to be contributed. Though the Bill has not addressed a scenario where the cost of such repairs exceeds the settlor’s contribution, it is more likely than not that the excess will be tax deductible in that year. Given the introduction of the Petroleum Host Community Fund, the question that has arisen is that what is the continued relevance of the contribution to the Niger Delta Development Commission (NDDC)? The PIB is not clear on whether the host community fund contribution will be together with the 3% NDDC levy. If this is the case, then the objective of promoting a competitive oil industry will be suspect, for the fact that the industry is already subject to multiple taxes.
Midstream Gas Infrastructure Fund – Section 52 of the petroleum bill establishes the Midstream Gas Infrastructure Fund, which is to be a body corporate with its own Governing Council chaired by the Minister of Petroleum. The purpose of the fund is to “make equity investments of Government owned participating or shareholder interests in infrastructure related to midstream gas operations aimed at – (a) increasing the domestic consumption of Natural Gas in Nigeria in projects which are financed in part by private investment; and (b) encouraging private investment.
Commercialization of the NNPC – Section 53 directs the Minister to incorporate a Nigerian National Petroleum Company Limited at the Corporate Affairs Commission (CAC) within six months of the PIB’s commencement. The shares are to be held by the Ministry of Finance, incorporated on behalf of the Government. The PIB states that the Minister of Petroleum and the Minister of Finance are to determine which assets, interests, and liabilities of the current statutory NNPC, are to be transferred to NNPC Ltd. Any other assets, interests and liabilities not transferred to NNPC Ltd would continue to be held by NNPC until they are extinguished or transferred to the Government upon which the NNPC would cease to exist. Note that the petroleum bill empowers the Minister to consult with the Minister of Finance to appoint NNPC Ltd as the liquidation agent of the NNPC. Section 58 indicates that the Board of NNPC Ltd is to be constituted in accordance with the provisions of the Companies and Allied Matters Act (CAMA) and the company’s Articles of Association. Players in the industry posit the if the Federal Government has taken a bold step by incorporating NNPC Ltd as a CAMA entity, it should also bite the bullet by freeing it up to run the same way other private companies are being run, but in collaboration with its shareholder. Section 65 encourages NNPC Ltd and its joint venture partners to explore the use of incorporated joint venture companies, under the principles enumerated under the Second Schedule to the PIB.
Are the demons truly defeated?
There seems to be optimism that the PIB will be signed by President Muhammadu Buhari. Recall that in 2018, the President declined assent to the Petroleum Industry Governance Bill (PIGB) passed by the 8th National Assembly. It is believed that since the Presidency is as interested in boosting the oil and gas sector with the new law, assent may not be a problem this time around.
While the President of the Senate, Ahmed Lawan, said that the demons of the petroleum bill have been defeated following its passage, analysts are saying that it is far from the reality and that they still exist in black and white on the passed bill.