President Muhammadu Buhari, yesterday, August 16, 2021, signed the Petroleum Industry Bill (PIB) into law, almost 20 years after it was first introduced and representing a significant milestone for Nigeria’s oil and gas sector.
The assent to the bill in various forms and versions, follows the passage of the harmonized version of the bill by the chambers of the National Assembly on July 2, 2021, after nearly two decades of delay due to stakeholder conflict, host communities’ objections, lack of political will and changes in government.
The passage of the bill which is expected to transform and overhaul the oil and gas sector and encourage more investment in the sector did not go without controversies and conflicts as some of the stakeholders especially the host communities and interest groups disagreed with some sections or provisions of the bill.
A highly respected newsletter from Stanbic IBTC Research highlights key aspects of the Bill. This article will look at 6 key notable points about the PIB from the report.
- To enhance governance, transparency and accountability, there will be a separation of the joint commercial and regulatory roles fulfilled by the NNPC with the incorporation of the NNPC and the establishment of two regulatory agencies, which should help to reduce the powers of the Minister of Petroleum Resources and could potentially limit government and political influence on the sector.
- It is believed that concerns regarding the multiple taxes, fees and levies are likely to endure despite the planned improvements to the fiscal regime governing the sector. At face value, the reduction in base royalty and tax rates should improve Nigeria’s competitiveness on the continent with a focus on incentivizing fresh investment in new leases as well as the development of offshore/deepwater oil and gas discoveries to boost production.
- Unfortunately, the creation of the Frontier Exploration Fund, which will be financed with 10% rents on licenses and leases as well as 30% of the NNPC’s profit oil, is likely to reduce the government’s take, with little guarantee of future inflows. It is assumed that the funds could be best served improving the sector’s infrastructure to support output and monetisation of proven reserves earlier rather than later given the ongoing shift away from high carbon-emitting sources of energy in the global economy.
- The monetization of the nation’s gas reserves continues to be encouraged, particularly production for domestic consumption, which will be subject to a lower royalty rate. This as well as the proposal to create a Midstream Gas Infrastructure Fund to tackle the deficit in the sector could support an increase in gas production to the domestic economy over the medium term. While the implementation of the fund is crucial to its success, our interpretation of the PIB indicates that there is likely to be a level of control on gas prices, which may continue to deter investors.
- Host Community Development (HCD) is another key area of the PIB in fostering a peaceful co-existence between oil companies and the host communities. Despite the Senate and the House of Representatives reaching a consensus on 3% of actual opex in the preceding year to be allocated to the HCD’s trust, the unwillingness of the host communities to compromise on their 10% demand could fail to secure their buy-in and peace in the region.
- Overall, it is believed the PIB could ease the uncertainty that has clouded this oil and gas sector over the past 2 decades, shifting stakeholder attention to its implementation. But, we think some of the Bill’s shortcomings, as well as the global shift to low carbon-emitting energy sources and renewables, may not yet see IOCs rush into the sector with new investment; rather, maintaining divestment from onshore assets is likely, to focus on existing offshore assets.