There is a strong indication that if the Petroleum Industry Governance Bill (PIGB) is finally passed into law by the National Assembly, the existing Department of Petroleum Resources (DPR), the Petroleum Products Pricing Regulatory Agency (PPPRA) and Petroleum Inspectorate (PI) may be scrapped, thereby giving way for the Nigeria Petroleum Regulatory Commission to take over their functions.
The Petroleum Industry Bill (PIB) is currently under legislative consideration and represents the most comprehensive review of the legal framework for the oil and gas sector in Nigeria since the industry began commercial operations in the 1960s. The Petroleum Industry Bill (PIB), an omnibus law is meant to regulate the entire sphere of the industry and repeal most existing oil and gas legislations.
No doubt, it signals the dawn of a new era; an era in which restructuring and transformation could address many of the issues that have dominated the oil and gas industry in Sub-Saharan Africa’s second-biggest economy.
The Petroleum Industry Bill (PIB) seeks to increase government revenue from oil, and as well lay down a strengthened legal and regulatory framework for the Nigerian oil industry, set up structures for the establishment of commercially driven petroleum entities; and promote transparency in the administration of Nigerian petroleum resources. Succinctly put, the bill seeks to address the problem of administering petroleum resources in line with global best practices, and to provide for efficient and independent sector regulation.
The extant regulatory framework of the oil and gas sector which includes the Ministry of Petroleum Resources, NNPC Act 1997, the Petroleum Act 1969, the Oil and Pipelines Act 1990, the Petroleum Profit Tax Act 1959, the Petroleum Products Pricing Regulatory Act 2003 amongst others have had more ruinous effect on the oil and gas sector, as they have not promoted a culture of transparency in the oil and gas sector. They have also not created the right opportunities to tackle gas flaring, oil spillage and Illegal bunkering in Nigeria.
The key provisions of the bill are as follows:
1. The Minister of Petroleum
The Minister of Petroleum is empowered to formulate, monitor and administer government policy in the petroleum industry; exercise general supervision over the affairs and operations of the petroleum industry in accordance with the provisions of this Act; report developments in the petroleum industry to the government; represent Nigeria at international organizations on petroleum matters; promote an enabling environment for investment in the Nigerian petroleum industry; negotiate treaties or other international agreements on matters pertaining to petroleum on behalf of the Government, shall have rights of pre-emption of petroleum and petroleum products marketed under any license or lease, in the event of a national emergency.
2. Establishment of the Nigerian Upstream Petroleum Regulatory Commission
This commission is to administer and enforce policies and regulations relating to all aspects of upstream petroleum operations and also to issue, administer and enforce compliance on the issuance of licenses and leases in the upstream sector. It is also to establish, monitor, regulate, and enforce health and safety measures relating to all aspects of upstream petroleum operations, publish reports and statistics on the upstream sector, validate and certify the evaluation of national hydrocarbon reserve, manage and administer all upstream petroleum data for all unallocated acreage. This Commission on the approval of the minister, is to allocate petroleum production quotas, and develop cost benchmarks for upstream petroleum operations performance amongst other functions, as laid out in the bill.
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3. Establishment of the Nigerian Midstream and Downstream Petroleum Regulatory Authority
This authority is to administer and enforce policies, laws and regulations relating to all aspects of midstream and downstream petroleum operations, and to issue and administer licenses in the midstream and downstream sectors. The agency is also to ensure and enforce compliance with the terms and conditions of all licenses, permits, and authorizations issued in respect of the midstream and downstream petroleum operations; set and enforce approved standards for designs, procurement, construction, and maintenance for all plant; installation and facilities pertaining to midstream and downstream operations.
This authority is also laden with the responsibility of inspecting measurement equipment, and other facilities for midstream and downstream petroleum operations. It is also to facilitate the supply of gas to the strategic sectors, in accordance with the approved national gas pricing framework, implement customer protection measures in accordance with the provisions of this Act, regulate and ensure the supply, distribution marketing, and retail of petroleum products as may be prescribed by regulations, and shall also do other things that are necessary and expedient for the effective and full discharge of any of its functions under this Act, amongst other functions as stipulated in the bill.
4. Incorporation of the Nigerian National Petroleum Company Limited
The Minister of Petroleum 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).
The Minister shall at the incorporation of NNPC Limited, consult with the Minister of Finance to determine the number and nominal value of the shares to be allotted, which shall form the initial paid-up share capital of NNPC Limited, and the Government shall subscribe and pay cash for the shares.
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, and upon the identification; the Minister shall cause such assets, interests, and liabilities to be transferred to NNPC Limited.
Assets, interests, and liabilities of NNPC not transferred to NNPC Limited or its subsidiary, shall remain the assets, interests, and liabilities of NNPC, until they become extinguished or transferred to the Government.
NNPC shall cease to exist, after its remaining assets, interests, and liabilities other than its assets, interests, and liabilities transferred to NNPC Limited or its subsidiaries under subsection (1) of this section, shall have been extinguished or transferred to the Government.
5. Granting of Licenses and Leases
Petroleum exploration license may be granted to qualified applicants, to explore petroleum on a speculative and non-exclusive basis.
Petroleum Prospecting License may be granted to qualified applicants, to carry out petroleum exploration operations on an exclusive basis. A Petroleum Prospecting License for onshore and shallow water acreages, shall be for duration of not more than 6 years, comprising of an initial exploration period of 3 years, and an optional extension period of 3 years. A petroleum prospecting license for deep offshore and frontier acreages, shall be for duration of not more than 10 years, comprising of an initial exploration period of 5 years, and an optional extension period of 5 years.
Petroleum mining lease may be granted to qualified applicants to search for win, work, carry away and dispose of crude oil, condensates, and natural gas. A petroleum mining lease may be granted for a maximum period of 20 years, which terms shall include the development period.
6. Abolition of Gas Flaring
Gas flaring has been said to be a major destroyer of the ozone layer, and this has a very detrimental effect on climate all over the world, as is presently occurring. The United Nations Framework Convention on Climate Change (UNFCCC), has called on countries to put an end to greenhouse effect. Despite not having any binding emission target under the UNFCC, Nigeria in its own way, has responded under the proposed bill to illegalize and abolish gas flaring.
Accordingly, the new bill demands strict adherence to a gas flaring plan, along with gas utilization plans, to be submitted by all oil and gas operators within six months of the coming into effect of the law, indicating data on their daily flare quantity, reserve, location, composition. Statistics posit that Nigeria losses a lump sum of money every year to gas flaring, such that its abolition is a wise way of saving this money, and making it available for the usage of the economy and its development.
7. Domestic Gas Obligations
The PIB provides that the Nigerian Upstream Regulatory Commission shall, having regard to the needs of the domestic gas market and in accordance with the National Gas Master Plan, impose Domestic Gas Supply Obligations (DGSO) on lessees. As proposed, a lessee who fails to comply with its DGSO, shall not be permitted to make supplies to gas export operations, and where the lessee only supplies gas to export operations, the lessee shall be directed to suspend operations. This section will oust the existing Department of Gas in its functions and responsibilities.
8. Deregulation of the Downstream Sector
The PIB provides that the pricing of petroleum products in the downstream product sector, shall be deregulated to ensure market related pricing, adequate supply and removal of economic distortions, and creation of a fair market value for petroleum products in Nigeria’s economy. However, although pricing is to be left to market forces, the Bill proposes to safe- guard the interests of consumers, by providing that the Nigerian Midstream and Downstream Petroleum Regulatory Authority shall oversee tariffs for transportation by pipelines, bulk storage for petroleum products, and regulated open access facilities. The Nigerian Midstream and Downstream Petroleum Regulatory Authority will also be responsible for market monitoring and promotion of competition. This will oust the present Petroleum Pricing Products Regulatory Agency (PPPRA), which is charged with the same responsibilities, but has largely been inefficient till date.
9. Petroleum Host Communities Fund
The objective of the Bill is to provide direct social and economic benefits from petroleum operations to host and impacted communities. Also, the Bill seeks to enhance peaceful and harmonious coexistence between E & P companies on one hand, and host and impacted communities on the other – with an objective to foster sustainable and shared prosperity amongst the oil and gas companies and host communities.
The bill stipulates that an annual contribution of 2.5% of the actual operating expenditure (OPEX) of the E&P Company, will be placed into a fund. The funds available in the Endowment Fund are to be allocated in the following manner; 70% of the Endowment Fund shall be allocated to the Capital Fund, out of which the Board of Trustees shall make disbursements for projects in each Host Community, as may be determined by the Management. Any sum not utilized will be rolled over and utilized in subsequent years; 20% of the Endowment Fund shall be allocated to the Reserve Fund. The money is to be invested in the Trust when there is a cessation in the endowment payable by the settlor; 10% of the Endowment Fund shall be allocated to the settlor’s Special Project Fund to be utilized solely by the settlor for special projects, aimed to assist and support the host and impacted communities, provided that at the end of each financial year, the settlor shall render a full account of the utilization of the Special Project Fund to the Board of Trustees, and where any portion of the Fund is not utilized in a given year, it shall be returned to the Capital Fund.
If the PIB is eventually passed into law, it will contribute to lowering the oil theft rates and regular rifts, if host communities are satisfied.
10. Fiscal Regime under the PIB
The Bill proposes to replace the existing petroleum profits tax with a Nigerian Hydrocarbon Tax (NHT), at the rate of 50 per cent for petroleum operations onshore, and in shallow water fields; and 25 per cent for petroleum operations in deep-water, bituminous and frontier acreages. In addition to NHT, the Bill also proposes companies income tax at the rate of 30 per cent on upstream petroleum operations (which under the existing regime are not subject to companies income tax). Where petroleum operations fall in geographical areas that are subject to different tax rates, NHT shall be levied on the proportionate parts of the profits arising from such operations.