The Petroleum Industry Bill: Expectations and Concerns

Communications January 26, 2021 2

-Onyekachi Onuoha PhD

Nigeria has explored oil resources for over six decades. Petroleum resources provide over 90% of Nigeria’s export revenue and has remained the largest industry of the economy in terms of revenue generation. Apparently, the indicators of the Nigerian budget are predominantly drawn from the anticipated cost of a barrel of crude oil and our production capacity. A number of laws and regulations exist in different dimensions to regulate what happens in the industry, though many of them are now very obsolete. It is interesting to note that there is no robust, comprehensive and omnibus Act in the Petroleum sector to provide the requisite regulation of the upstream, midstream and downstream sectors of the petroleum industry. This is the gap that  the Petroleum Industry Bill (PIB) seeks to achieve. The Bill addresses regulatory loopholes in the industry, allowing for improved governance and regulation spectrum, improved exploration environment also beneficial to host communities, infrastructural development of these communities, and enhanced fiscal returns, among others. 

Onyekachi Onuoha during a stakeholders meeting to the Rivers State Ministry of Energy & Natural Resources

The passage of the PIB is expected to drive reforms by strengthening governance institutions, establish a strong regulatory framework, ensure transparency and accountability in oil and gas resource management and promote sustainable development. Amazingly, the PIB has been one of the longest existing bills in the Nigerian legislative history as it has been an ongoing conversation in the last 20 years. In the 8th national Assembly the bill was disaggregated into four bills. Three of the four were not passed by the National Assembly while only one which was the Petroleum Industry Governance Bill was passed but  denied assent by President Muhammadu Buhari. 

The long delay in the passage of the bill is caused by the vested interest of various stakeholders including the regulators (powers and responsibility), operators and oil marketers (Royalty and fiscal issues), host and impacted communities (environmental issues, developmental funding, etc). It must be noted that these differences cannot be holistically settled, a stakeholder parley is essential for finding a common ground. A further delay of the passage of the PIB is far from being an option as the Nigeria Extractive Industries Transparency Initiative (NEITI) had stated that Nigeria recorded losses to the tune of $200 billion for failing to pass the bill. 

In view of the overarching benefits of the bill, a number of civil society organizations including Connected Development (CODE), FOSTER, OXFAM, BudgIT, CISLAC, Centre LSD among others have increased advocacy for the reintroduction of the bill and recently the bill has now been reintroduced into the national Assembly as an executive bill following this advocacy that seeks a participatory and speedy process. In order to make the process more participatory, a public hearing on the bill was scheduled for the 27th and 28th of January, 2021 for cogent inputs by all stakeholder.  

In the midst of the expectation of passage and assent to the bill, there are clear observations;

The Expectations of the Petroleum Industry Bill

The Petroleum Industry Bill is expected to repeal upto 17 Acts and provide a new framework for natural resource governance especially in the petroleum industry.  The bill proposes the creation of the Nigeria Upstream Regulatory Commission (The Commission) which will act as the regulator of the upstream sector and the Nigerian Midstream and Downstream Petroleum Regulatory Authority (The Authority) functioning as the regulator of the midstream and downstream sectors of the petroleum industry. It is anticipated that the creation of the Commission and the Authority will provide better enforcement of standards to streamline inter agencies’ responsibility. 

The recommended replacement of NNPC with NNPC Limited seems to be a good step to make it more efficient strictly as an operator with no form of regulatory role directly or indirectly. The introduction of Environmental Remediation Fund as a condition for the grant of license and prior to the approval of environmental Management plan is very commendable, though the approach is not inclusive of host communities.

The prohibition of flaring or venting of natural gas with fines not subject to tax deduction appear attractive to discourage gas flaring however there are stipulated exceptions for condoling gas flaring. The Host Community Development Trust requires oil operators (settlers) to contribute 2.5% of their actual operating expenditure yet this has been defaulted, worse, host communities have become mere spectators. 

It is very interesting to note that the price fixing powers of the Minister of Petroleum Resources no longer exist under the PIB 2020 which suggests a progressive move towards full and honest deregulation of the downstream sector. The powers of the minister to grant and revoke prospecting licences and Mining Leases exercisable solely by the Minister can only be done under the PIB by the recommendation of the Commission. This has the tendency of promoting due process and forestalling corrupt practices similar to the Malabu Scandal.

Effect of the Passage of the PIB on the Petroleum Downstream Sector

The PIB will have a far reaching effect on the downstream sector.

1. The removal of the powers of the Minister of Petroleum Resources in the PIB from fixing prices of petroleum products suggests an end to at least petroleum import subsidy regime. 

2. The PIB passage is likely to provide the much needed legislative framework for a compressive deregulation of the petroleum downstream sector.

3. The PIB will increase the appetite of oil marketers  to invest in the digitalisation of their vital downstream assets.

4. In line with the proposed establishment of “The Authority” to take charge of the regulation of only the midstream and downstream sector, “The Authority” should be more responsive in discharging its duties and strengthening regulations.

A tour to Ogoni Land to observe adverse impact of oil exploration on the community

Concerns of the Petroleum Industry Bill 

There are several concerns of the Petroleum Industry Bill which have been highlighted by various stakeholders. These areas of concerns include;

Host Community Development Trust: In establishing and registering the Trust, there is no reference at all to communities. The job of identifying who a host community is, lies with the oil company (Settlor). Why not the federal and state government? This has a potential for conflict?

The Holder (oil and Gas Company) selects members of the Board of Trustees (There is no provision or requirement for appointing locals or members of the host communities which means the lack of participation). The implication of this is that it places the power and the mandate for the development of oil producing communities in the hands of the oil companies, allowing the government to abdicate their responsibility. This could create additional grounds for conflict.

The Board of Trustees establishes a Management Committee which is required to have only one community representative who shall be a non-executive member of the management committee. This is gross under-representation for the host community

Forfeiture of contribution to the Host Community Trust Fund: Section 257 (2)- forfeiture of contribution to the Host Community Trust Fund as a result of vandalism, sabotage or other civil unrest. There should be a clause to indicate that such vandalism, sabotage or other civil unrest were caused by the host community as established by the commission. It should therefore be re-written thus;

“Where in any year, an act of vandalism, sabotage or other civil unrest caused by the host community as established by the commission which occurs that causes damage to petroleum and designated facilities or disrupts production activities within the host community, the community shall forfeit its entitlement to the extent of the cost of repairs of the damage that resulted from the activity with respect to the provisions of this Act within that financial year”.

Application of the New Fiscal regime: The new fiscal regime would not apply to the companies already in operation until the renewal of the existing Oil mining Leases (OMLs) and Oil Production Licenses (OPL) or the execution of a new one. The state of affairs in the country requires that the current licenses would be made subject to the PIB when passed rather than remaining under the obsolete PPT Act.

Host Community Needs Assessment: The holder (Oil and gas Company) carries out needs assessment of needs for communities. This is a recipe for conflict especially where there are conflicting needs.  While the needs assessment is required to have an ‘environmental perspective’ the details show only interest in benefit transfers and not environmental protection.

Flare Gas Data Log: The PIB as it is, does not necessarily recommend commensurate punishment for flare gas data log offenders. It merely recommends a fine of extra $2.50(US Dollars) per 28.317 standard cubic meters for an offender who is found guilty of supplying false data or fails to supply such data. This recommended fine is by all standards marginally low.

Gas Flaring: The provision for gas flaring in the bill is still very small when compared to the impact of the offence on the environment and lives of people. This implies that the provision prefers the payment of fines to a demand to end flaring. Obviously, the operators will still prefer to flare gas and factor in the penalty as a component of their operating cost as it were. 

Licence and Lease: A licence or lease may be granted under this Act only to a company incorporated and validly existing in Nigeria under the Companies and Allied Matters Act. We need to add here that; companies who sub-let such rights or contract to other non-registered companies in any of its value chain will be liable to forfeiture of their licenses.

Gas Utilisation Incentive: Companies operating in this sector should be ineligible for pioneers status incentives (PSI), which confers the benefits of a tax holiday (amongst others), the associated cost and administrative inconvenience of processing the PSI may make the Gas Utilisation Incentive (GUI) more attractive.

A tour to Ogoni Land to observe adverse impact of oil exploration on the community

CSOs must take the responsibility of critically studying the PIB to identify all the areas of concerns of all the stakeholders so that their expectations are aptly captured in the PIB and all stakeholders have commitment to the bill. Although many CSOs have worked tirelessly on the PIB and t have been stretched over the years especially because of the delay of the bill, we must find new strength; we all need to see it passed. We must stay focused and follow the bill through at the National Assembly so that we don’t sacrifice quality at the altar of speed.

The passage of the bill is a great step in the right direction for the requisite reform of the petroleum industry, however when it is passed and assented to, ensuring comprehensive implementation is imperative to take care of the governance spectrum, environmental issues and fiscal matters in the industry.

Onuoha, Onyekachi Chibueze PhD

How Nigeria lost 3.3 billion dollars through tax exempts: The ActionAid report

Hamzat Lawal January 20, 2016 0

It was apparent that everyone sitted in the Acacia Room of the Ladi Kwali Hall in Sheraton Hotels & Towers, Abuja were interested in the reason for the event – Nigeria had lost 3.3 billion dollars from tax holidays given to the NLNG consortium made up of Shell, Total, Eni and the Nigerian National Petroleum Corporation [NNPC].

How did this oil rich nation lose so much from tax, when 70% of all its previous budgets were financed from the profits of crude export?

Honourable Herman Hembe, representing Vandeikya/Konshisha federal constituency, Benue State noted that with the global crises arising from falling oil prices, it was time that executive and national assembly revisited policies and laws that granted corporate bodies tax exemptions in Nigeria

In her welcome address, Ms. Ojobo Atuluku, Country Director, ActionAid Nigeria pointed out that tax incentives in developing countries was costing 138 billion dollars yearly. Citing the current research undertaken by the organisation, Nigeria’s current loss of 3.3 billion dollars was equivalent to twice the national education budget and thrice the healthcare budget in 2015.

More statistics shared showed that 10 million children were not schooling and 15 out of 100 children die before turning 5; the leakages in the system could have been put to better use to uplift the citizenry.

She challenged the federal government of Nigeria on the current tax culture and calling for collaboration of the country with other countries to end harmful regional tax completion.

The launch of the report also featured a panel discussion between ActionAid Nigeria, government officials in the Federal Revenue Inland Service [FIRS] and staff from the Ministry of Finance.

You can Download the Report here


Hamzat Lawal January 4, 2016 0

Happy New Year!!! Welcome to 2016; as we slowly and sadly leave the holidays [which I enjoyed, hope you did] and kick-start the year let’s look at what trends are expected to shape Nigeria socio-economically as many people expect the “change” mantra of the Buhari’s administration to enter full gear.

January kicks off with a 50 kobo [N0:50K] decrease in the pump price of petrol, making the black gold retail at the price of N86:50k for Africa’s most populous nation, a change that many Nigerians feel has no major effect and a change many petrol stations are not complying to.

Budget: The 2016 federal budget was presented before a joint session of the National Assembly last year which was proposed at N6.08 trillion, and was dubbed a non-oil budget as only 13% of the budget outlay is expected to come from oil.
The situation could get harder than envisaged as the International Monetary Fund [IMF] has said that crude oil prices may slump to as low as $20 per barrel in 2016.

With Nigeria expected to produce 2.2 million barrels of crude oil per day in 2016 and sell at $38 per barrel, the country expects to generate $83.6 million per day in 2016 – $30.514 billion in the year 2016.
Going by IMF’s predictions at $20, Nigeria would generate $44 million per day in 2016, amounting to $16.060 billion in the year.

This would mean that Nigeria would get at least 47.4 percent less revenue from oil than what is already projected
The debate in past years has always been how close the benchmark should be to the price of crude. Excess crude account was created in the good old years to warehouse the difference between benchmark and actual price. This is no longer the case as Government now has to plan with expectation that actual crude price will rise back to benchmark.

Perhaps, balancing the exchange rate amy help cushion the effect. Official exchange rate is currently N197 to a Dollar.

Budget 2016

Budget 2016

Security: The deadline given to the Army by President Buhari for the insurgency in most of the North East passed and it was celebrated that victory had been accomplish; hopefully it would be the roadmap to a peaceful year in terms of security save a little hiccups here and there.
With faith lost by the populace in the Nigerian Police Force, we can only hope that hope is rekindled in 2016 as the police are first responders to issues of domestic insecurity and violence.

Justice: Moving on, the performance of Buhari’s administration would be a topic for every occasion as issues surrounding Supreme Court verdicts for Akwa Ibom, Rivers and Taraba states governorship elections being expected in the first quarter of this year, it is envisaged that whatever becomes the outcome would alter the political configuration of the affected states. Not to forget the legal confusion in Kogi State after the demise of late Prince Abubakar Audu who was the running candidate of the ruling APC party.

Corruption: The President’s stance on corruption is also going to be tested given his commitment to stamp the menace and the general that he is a “no-nonsense” person.
Issues like “Dasukigate”, the scandal facing the former National Security Adviser Lieutenant Colonel Sambo Dasuki (rtd) and others over the embezzlement of 2.2 billion Dollars, the Hyde Park Lane saga facing former Minster of Petroleum, Diezani Allison-Maduekwe and many more cases that Nigerians are itching to hear.
It is interesting to note that more than just hearing about the gazillions that are looted from the nation’s purse, citizens are clamouring for stringent convictions.

Unemployment: Finally, N5,000 stipends to be paid to unemployed youth as promised during the campaign of Mr. President and the growing state of idle youth. A policy that many analysts view as one that said in the heat of the moment.
Concerns are centred around how feasible is the policy and what baseline data would be used to assess the number of unemployed youth [for a nation that has 70% of its population leaving below the poverty line]

With the harmattan in full swing, it’s never been a better time to put on your shades, buy some popcorn and watch the drama unfold daily. Happy New Year & God Bless Nigeria.