The petroleum or oil and gas industry has been Nigeria’s primary revenue generator for years and has received the most attention. This attention is accompanied by multiple challenges, challenges that have critically affected the country’s oil sector over time, prompting the need for effective solutions. A potential solution has been presented in form of the long-awaited Petroleum Industry Bill (PIB).
The Nigerian Senate passed the 13-year overdue Petroleum Industry Bill (PIB) at the beginning of July 2021. At the passing of the Bill, Senator Sabo Muhammed Nakudu, the Chairman of the Senate Committee on Downstream Petroleum Resources, said the assent of the Bill into law would “strengthen accountability and transparency of NNPC and develop a positive environment for international and domestic investment in midstream and downstream petroleum operation.”
It is believed that the Bill will ensure strict implementation of environmental policies, laws and regulations for midstream and downstream petroleum operations and also the development and enforcement of a framework on tariff and pricing for natural gas and petroleum products.
The journey to this point began more than a decade ago. According to Brendan Ndukwu, Managing Director of Ignite Energy Ltd, the call for the PIB was prompted by imbalance and injustice in the allocation of the nation’s resources, particularly with the laws enacted to manage the nation’s oil system.
“The oil and gas law did not favour all stakeholders in the oil industry. Among the affected stakeholders were the host communities where oil is mined and the states where the resources are located. These affected parties, who felt duped, demanded fairness from the government. With the side effects of oil drilling resulting in oil spillage, pollution of farmlands and rivers, and an unhealthy environment, coupled with the fact that they benefited nothing, there was serious agitation, and steps were taken to correct the situation,” Ndukwu said.
The long-awaited PIB is said to be the skeleton key that would unlock the doors to economic growth in the oil sector. The Bill intends to address every aspect of the oil industry, including upstream, midstream, and downstream. It also provides a legal, governance, regulatory, and fiscal framework for the Nigerian Petroleum Industry and host community development. And while it includes several provisions, the following are the ten major provisions of the 2020 Petroleum Industry Bill:
The Minister of Petroleum
The Bill states that the Minister of Petroleum has the authority to develop, monitor, and implement government policies in the petroleum industry. He also has the authority to exercise general supervision over the affairs and operations of the petroleum industry under the provisions of this act. He will represent Nigeria globally on petroleum issues and create an enabling environment for investment in the Nigerian petroleum industry.
Establishment of the Nigerian Upstream Petroleum Regulatory Commission
According to the Bill, this commission is to administer and enforce policies and regulations relating to all aspects of upstream petroleum and to issue, administer and enforce compliance on the issuance of licenses and leases in the upstream sector. It is also responsible for establishing, monitoring, regulating, and enforcing health and safety measures in all aspects of upstream petroleum operations.
Establishment of the Nigerian Midstream and Downstream Petroleum Regulatory Authority
According to the Bill, this council is responsible for administering and enforcing policies, laws, and regulations pertaining to all aspects of midstream and downstream petroleum operations, as well as issuing and administering licenses in the midstream and downstream sectors. The agency is also responsible for ensuring and enforcing compliance with all licenses, permits, and authorizations issued in connection with midstream and downstream petroleum operations.
Incorporation of the Nigerian National Petroleum Company Limited
The Minister of Petroleum shall within six months from the commencement of this Bill, cause to be incorporated under the Companies and Allied Matters Act, a limited liability company, which shall be called Nigerian National Petroleum Company Limited (NNPC Limited). The Minister shall at the incorporation of NNPC Limited, consult with the Minister of Finance to determine the number and nominal value of the shares to be allotted, which shall form the initial paid-up share capital of NNPC Limited, and the Government shall subscribe and pay cash for the shares.
Granting of licenses and leases
A petroleum exploration license may be granted to qualified applicants, to explore petroleum on a speculative and non-exclusive basis. A petroleum prospecting license for deep offshore and frontier acreages shall be for not more than 10 years, comprising of an initial exploration period of five years, and an optional extension period of five years.’
Abolition of gas flaring
The new law demands strict adherence to a gas flaring plan, along with gas utilization plans, to be submitted by all oil and gas operators within six months of the coming into effect of the law, indicating data on their daily flare quantity, reserve, location, composition. Statistics posit that Nigeria losses a lump sum of money every year to gas flaring, such that its abolition is a wise way of saving this money, and making it available for the usage of the economy and its development.
Domestic gas obligations
The Petroleum Industry Bill provides that the Nigerian Upstream Regulatory Commission shall, having regard to the needs of the domestic gas market and following the National Gas Master Plan, impose Domestic Gas Supply Obligations (DGSO) on lessees. As proposed, a lessee who fails to comply with its DGSO shall not be permitted to make supplies to gas export operations, and where the lessee only supplies gas to export operations, the lessee shall be directed to suspend operations.
Deregulation of the downstream sector
The Bill provides that the pricing of petroleum products in the downstream product sector shall be deregulated to ensure market-related pricing, adequate supply and removal of economic distortions, and creation of a fair market value for petroleum products in Nigeria’s economy. The PIB proposes to safeguard the interest of consumers, by providing that the Nigerian Midstream and Downstream Petroleum Authority shall oversee tariffs for transportation by pipelines, bulk storage for petroleum products and regulated open access facilities.
Petroleum fund for host communities
The aim of this bill is geared towards providing direct social and economic benefits from petroleum operations to host and impacted communities. The bill stipulates that an annual contribution of 2.5 per cent of the actual operating expenditure (OPEX) of the E&P Company will be placed into a fund. The funds available in the endowment fund are to be allocated in the following manner; 70 per cent of the endowment fund shall be allocated to the capital fund, out of which the board of trustees shall make disbursements for projects in each host community, as may be determined by the management.
The fiscal regime under the PIB
The Bill proposes to replace the existing petroleum profits tax with a Nigerian Hydrocarbon Tax (NHT), at the rate of 50 per cent for petroleum operations onshore, and in shallow water fields; and 25 per cent for petroleum operations in deep-water, bituminous and frontier acreages. In addition to the NHT, where petroleum operations fall in geographical areas that are subject to different tax rates, NHT shall be levied on the proportionate parts of the profits arising from such operations.
Before now, the PIB had failed to pass three times – in 2009, 2012, and 2018 – due to a variety of factors. These factors include a lack of ownership, a misalignment of interests between the National Assembly and the executives, a perceived erosion of mineral powers, vehement opposition from host communities, and investor pushback on perceived provisions in those versions of the bill. It is hoped that the current PIB will be sufficient to stimulate the desired investments. However, the solution it proposes does not address the issue of transitioning from fossil fuel to clean renewable energy.
Written by David-Duke N. Ndukwu