The Petroleum Industry Bill (PIB) is one piece of legislation that has been talked about so much. First, because it holds a lot of promise and key to the reform Nigeria’s oil and gas sector direly needs. On the other hand, its enactment is long overdue.
The very important piece of legislation seeks to establish a framework for the creation of commercially oriented and profit-driven petroleum entities, to ensure value addition and internationalisation of the petroleum industry, through the creation of efficient and effective governing institutions with clear and separate roles for the petroleum industry.
Brought to the national assembly in 2008, the bill has seen governments come and go the same way it has seen sets of legislators at the national assembly. But it received renewed vigour with the coming to office of President Muhammadu Buhari.
In 2017, the bill was split into four: the Petroleum Industry Governance Bill (PIGB), the Petroleum Industry Administration Bill (PIAB), the Petroleum Industry Fiscal Bill (PIFB) and the Petroleum Host Society Bill (PHCB). These bills, as it were, are believed to hold the keys to the reform of Nigeria’s oil and gas sector.
The reform would start with the NNPC — the country’s cash cow and the sector’s regulator. The PIB seeks to unpack the sector, make the NNPC a private limited liability company, really deregulate the sector, reduce certain taxes, and make the sector attractive to investors.
Even with these lofty goals and promises, non of these splinter pieces of legislation have become law. This holds huge significance for the oil and gas sector. It simply means that the goals and gains and the opportunities the law would present are being ducked.
The problem with Nigeria’s oil and gas sector
Nigeria has a massive crude oil deposit of about 37 billion barrels. This makes it the largest in Africa and among the top 15 globally. This has gone on to become the country’s mainstay, accounting for about 80 per cent of its earnings It also accounts for about the same percentage for its forex earnings. The country’s daily output amounts to about two million barrels per day, as of 2019, with the capacity to increase to 4 million barrels per day.
This shows the primary place of the crude oil business in Nigeria and how dear the ‘black gold’ and its management is to the government of Nigeria.
Big as it is, it has performed below par. The oil and gas sector in the country has the potential to turn the economic fortune of the country around, for good. But years of poor management, government interference, inadequate investment and lack of appropriate legal framework have ducked it.
Government-owned NNPC is chief in the sector’s activities. It controls the sector through Joint Ventures (JVs) and Production Sharing Contracts (PSCs) with International Oil Companies (IOCs). Through the Corporation, the government weighs heavy influence in and controls the sector via up to 60 per cent ownership interest in JVs with IOCs. The intertwined relationship means the sector is not free of government’s interest and corruption from officials who have interest in the sector.
This, Edward Obi, the National Coordinator of the National Coalition on gas flaring and oil spills in the Niger Delta (NACGOND), thinks is one of the major factors docking the sector.
“You can’t have a petroleum industry that is run by the government and expects it to thrive very well”, Obi said. “Apart from the IOCs and those associated with them in terms of marginal corporations, you can’t have the rest of the industry run almost completely by government fiat and expect it to attract huge investments”.
Obi further explained that “governments are not businesses. Government personnel are not good business people. A decent business person wants to work with another business person who understands the rules of business and then speak the language they understand with each other. This is the problem Nigeria’s oil and gas industry has.”
Multiple analyses have linked some of the sector’s problems to poor funding by the government, which could be traced back to the government’s posture in the sector and, to some extent, constant leadership changes in the NNPC.
And the frequent change of the baton of leadership sits really deep. For instance, in 12 years, between 2009 and 2021, the federal government changed the Group Managing Directors of the NNPC eight times: Dr Mohammed Barkindo, 2009-2010; Alhaji Shehu Ladan, April-May 2010; Mr Austen Oniwon, 2010-2012; Andrew Yakubu, 2012-2014; Dr Joseph Dawha, 2014-2015; Ibe Kachikwu 2015- July 2016; Maikanti Baru, 2016 July 2019; and Mele Kyari 2019 to present.
In some cases, there have been allegations that the constant changes in search of ‘loyal servants’ who would do the bidding of the government in power, which in some cases, compromises the sector’s growth.
Cost of not passing PIB heavier than imagined
Back in 2016, the Nigeria Extractive Industries Transparency Initiative (NEITI) released a report — The Urgency of a New Petroleum Sector Law — in which it estimated that Nigeria had lost more than $200 billion to the non-passage of the PIB since its introduction in 2008. If the country could lose about $200 billion in just eight years of the non-passage, that means the loss could have increased by half since 2016 to about $300 billion.
These figures could have come from investor apathy which obscure legal frameworks cause, says Zakka Bala, a vocal oil and gas expert and social commentator. Economically, the non-passage of the PIB has cost both local and foreign investors to move their investment into better and promising places outside Nigeria, he further explained.
“With the non-passage of the PIB and its resultant poor legal framework for the oil and gas sector, no serious investor would take a facility to invest in Nigeria.
Investors only go to places where they have certain degrees of certainty, not what is obtainable in Nigeria at the moment. For instance, an investor who got interested in the sector, buoyed by the promises of the bill, cannot keep waiting for the bill to be passed more than 10 years after. He’d obviously move to other markets with certainties.”
On a more specific note, Obi thinks the non-passage has affected Nigeria’s daily production output so much so that the current output is below what the sector should have been producing if the bill had been passed already.
“It has indirectly affected Nigeria’s production output because new investments that are waiting to come in have not”, he said. “And when there are no new investments, there can’t be an increase in production. So, in the first place, the production levels, as they are in 2021, are far short of what they could have been if we had passed this bill and given the waiting investors the assurance that their investments can be safe in Nigeria.”
Beyond the economic cost are the social implications. The PIB has the potential of generating more jobs for Nigeria’s teeming population. New investments it would attract could birth investments in gas, refineries and petrochemicals. The unbundling of the NNPC and the creation of new entities means new direct and indirect jobs would be available for Nigerians.
But with the delay, Bala says some of the youths who would have been taken off the streets are becoming a public menace. “And when you have citizens being idle and constituting public menace, then you are directly or indirectly planting the seeds that will cause social anarchy”.
Politically, Nigeria is paying a price, too. The country is seen as a leader not just in West Africa but the entire continent. Before the PIB was introduced, Ghana tweaked the P.N.D.C.L. 84 to meet new realities in the industry. “They noticed that it was a fantastic idea and they started looking for materials. Some of them even consulted us”, Bala said. Currently, Ghana has The Petroleum Act (Exploration and Production) 2016. And Tanzania has the Petroleum Act 2015.
On the other hand, Nigeria’s oil and gas industry, the biggest on the continent, is still being governed by the Petroleum Act of 1969. It points to the fact that Nigeria is no longer the giant many thought it always was. Some of the so-called smaller countries have overtaken it, Bala said.
Prof Adeola Adenikinju, Director, Centre for Petroleum, Energy Economics and Law (CPEEL), University of Ibadan says it is instructive for the government to look at the PIB as a regulatory framework that would deliver value rather than continue to play politics with it.
“We need the policy framework, if not another government can come and revoke it (any new policy directive). Nobody is going to make any significant investment on the basis of pronouncements. The sector is capital intensive and for investors to make significant investments and hope to get returns, they need legal backing.
“For a fundamental change to take place, there must be a law to back it up. And the law that will do that is the PIB; that is why we need to pass that bill. You have to define and streamline the agencies”, Prof Adenikinju said.
• This story was produced under the NAREP Oil and Gas 2021 fellowship of the Premium Times Centre for Investigative Journalism.
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