Chika Amanze-Nwachuku and Ejiofor Alike of THISDAY, write on the origins of the
Petroleum Industry Bill, its objectives, and the tortuous labyrinth it
has passed through for over a decade...
Birth of a Bill
The desire to restructure and improve the management of Nigeria’s
hydrocarbon resources, transform the Nigerian National Petroleum
Corporation (NNPC) into a world class national oil company in the mould
of Saudi Aramco, Malaysia’s Petronas and Brazil’s Petrobras, as well as
increase returns on the country’s investment in the oil and gas sector
informed the establishment of the Oil and Gas Reform Implementation
Committee (OGIC) 12 years ago.
The objective of the committee was to review the operations of the oil
and gas sector and its participants, the 16 legislations that governed
the industry, and produce a comprehensive legislation that would
overhaul the oil and gas industry, re-write Nigeria’s 50-year
relationship with the international oil companies (IOCs), and in the
process, unlock billions of dollars of delayed investment.
From the committee’s work, a new legislation known as the Petroleum
Industry Bill (PIB) was drafted. The PIB was first presented to the
sixth assembly in 2009, but efforts to pass it were hampered by what
industry experts described as political intrigues and wrangling between
the National Assembly and the executive. Also, the existence of
different versions of the bill was said to have been a major reason why
it could not be passed by the National Assembly. This negatively
impacted on activities and investment in the sector, as investors
channelled their businesses to neighbouring countries such as Angola,
Ghana and Burkina Faso with more stable policies.
Resuscitating the Bill
Hopes that the controversial bill will be resuscitated soon emerged on
January 19, this year, when the Petroleum Minister, Mrs. Diezani
Alison-Madueke, inaugurated a special task force with a mandate to
review the various versions of the bill submitted to the National
Assembly and produce a new one for representation. The establishment of
the task force came barely three days after President Goodluck Jonathan,
in a nationwide broadcast, promised to represent the bill to the
seventh National Assembly in the first quarter of this year.
The task force headed by Senator Udoma Udo Udoma, was directed to work
in collaboration with a technical sub-committee headed by the Director
General of Department for Petroleum Resources (DPR), Mr. Osten
Olorunsola, to produce a clean copy of the bill to be presented to the
legislature and to also facilitate its quick passage into law. In
another broadcast in May, Jonathan had assured the nation that the
latest draft bill put together by the task force would be completed in
June and sent to the National Assembly. He had promised to liaise with
the legislature to expedite its passage to ensure transparency in the
oil and gas sector. And in keeping with his promise, the president on
July 11, approved the new PIB which was forwarded to the National
Assembly on Wednesday.
Industry Bible
The PIB, which has been in the works for 12 years, is the amalgamation
of 16 laws in the oil and gas sector. The PIB encompasses the legal
framework that will define and shape the future of Nigeria’s oil sector.
The bill also aims to, among others: create a conducive business
environment for petroleum operations; optimise domestic gas supplies,
particularly for power generation and industrial development; establish a
progressive fiscal framework that encourages further investment in the
petroleum industry, while optimising revenues accruing to the
government; establish commercially oriented and profit driven oil and
gas entities; as well as deregulate and liberalise the downstream
petroleum sector.
Described as “the Bible for the petroleum industry”, by the Senate
President David Mark, the bill, when enacted, will enhance the
exploration and exploitation of petroleum resources for the benefit of
Nigerian people; create efficient and effective regulatory agencies;
promote the development of local content in the petroleum industry; and
protect health, safety and the environment in the course of petroleum
operations.
Emerging Industry Structure
When enacted, the Petroleum Industry Bill will, in addition to the
Ministry of Petroleum Resources, provide for the establishment of nine
agencies responsible for the operations of the oil and gas sector. Chika
Amanze-Nwachuku and Ejiofor Alike, review the agencies and their
functions.
POLICY OVERSIGHT
The Ministry of Petroleum Resources
The PIB provides for the establishment of nine agencies that will be
answerable to the Minister of Petroleum Resources. Of the nine, there
will be two regulatory agencies – Upstream Petroleum Inspectorate and
Downstream Petroleum Regulatory Agency; three funds – Petroleum
Technology Development Fund, Petroleum Equalisation Fund, Petroleum Host
Community Fund; three companies that will operate under commercial
terms – National Oil Company; National Gas Company Plc and National
Petroleum Assets Management Company; and a technical and support bureau –
Petroleum Technical Bureau.
The minister shall be responsible for the co-ordination of the
activities of the petroleum industry and shall exercise general
supervision over all operations and all institutions in the industry, as
well as providing policy oversight.
The minister, upon the advice of the Upstream Petroleum Inspectorate,
shall grant, amend, renew, extend or revoke upstream petroleum licences
and leases and shall upon the advice of the Downstream Petroleum
Regulatory Agency, grant, amend, renew, extend or revoke downstream
petroleum licences for gas transportation pipeline, gas distribution
networks, refineries, Liquefied Natural Gas, Gas –to- Liquid plants,
petrochemical plants and gas exports.
TECHNINCAL SUPPORT
Petroleum Technical Bureau
The Petroleum Technical Bureau (PTB) will serve as a special unit in
the office of the petroleum minister. The bureau, will addition to its
other duties, carry out the functions of the former Frontiers
Exploration Services of the NNPC.
The PTB will be responsible for developing exploration strategies and
portfolio management for the exploration of unassigned frontier acreages
in Nigeria, and will undertake activities to stimulate the interest of
local and international oil and gas companies in exploration of the
frontiers basins in Nigeria.
REGULATORY
Upstream Petroleum Inspectorate
The Upstream Petroleum Inspectorate (UPI), will be vested with powers
to among others: acquire, hold, mortgage, purchase and deal with
property, whether movable or immovable, real or personal. The UPL shall
also be vested with the assets and liabilities relating to the upstream
petroleum sector, which were hitherto vested in the Department of
Petroleum Resources (DPR). These include regulating all technical
aspects and commercial activities of the upstream sector; promoting the
efficient, safe, effective and sustainable infrastructural development
of the upstream sector.
Downstream Petroleum Regulatory Agency
Also to be established is the Downstream Petroleum Regulatory Agency,
which shall be in charge of assets and liabilities relating to the
downstream petroleum industry, which was hitherto performed by the DPR
and the Petroleum Products Pricing Regulatory Agency (PPPRA). The agency
shall, among others, enforce compliance with the terms and conditions
of all licences, permits and authorisations issued in respect of
downstream petroleum operations.
FUNDS
Petroleum Technology Development Fund
A major key highlight of the new industry bill is the retention of the
existing Petroleum Technology Development Fund (PTDF), under Section 73.
The PTDF shall be responsible for training Nigerians to qualify as
graduates, professionals, technicians and craftsmen in the fields of
engineering, geology, science and management and other related fields in
the petroleum industry…”
The organisation will derive its fund from grants accruing from
multilateral agencies, bilateral institutions and related sources and
donations dedicated for capacity building, as well as the outstanding
balance of the monetary assets of the PTDF, which was created by the PTD
Act of 2004.
Petroleum Equalisation Fund
Section 100 of the PIB also provides for the continued existence of the
Petroleum Equalisation Fund (PEF), where any net surplus revenue
recovered from petroleum products marketing companies and such sums as
may be provided by the Federal Government for the purpose of the
equalisation fund shall be paid into.
A core function of the PEF will be to hold the equalisation fund in
safe custody and in trust, for reimbursement of petroleum products
marketing companies suffering loss solely and exclusively as a result of
the sale of petroleum products at uniform benchmark prices throughout
the country.
Petroleum Host Communities Fund
As part of the measures to involve the oil-producing communities in the
joint ownership of oil and gas assets, the PIB provides for the
creation of a fund to be known as the Petroleum Host Communities Fund
(PHC Fund) to be utilised for the development of the economic and social
infrastructure of communities within petroleum producing area.
Under Section 118 of the bill, every company that is involved in oil
and gas exploration and production is required to remit into the fund on
a monthly basis, 10 per cent of its net profit, which the reform bill
defined as the adjusted profit minus the Nigerian hydrocarbon tax and
minus the companies’ income tax.
CORPORATES
National Petroleum Assets Management Corporation
The National Petroleum Assets Management Corporation, as a body
corporate, will operate fully on commercial principles. It shall be
responsible for the acquisition and management of investments of the
government in the Nigerian upstream petroleum industry.
National Oil Company
Within three months of the commencement of the Act, the Minister of
Petroleum will take necessary steps as stipulated under the Companies
and Allied Matters Act to incorporate the National Oil Company (NOC) as a
public company to be vested with certain assets and liabilities of the
Nigerian National Petroleum Corporation (NNPC). Its shares shall be held
by a nominee of the Ministry of Petroleum Resources and Ministry of
Finance Incorporated on behalf of the government.
National Gas Company Plc
Also, not later than three months after the effective date of this Act,
the minister shall take such steps as are necessary under the Companies
and Allied Matters Act to incorporate the National Gas Company Plc, as a
company, limited by shares, which shall be vested with certain asset
assets and liabilities of the NNPC.
LICENCES AND LEASES
The PIB provides for various types of licences and leases in Nigeria’s oil and gas sector. These are:
• Petroleum Exploration Licence (PEL) to carry out exploration on a
non-exclusive basis, which shall be valid for not more than three
years;
• Petroleum Prospecting Licence (PPL) to prospect for petroleum. A PPL
for onshore and shallow water areas shall remain valid for five years,
consisting of an initial exploration period of three years and a renewal
period of two years. There is, however, a provision for possibility of
further extensions due to an appraisal period pursuant to certain
relevant sections of the Act;
• Petroleum Mining Lease (PML) to search for, win, work, carry away and dispose of petroleum.
• Transportation Pipeline Owner Licence to own, operate and maintain a
transportation pipeline within a route as defined in the licence;
• Transport Network Operator Licence to operate and maintain economic,
safe and reliable transportation pipeline infrastructure;
• Gas Supply Licence to supply gas into the downstream petroleum sector;
• Gas Distribution Licence confers exclusive right to own and operate a
gas distribution system and to distribute gas within a local
distribution zone;
• Downstream licensing which shall be carried out by the Downstream Petroleum Regulatory Agency.
OTHER HIGHLIGHTS
Powers of the President
Section 190 of the PIB provides guidelines for the award of the
licences, stipulating in Subsection (3) that there shall be no
discretionary awards, except as provided under Section 191, which deals
with the powers of the president to grant licences and leases in special
circumstances.
According to Section 191, “Notwithstanding the provisions of Subsection
(3) of Section 190 or any other provision of this Act, the President
shall have the power to grant a licence or lease under this Act”.
Gas Flaring Penalties
Section 201 provides for gas flaring penalties, and also provides in
Subsection (1) that the lessee shall pay such gas flaring penalties as
the minister may determine from time to time. Subsection (2) requires
the lessee to “install all such measurement equipment as ordered by the
Inspectorate to properly measure the amount of gas being flared.”
Section 277, meanwhile, provides for the prohibition of gas flaring.
De-listing NNPC Subsidiaries from Privatisation Act
The bill provides for the delisting of the assets of the Nigerian
National Petroleum Corporation from the Public Enterprises Privatisation
and Commercialisation Act. Section 152(10), states: “The assets of the
subsidiaries of the NNPC listed under the Public Enterprises
Privatisation and Commercialisation Act shall be de-listed from the
effective date of this Act and the power of attorney earlier assigned to
the Bureau of Public Enterprises shall stand vacated.”
Downstream Deregulation
Section 221 of the bill provides for the full deregulation of the
downstream oil sector and stipulates that the pricing of petroleum
products in the downstream product sector shall be deregulated to
ensure: a) market related pricings; b) adequate supply of petroleum
products; c) removal of economic distortions; and d) the creation of
fair market value for petroleum products in the Nigerian economy.