New PIB 2020 and dawn of new era in oil industry

The Petroleum Industry Bill (PIB) 2020 presented to the National Assembly for consideration by President Muhammadu Buhari, on 28 September 2020, has passed second reading. It represents the most comprehensive review of the legal framework for the oil and gas sector in Nigeria since the industry began commercial operations in the 1960s. CHIMA NWOKOJI, in this report, dissects some excellent changes introduced into the Bill.

THE PIB was first introduced in December 2008 and has undergone several amendments, including a split which was done during the 8th National Assembly. At the time, the PIB was split into four namely Petroleum Industry Governance Bill (PIGB), Petroleum Industry Administration Bill (PIAB), Petroleum Industry Fiscal Bill (PIFB) and Petroleum Host Community Bill (PHCB). The PIGB was approved by the National Assembly but did not receive presidential assent and was returned to the National Assembly for further consideration.

It aims to strengthen the governing institutions, establish a strong regulatory framework, ensure transparency and accountability, promote exploration & exploitation of oil resources and foster sustainable development in Nigeria’s oil and gas industry.

Consequently, the 2020 version of the PIB contains provisions that will: Replace the Nigeria National Petroleum Corporation (NNPC) with NNPC Limited; Create separate regulatory authorities for upstream, midstream and downstream operations; Reduce the royalty rate from 10 per cent to 7.5per cent for offshore fields producing not more than 15,000 barrels per day; Increase the benchmark threshold of crude oil price for charging royalty from $35/barrel to $50/barrel; Make gas flaring penalties non-tax deductible in order to disincentivize gas flaring. This objective is in line with the Nigerian Gas Flare Commercialization Program which promotes flare gas capture for commercial purposes.

 

Major changes

In the Petroleum sector, both policy and regulation are vested on an ‘omnipotent’ individual called the minister, but global practice is that the regulator is separated from the minister. The regulator is independent and established by law. For instance, Aye explained that the existing Department of Petroleum Resources (DPR) is the delegate of the minister, but the new Bill will replace individuals with strong institutions.

If passed into law by the National Assembly, the existing Department of Petroleum Resources (DPR), the Petroleum Products Pricing Regulatory Agency (PPPRA) and Petroleum Inspectorate (PI) may be scrapped, thereby giving way for the Nigeria Petroleum Regulatory Commission to take over their functions. The old NNPC (now limited) will now hold all the toxic assets of the corporation. The new Bill will create a security interest on a license so that it can be used as collateral which was not so in the old order.

The PIB 2020 seeks to establish, Nigerian Upstream Petroleum Regulatory Commission to administer and enforce policies and regulations relating to all aspects of upstream petroleum operations and also to issue, administer and enforce compliance on the issuance of licenses and leases in the upstream sector, amongst other functions, as laid out in the bill.

Contained in the PIB is the establishment of the Nigerian Midstream and Downstream Petroleum Regulatory Authority. This authority is to administer and enforce policies, laws and regulations relating to all aspects of midstream and downstream petroleum operations, and to issue and administer licenses in the midstream and downstream sectors among others.

In the old order, a one-off licence gives power to play in the Upstream, Midstream, and Downstream sectors of the industry. These has been segmented in the new regime such that activities are broken down into smaller unites to allow more players in.

The bill mandates the Nigerian Upstream Regulatory Commission and the Nigerian Midstream and Downstream Petroleum Regulatory Authority to keep proper accounts of its income and expenditure for each financial year and cause it to be audited within six months after the end of each financial year by auditors appointed by the Commission from a list and in accordance with guidelines, supplied by the Auditor-General for the Federation.

Furthermore, the new Bill provides that the Minister of Petroleum shall within 6 months from the commencement of the Act, 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.

Ownership of all shares in NNPC Limited shall be vested in the Government at incorporation, and held by the Ministry of Finance Incorporated on behalf of the Government.

The Minister of Petroleum and the Minister of Finance shall determine the assets, interests, and liabilities of NNPC to be transferred to NNPC Limited or its subsidiaries, and upon the identification; the Minister shall cause such assets, interests, and liabilities to be transferred to NNPC Limited.

Assets, interests, and liabilities of NNPC not transferred to NNPC Limited or its subsidiary, shall remain the assets, interests, and liabilities of NNPC, until they become extinguished or transferred to the Government.

NNPC shall cease to exist, after its remaining assets, interests, and liabilities other than its assets, interests, and liabilities transferred to NNPC Limited or its subsidiaries under subsection (1) of this section, shall have been extinguished or transferred to the Government.

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Petroleum Prospecting License may be granted to qualified applicants, to carry out petroleum exploration operations on an exclusive basis. A Petroleum Prospecting License for onshore and shallow water acreages, shall be for duration of not more than 6 years, comprising of an initial exploration period of 3 years, and an optional extension period of 3 years. A petroleum prospecting license for deep offshore and frontier acreages, shall be for duration of not more than 10 years, comprising of an initial exploration period of 5 years, and an optional extension period of 5 years.

Petroleum mining lease may be granted to qualified applicants to search for win, work, carry away and dispose of crude oil, condensates, and natural gas. A petroleum mining lease may be granted for a maximum period of 20 years, which terms shall include the development period.

Gas flaring has been said to be a major destroyer of the ozone layer, and this has a very detrimental effect on climate all over the world, as is presently occurring. The United Nations Framework Convention on Climate Change (UNFCCC), has called on countries to put an end to greenhouse effect. Despite not having any binding emission target under the UNFCC, Nigeria in its own way, has responded under the proposed bill to illegalize and abolish gas flaring.

On Domestic Gas Obligations, the PIB provides that the Nigerian Upstream Regulatory Commission shall, having regard to the needs of the domestic gas market and in accordance with 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.

Looking at far-reaching provisions, some stakeholders have called for the speedy passage of this newest bill. Only recently, Deputy President of the Senate, Senator Ovie Omo Agege (APC, Delta Central),  assured the people of Niger Delta region that the annual contribution of 2.5 per cent actual operating cost by oil companies to the Host Community Development Trust Fund would be increased to, at least, 5 per cent.

His words: “That I come from the oil bearing communities is one of the reasons why I am DSP today given our contribution to the economy of the country. It is only natural that I champion anything that would promote the interest of the people of the Niger Delta

“The PIB is a very crucial bill. If properly handled, it will bring a lot of Foreign Direct Investments (FDIs), into the oil economy. This is the best time to take advantage of the oil we have and the best way to do so.”

Similarly, giving an overview and urgency required in the passage of the PIB 2020, at a policy dialogue of Reporting the Nigeria Oil and Gas sector, organized by the Facility for Oil Sector Transformation (FOSTER), Michael Uzoigwe, Technical Lead, Demand-Side Accountability FOSTER, explained that it was a private Bill in the past but now an executive Bill, which increases the chances of its early passage.

According to Uzoigwe, Nigeria alone cannot mobilize all the money required to solve the problems facing the Oil sector. Therefore, there is need for a total reformation of the sector through the PIB, to make more attractive for more investors to troop in.

Also, Senior Partner Energy and Commercial Contracts, Primera Africa Legal, Mr. Israel Aye opined that passage of the PIB will be a catalyst to developing the county’s economy.

To the specialist in the Natural Resources, Energy, Oil and Gas sector, “efforts should be directed at encouraging increased domestic utilization of petroleum resources and its derivatives, rather than focusing solely on export of the commodity and import of petroleum products.”

It is believed that the new PIB has every potential to accelerate this. The new Bill, 2020, is proposing the revocation of licences for oil and gas firms that fail to meet up with their obligations to their host communities. The power to revoke the licence of the defaulting firms was given to the Minister of Petroleum, upon the recommendation of the Nigerian Upstream Regulatory Commission, among other powers.

The National Bureau of Statics (NBS) in May 2020 highlighted the low levels of wealth in a country that has Africa’s biggest economy. In a report about poverty and inequality from September 2018 to October 2019, the NBS said that 40 per cent (82.9million) of people in Nigeria lived below the poverty line of N137,430 a year or N11,452.50 a month.

In view of the this, Aye further advocated that priority be given to resource governance, as it is an effective means to eradicate poverty, especially as strong resource governance helps mitigate environmental hazards and also safeguard the future of a country.

He said: “Dividends from resource wealth can offer a path out of poverty; but without strong institutions and policies, countries are more likely to fall victim to the ‘resource curse’. The results have become apparent as commodity booms have not contributed to growth and employment creation in non-extractive sectors.

“Resource governance matters for the people who live close to extraction sites. Competent management of oil, gas and mining can reduce environmental impact. In countries with poor resource governance, companies are lax in efforts to protect communities and the environment.” So, general opinion is that the Petroleum Host Community Bill (PHCB) will do justice to Resource governance matters for the people who live close to extraction sites like the Niger-Delta and reduce restiveness in the area.

Furthermore, Aye called for a speedy passage of the Petroleum Industry Bill (PIB), noting that the delay in passage of the Bill had contributed in no small measure in slowing down investments in the Nigerian petroleum, as well as hindering the development of the country’s economy. He also observed that issues around Fosil Fuel/Renewable Energy should be taken into consideration because the law in the Petroleum sector 2020 should not be made as if “we are still in the 1970s.”

The PIB, an omnibus law is meant to regulate the entire sphere of the industry and repeal most existing oil and gas legislations. No doubt, it signals the dawn of a new era; an era in which restructuring and transformation could address many of the issues that have dominated the oil and gas industry in Sub-Saharan Africa’s second-biggest economy.

According to Aye, the country had lost billions as a result of the delay, adding that the opportunity cost of the delay in terms of industry, infrastructure and value addition to the economy was too high to continue to toy with the passage of the bill.

He said: “We believe that this time around, the Ninth National Assembly will break the jinx and should be able to pass the Petroleum Industry Bill. Struggling to pass a legislative Bill for 20 years is a shame to us all.”

 

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