INTRODUCTION:

The discovery of Oil could be said to be the best thing to have happened to Nigeria since Jollof Rice, this is a belief widely held by a majority of Nigerians. However, all that glitters is not gold, it would not be wrong to also say that the discovery of oil is the worst thing to have happened to Lord Lugard’s Nigeria as evidenced by our over-reliance on it. Crude oil accounts for 90% of Nigeria’s export earnings, since the oil boom of the 1970s, major budgetary decisions of the governments of the day have always gravitated towards the oil sector as opposed to renewables or associated public goods.

Nigeria has been classified globally as a fitting illustration of a nation suffering from the resource curse problem (a situation where some resource-rich countries fail to benefit fully from their natural resource wealth).

To break the yoke of this curse, there have been consistent calls for reforms in the oil and gas sector for over a decade now, previous administrations have tried but ultimately failed to affect these much-needed changes since the Petroleum Industry Bill (The Bill/PIB) was first introduced to the National Assembly in 2008. However, it would seem that the Buhari Administration might just cross the finish line, the bill has passed its first reading in the Senate and looks likely to be enacted before the end of 2021.

In this short write-up, we take a look at the proposed changes that the long-awaited bill seeks to address.

 

THE PETROLEUM INDUSTRY BILL:

The Bill has the following objectives:

•      To create efficient and effective governing institutions, with clear and separate roles for the petroleum industry;

•      To establish a framework for the creation of a commercially oriented and profit-driven national petroleum company; 

•      To promote transparency, good governance, and accountability in the administration of the petroleum resources of Nigeria; and

•      To foster a business environment conducive to petroleum operations.

 

It is further divided into five Chapters:

•      Governance and Institutions

•      Administration

•      Host Communities Development

•      Petroleum Industry Fiscal Framework

•      Miscellaneous Provisions

 

a.     Governance and Institutions

 

This sector consists of 4 diverse entities, which include:

 

• The Minister;

• Two new regulatory bodies – the Nigerian Upstream Regulatory Commission (NURC) and,

• The Midstream and Downstream Regulatory Authority (MDRA);

• Nigeria National Petroleum Company Limited (NNPC Limited)

 

The Minister

The Minister exercises general supervision over the affairs and operations of the petroleum industry and reports developments in the industry to the government.

The Bill proposes to grant the Minister the power to negotiate treaties or other international agreements on matters pertaining to petroleum on behalf of the Government.

The bill takes away the price-fixing powers of the Minister, the powers to grant and revoke Prospecting Licenses and Mining Leases are now only exercisable by the Minister upon the recommendation of the Commission.

The Nigerian Upstream Regulatory Commission (NURC)

This commission is to regulate upstream petroleum operations including technical, operational, and commercial activities, and also to ensure compliance with all applicable laws and Regulations governing upstream petroleum operations. It shall be a body corporate with perpetual succession and a common seal.

The Midstream and Downstream Regulatory Authority

The objectives of the Authority are to regulate midstream and downstream petroleum operations, including technical, operational, and commercial activities, and also ensure efficient, safe, effective, and sustainable infrastructural development of midstream and downstream petroleum operations. The objects and functions of the Authority are limited to midstream and downstream petroleum operations in the petroleum industry.

Nigerian National Petroleum Company Limited

The Minister shall within 6 months from the commencement of this 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). 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.

 

b.     ADMINISTRATION

 

The provisions of Chapter 2 apply to –

(a)   activities within or associated with petroleum operations and the petroleum industry; and

(b)  persons conducting such activities.

The NURC shall prescribe and allocate the domestic gas delivery obligations to a lessee. However, the Commission shall discontinue the imposition of domestic gas delivery obligations, where the Authority has determined that the natural gas market has attained full market status.

Prohibition of Gas Flaring (section 104); in a bid to fulfill its obligations under the United Nations Framework Convention on Climate Change (UNFCCC) and similar Conventions, the Bill demands strict adherence to a gas flaring plan. The Commission may, however, grant a permit to a Licensee or Lessee to allow the flaring or venting of natural gas for a specific period where it is required for facility start-up or for strategic operational reasons, including testing.

Granting of Licenses and Leases (Section 70); The Bill provides for the following Licenses and Leases;

(a)   Petroleum Exploration License (Commission) to be granted to qualified applicants, to explore petroleum on a speculative and non-exclusive basis.

(b)  Petroleum Prospecting License (Minister/Commission) to be granted to qualified applicants to carry out petroleum exploration operations on an exclusive basis.

(c)   Petroleum Mining Lease (Minister/Commission) to be granted to qualified applicants to search for, win, work, carry away and dispose of crude oil, condensates, and natural gas for a maximum period of twenty years.

 

c.     Host Communities Development

This provision has the following objectives:

• To foster sustainable prosperity within host communities and

• To provide direct social and economic benefits from petroleum operations to host communities.

• It also seeks to enhance peaceful and harmonious co-existence between licensees or lessees and host communities.

The Bill mandates that Settlors (a holder of an interest in a petroleum prospecting license or petroleum mining lease or a holder of an interest in a license for midstream petroleum operations, whose area of operations is located in or appurtenant to any community or communities) shall incorporate a trust for the benefit of the host communities for which the settlor is responsible (“host community development trust”).

The constitution of each host community development trust shall provide that the applicable host community development trust fund be used exclusively for the implementation of the applicable host community development plan (Section 241).

The funds of the host communities development trust created pursuant to this Act shall be exempted from taxation.

 

 

d.     Petroleum Industry Fiscal Framework

This provision seeks to establish:

• a progressive fiscal framework that encourages investment in the Nigerian petroleum industry,

• a fiscal framework that expands the revenue base of the Federal Government, while ensuring a fair return for investors.

The administration and collection of Government revenue in the petroleum industry shall be the function of the Federal Inland Revenue Service (FIRS) and the NURC.

The Bill proposes to replace the existing petroleum profits tax (PPT) with Hydrocarbon Tax (HT), which shall apply to crude oil, condensates, and natural gas liquids produced from associated gas.

In addition to the Hydrocarbon Tax, the Bill also proposes Companies Income Tax (CIT) at the rate of 30% on upstream petroleum operations.

The FIRS shall be responsible for the assessment and collection of -

(i) hydrocarbon tax and enforcement of the provisions of this Act as it relates to hydrocarbon tax assessment and revenue collection, and

(ii) companies’ income tax and tertiary education tax in accordance with this Act as it relates to taxable petroleum operations;

The NURC shall be responsible for the determination and collection of -

(i) rents and royalties and its enforcement under this act; and

(ii) related payments or production shares, where the model contract includes provisions related to production sharing, profit sharing, or risk service provisions.

 

e.     Miscellaneous

Chapter Five covers the miscellaneous provisions which include legal provisions such as the provisions of the Public Officers Protection Act which shall apply in relation to any suit instituted against the NURC or the MDRA. It also details the transfer of assets and liability to the NURC and the MDRA.

On the issues of transfer of employees and conditions of service, employees in the relevant divisions in the Petroleum Inspectorate or the Department of Petroleum Resources shall be employees of the Commission on terms no less favorable to those in effect immediately prior to such transfer. In addition, employees of each of the Department of Petroleum Resources, the Petroleum Pricing and Product Regulatory Agency, and the Petroleum Equalisation Fund (Management Board), shall be employees of the Authority.

 

CONCLUSION:

The PIB is a breath of fresh air for the Nigerian Economy, its passage should ensure that Nigeria’s oil sector reaches its full potential. It promises a new corporate culture for the NNPC, greater oversight of the firm’s operations and financials which will encourage a more commercial orientation. The inclusion of transparency will also help plug leaks while sending good signals to partners, lenders, and investors.

We acknowledge the fact that the PIB isn’t a magic wand that will immediately solve/cure all the ills prevalent in the oil and gas sector, however, we believe it’s a step in the right direction for the Nigerian Economy and its people.