Nigeria’s Petroleum Industry Bill: The never ending journey to industry reform

Over the years, controversies have trailed the passage of the contentious Petroleum Industry Bill (PIB),
although, the Federal Government (FG) had assured of its passage by mid-2020, experts not only believe that its continued delay may further rob the country of investment gains but that a good bill may not be passed in the long run. ADETOLA BADEMOSI writes on the journey of the bill and gains, if passed.

 

For a long time, stakeholders as well as experts have repeatedly called for passage of the Petroleum Industry Bill (PIB) which seems to have tarried for over a decade. Because of the complexities in the oil and gas sector, a presidential committee set up in 2007 developed the bill which seeks to increase transparency at the Nigerian National Petroleum Corporation (NNPC) and to increase Nigeria’s share of oil revenue.

Since oil exploration began in Nigeria for commercial purposes, the country still does not have a comprehensive law for the administration of the sector except for the Petroleum Acts many of which overlapped in functions and responsibilities.

As a result, the country has lost several investment opportunities despite having more significant oil reserves, compared to Ghana, Egypt and some other countries.

Experts say the loss to the country during the first eight years that the PIB languished in parliament, is as high as $120 billion (about $15 billion annually).

The 2013 Nigeria Extractives Industry Transparency Initiative’s (NEITI) audit report of the oil and gas sector revealed that a cumulative $10.4 billion and N378.7 billion was lost, under-remitted or outstanding due to inefficiencies, theft or absence of clear fiscal regime in the sector.

 

Genesis of the PIB

In order to develop the sector, Nigeria had engaged in some unincorporated Joint Ventures with International Oil Companies (IOCs) but could not meet up its financial agreements with the companies, as a result, the Production Sharing Contract (PSC) was established in 1993 to address some of the issues faced by the Joint Operating Agreement (JOA).

This was also aimed at providing an adequate agreement structure for encouraging foreign investment in offshore acreage.

However, the system was reportedly not transparent, lacked good governance and runs contrary to international standards.

As a result, the then President,  Olusegun Obasanjo, in 2000, established the Oil and Gas Reform Committee (OGRC). The OGRC, consisting of over 24 local and international experts was charged with reviewing and streamlining all existing petroleum laws and establishing a regulatory framework for the sector to reflect and serve the interests of consumers, the environment and the operators.

However, in 2005, another committee was set up by the government. The Oil and Gas Implementation Committee (OGIC) took up the extensive work carried out by the OGRC.

It was “to develop strategies for the implementation of the content of the policy documents earlier developed by the National Committee on Oil and Gas Policy”.

Some of the recommendations made by the committee included the restructuring of the Nigeria National Petroleum Corporation (NNPC), deregulation of the sector, incentivizing private investment in refineries, and harmonization of existing petroleum laws among others.

These were all integrated into one document to be presented to the National Assembly. But the draft law could not be submitted to the National Assembly before the end of Obasanjo’s administration.

However, in September 2008, President Umar Musa Yar’Adua presented the first draft of the bill to the 6th NASS but was widely contended by the IOCs, host communities and other stakeholders.

Four years after the presentation of the first draft, ex-President Goodluck Jonathan in 2012 also set up a special task force to fast-track the passage of a reworked PIB with more than 16 existing laws harmonized into the new draft bill.

It was again presented to the 7th Assembly in July 2012 but like before, provisions of the bill were contended, leading to various versions of the bill with conflicting interests of different stakeholders. The same fate befell the contentious bill in 2014 till date.

 

Unbundling of the Bill

To facilitate its passage and signing into law, the bill was subsequently unbundled into several segments by the eighth National Assembly, which was aimed at making it easier for the less-controversial aspects of the bill to have easy passage while the more controversial aspects are dwelt more upon.

The PIB was split into four parts, namely: Petroleum Industry Governance Bill (PIGB); Petroleum Industry Administrative Bill (PIAB); Petroleum Host and Impacted Community Bill (PHIB); and Petroleum Industry Fiscal Bill (PIFB).

PIGB was passed by 8th NASS but President Muhammadu Buhari withheld  assent to it.

Ita Enang, Senior Special Assistant to the President on National Assembly matters, had in 2018 disclosed that the President’s decision was for legal and constitutional reasons.

On his part, Abubakar Malami, the  Minister of Justice and Attorney-General of the Federation during ministerial screening in 2019, explained that  the Petroleum Industry Governance Bill (PIGB) was refused assent because it did not factor the public.

According to him, the bill provided more priority to the individual than the public interest, stressing the need to establish deep rooted collaborations from conception of a bill to convocation of public hearing to seek input of varied opinions for the good of the public.

The Petroleum Industry Governance Bill (PIGB) is a fraction of the Petroleum Industry Bill (PIB) aimed at reforming Nigeria’s oil and gas sector. The PIGB focuses on the governance of the oil and gas sector and seeks to promote transparency and accountability in the administration of petroleum resources in the country.

It seeks to establish the Nigerian Petroleum Regulatory Commission (NPRC), a single regulator to serve as the supervisory body for the oil and gas industry.

This implies that the Commission will replace the Petroleum Inspectorate, Department of Petroleum Resources (DPR), the Petroleum Products Pricing Regulatory Agency (PPPRA).

Also, the NNPC will be split into smaller entities to ensure efficiency and transparency and to be  replaced by the National Petroleum Company (NPC).

The country’s  refineries and joint venture assets will also be  moved from the NNPC to the NPC.

In the PIGB, some of the regulatory functions of the minister of petroleum resources will be transferred to NPRC while a nine-man board will govern the NPRC with a fixed tenure, and the board is going to have representatives from the ministries of petroleum resources.

 

What makes a good bill?

Experts in the sector have come out to give diverse views on the bill and ways to address its contentions.

Joseph Nwakwe, Chairman, Society of Petroleum Exploration Nigeria Council, said there was a need for a competitive fiscal regime to attract the needed investment in the industry.

According to him, for over a decade, the country has not been able to attract the needed investment, despite having many windows for such.

“We have to recognise that in the last 15 years, we have not been able to attract the required investments that we need. If you look at our resource endowment and production level, if you look at oil, 40 billion barrels and you are producing less than two million barrels  a day, it means there is scope for investment and scope for domestic utilization.

“The question is, who will fund it? It is clear to every one that the Federal Government is in no position to fund the level of development that we need, so we would have to default to the private sector and to be able to bring in investors either domestic or foreign, you have to have a competitive fiscal regime. It needs to be attractive,” he said.

Speaking during a dialogue on petroleum sector reforms, he said the PIB has to be one that does not just attract capital but moves the country away from an extractive to a value addictive industry.

Also, he said the bill should address equitable distribution of resources, fiscal stability and revenue management.

On his part, Mr. Ken Henshaw, the Executive Director, We The People, said the petroleum host community and impacted bill is the most contentious part of the bill as it does not contain  structures that allow communities to participate in the oil and gas sector.

“The most contentious part of the PIB is the host community component of it, basically how benefits will be transferred to local communities and I dare say that that singular component has kept the bill at where it is today.

“The host community component of the PIB creates an agency extensively meant to transfer benefits to communities. It gives power to the IOCs to identify host communities, so they are the ones to identify who host communities are. Why should the IOCs be the one to identify who the host communities are? Why not the Federal Government,  why not the state government? Who qualifies to be a host community and that is the issue being contended in the Niger Delta region till date,” he said.

According to him, in terms of environmental management, there are clear gaps in all sections of the drafted PIB.

“What we need to see in terms of environmental protection is a situation where the agencies responsible for protecting the environment are strengthened and stiffer penalties for environmental degradation by oil companies.

“We need to see a PIB that takes into consideration the need to mitigate environmental impacts other than paying compensation. Over and above payment of fines, what we need to see more is a situation of a deliberate action to avoid environmental consequences and trying to manage it when it occurs. That is what we are seeing currently. Take gas flaring for instance, it only talks about penalties for gas flaring but has not put its feet down demanding a deadline for gas flaring,” he said.

Also, Professor Emeritus in Petroleum Economics and former President, Nigeria Association for Energy Economics, Wumi Iledare, stated that the oil and gas sector is not clearly governed, adding that if the PIGB had been passed in 2018, this would have  defined the responsibility of each institution of government.

“It is a policy issue. Right now, we have amorphous governance of the oil and gas sector in Nigeria and that is a big challenge and that is what the PIGB would have resolved. NNPC would have been solely commercial, no policy or regulatory functions. The Nigerian Petroleum Regulatory Commission (NPRC) would have been in charge of regulating the oil and gas sector,” he said.

He opined that the delayed passage of the bill was also affected  by the transition of the National Assembly (NASS).

“What people must realise is that once  an assembly moves on, whatever bill they have, begins again and that is why you see what we are trying to do now is to pass a new bill. I understand there is going to be two bills or one single bill with four parts. Or two bills, one will deal with the fiscal system, the other one will deal with governance, administration and community.”

However, he said if successfully passed,the investment uncertainties that have surrounded the industry for the past 20 years will be solved.

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