INTRODUCTION
Before the introduction of the Petroleum Industry Bill (PIB), 2021, various restructuring efforts have been made to restructure the oil and gas industry, but without any real success. Prior to this, there were various iterations of the Bill. This started as an omnibus bill and was later divided into 4 separate bills before emerging as a consolidated bill. The previous attempts at passing the Petroleum Industry Bill were known to have failed due to various factors such as lack of ownership, misalignment of interests between the National Assembly and the Executive, perceived erosion of ministerial powers, stiff opposition by the petroleum host communities and push back by investors on the perceived uncompetitive provisions in the previous versions of the bill. It is believed that the Petroleum Industry Bill will address all these issues to the extent possible.
The oil and gas industry contributes significantly to the Nigerian economy. With Nigeria being the largest producer of oil in Africa, the export of oil contributes to 90% of the Country’s foreign exchange earnings. However, despite the oil and gas industry’s economic standing, it has been plagued by “opaque licensing deals, bureaucratic hurdles and eye-watering corruption” culminating in low rates of international investments, rampant environmental pollution, and little to no economic development in Nigeria. In a report conducted by KPMG in June 2021, it was found that only 4% of the US$70bn investments made in Africa’s oil and gas industry between 2015 and 2019 was invested in Nigeria.[1] Over the years, the oil and gas sector has been regulated by numerous legislations, directives, and bodies, rather than a consolidated legislation, some of which include the 1999 constitution of the Federal Republic of Nigeria, The Petroleum Act, the Niger Delta Development Commission. Section 44 of the Constitution of the Federal Republic of Nigeria (the Constitution) vests the control and management of the natural resources in the government.
This article will explore the changes proposed in the Petroleum Industry Bill and elucidate the effect these changes may have on the oil and gas industry.
BACKGROUND OF THE BILL
The Petroleum Industry Bill (PIB) which has taken a 13-year journey since it was first introduced in 2008, was finally passed on July 1st, 2020, and aims to address these issues. The petroleum Industry bill aims to provide a consolidated legislation regarding all aspects of the oil and gas sector, it aims to attract investments with the use of transparent policies and contribute to the economic development of Nigerians. The primary objective of the Bill is to ensure among others[2], the following: good governance and accountability; that the national petroleum company which in this case is the Nigerian National Petroleum Corporation, is commercialized; and that a beneficial business environment is attained for petroleum operations to thrive.
SALIENT PROVISIONS AND EFFECTS OF THE PETROLEUM INDUSTRY BILL
Nigerian Upstream Regulatory Commission
The Bill provides for the establishment of the Nigerian Upstream Regulatory Commission whose role is to regulate the technical and commercial aspects in the operations undergone at the Upstream stage (operations stages in the oil and gas industry that involve exploration and production[3]). The Commission shall have the power to acquire, hold and dispose of property, sue, and be sued in its own name and shall also be responsible for the technical and commercial regulation of upstream petroleum operations. This is adequately provided for in Part III of the Bill, beginning from Section 4.
Nigerian Midstream and Down Stream Petroleum Regulatory Authority
The bill also provides for the establishment of Nigerian Midstream and downstream Petroleum Regulatory Authority, responsible for the technical and commercial regulation of the midstream and downstream operations in Nigeria. Midstream activities include the processing, storing, transporting and marketing of oil, natural gas, and natural gas liquids[4], while Downstream activities are the processes involved with turning the raw material of crude oil into a finished product such as gasoline and diesel. This is adequately provided for in Part IV of the Bill, beginning from Section 29.
Host Community Development
The Bill caters for the Host Communities in its Chapter Three which begins at Section 234. Regarding Host Communities, the PIB proposes to grant a to 5% equity stake to Host communities (communities/places where oil is extracted and in which the facilities for exploration and extraction of oil are conducted[5]), as opposed to the 10% equity stake agitated for by the host communities. These host communities such as the Niger Delta region have suffered an elevated level of pollution due to oil exploration activities.
The funds available are to be categorized and specifically allotted in this order: 75% goes to capital projects, 20% will serve as a reserve, while 5% will cater for administrative expenses. There is however a proviso that in the case of vandalism to the relevant facilities which in turn affects production, the host community will forfeit such cost (Section 257).
Fiscal Framework
The fiscal objective of the Bill is to provide a framework that will attract investors to the petroleum industry and generate revenue for the government while ensuring that investors get their money’s worth. These are generally in Part IV which deals with the administration of midstream and downstream gas operations. Some fiscal provisions in the Bill are:
- The Bill provides that once an expense is reasonably and necessarily incurred, it should constitute tax deductibles.
- The Midstream petroleum operations and large-scale gas utilization industries will benefit from Gas Utilization Incentives.
- Investors in gas pipelines will benefit from an additional 5-year tax holiday.
- A levy of up to 1% will be imposed on petroleum products sold at wholesale price in Nigeria.
Restructuring of the Nigerian National Petroleum Corporation (NNPC)
This is generally covered by Part V of the Bill, beginning from Section 53. The Bill provides for the incorporation of a commercial and profit-focused Nigerian National Petroleum Corporation (NNPC) Limited under the Companies and Allied Matters Act. This is to be done within 6 months from the commencement date of the Bill, when passed into law. The Bill vests ownership of the Corporation in the Ministry of Finance Incorporated (and Ministry of Petroleum Incorporated) on behalf of the Federation to take over assets, interests and liabilities of the Nigerian National Petroleum Corporation (NNPC). The end goal of this restructuring is to pave the way for the eventual sale of shares of the corporation, to Nigerians[6]. Such transfer and sale of the shares are to be approved by the government and endorsed by the National Economic Council.
The effect of the restructuring on the Corporation in terms of its assets and liabilities is that the assets, interests and liabilities not transferred to NNPC Limited will remain with NNPC until extinguished or turned over to the government. Consequently, the Corporation shall cease to be in existence[7]. What this means is that NNPC Limited is to take over the NNPC and so NNPC will cease to exist. Thus, assets, interest and liabilities in NNPC are to be transferred to NNPC Limited, failure to do so will mean that such assets, interests and liabilities will be extinguished when NNPC ceases to exist.
By Section 57 of the PIB, the effect of the restructuring on the employees of the Corporation is that upon the incorporation of NNPC Limited, all employees of NNPC are to be deemed employees of NNPC Limited. Also, the terms and conditions of their employment must not be less favorable than when they were in the NNPC.
The Minister of Petroleum
Another noteworthy change in the Petroleum Industry Bill is that regarding the Minister of Petroleum. The minister of petroleum retains the power to “formulate, monitor and administer the Federal Government’s policy over the petroleum industry”. However, the Petroleum Industry Bill requires that the Nigerian Upstream Regulatory Commission provides recommendations before the minister can exercise the power to grant or revoke licenses as was previously stated in the Petroleum Act. The powers of the Minister are contained in Part II of the Bill, particularly Section 3.
The Petroleum Industry Bill is no doubt, a game-changer to the industry. The Bill will provide a standard and uniform regulatory framework for the oil and gas industry. However, there is need for the concerns raised so far, to be addressed. These concerns are the inadequacy of the equity stake the Bill proposes for the host communities, as well as the concerns in terms of the ownership and management structure the Bill proposes to the Nigerian National Petroleum Corporation (NNPC)[8]. Addressing these issues is necessary to ensure a seamless administration of the Bill. The Bill will equally mark a significant turning point in the oil and gas industry and should result in more innovations to the industry.
RESOURCES
[1] Petroleum Industry Bill 2020: A Game Changer? Available online at https://home.kpmg/ng/en/home/insights/2021/06/petroleum-industry-bill-pib-2020.html on July 13, 2021.
[2] Mondaq – Overview of Oil and Gas Regulations in Nigeria. Available online at https://www.mondaq.com/nigeria/oil-gas-electricity/1004162/overview-of-oil-and-gas-regulations-in-nigeria- on July 13, 2021.
[3] Available online at https://www.investopedia.com/terms/u/upstream.asp on July 14, 2021.
[4] Available online at https://www.investopedia.com/terms/m/midstream.asp on July 14, 2021.
[5] What is a Host Community? Available online at https://spacesforchange.org/what-is-a-host-community/ on July 13, 2021.
[6] PWC – The Petroleum Industry Bill (PIB): Top 20 Changes You Should Know! Available online at https://pwcnigeria.typepad.com/tax_matters_nigeria/2021/07/the-petroleum-industry-bill-pib-top-20-changes-you-should-know.html on July 13, 2021.
[7] PWC – The Petroleum Industry Bill (PIB): Top 20 Changes You Should Know! Available online at https://pwcnigeria.typepad.com/tax_matters_nigeria/2021/07/the-petroleum-industry-bill-pib-top-20-changes-you-should-know.html on July 13, 2021.
[8] Channels – PIB: Nigerian Governors Fault Proposed Ownership Structure For NNPC. Available online at https://www.channelstv.com/2021/07/15/pib-nigerian-governors-fault-proposed-ownership-structure-for-nnpc/ on July 15, 2021.
