Nigeria’s oil and gas industries is being governed by laws enacted more than 50 years ago which are extremely not conversant with current oil and gas reality. For all these years the sector only has about about 28 Petroleum Acts and Regulations which overlapped in functions and responsibilities without comprehensive law for the administration of the oil and gas sector.
The most recent regulations and Acts that governed the nation’s oil and gas are National Data Repository Regulations 2020 Petroleum (Drilling & Production) (Amendments), Regulations 2020 Deep Offshore And Inland Basin Production Sharing Contracts,
Petroleum (Drilling And Production) (Amendment) Regulations, 2019 and Flare Gas (Prevention of Waste & Pollution) Regulations 2018. President Muhammadu Buhari also signed into law, a Bill to amend the Deep Offshore (and Inland Basin Production Sharing Contract) Act [the PSC Act].
For 13 years, the passed Petroleum Industry Bill (PIB) has gone through three presidents and four legislative tenures without resulting in an overarching petroleum industry law. In 2018, the House of Representatives passed a harmonised version of the PIGB almost a year After the Senate passed the bill. However, the Petroleum Industry Bill was rejected by President Buhari for “Legal and Constitutional reasons.
My piece will focus on the significance of the Petroleum Industry Bill (PIB) passage to the country’s economy and benefits to Nigeria. About two weeks ago both chambers of National Assembly passed the long awaited Petroleum Industry Bill after 13 years.
It is a fact that Nigeria hosts Africa’s second largest petroleum reserve with proven oil reserves of about 36.97 billion barrels of crude oil. As of 2020, Nigeria had the most concentrated the natural gas reserves in Africa. The country had more than 200.4 trillion Standard Cubic Feet (TSCF). But in spite of the abundant oil and gas reserves, country only received four per cent ($3 billion) of $75 billion invested in the continent in 2019 making Nigeria to be overthrown by its smaller neighbour, Ghana, accorring to the National Bureau of Statistics, NBS.
Non passage of the Bill remained a major drag on the petroleum industry, significantly limiting the country’s potential to attract both local and foreign capital at a time when many other countries in Africa are scrambling to exploit their oil and gas resources.
The global market is changing rapidly, exacerbating old threats and creating new ones. The world’s largest consumers have become top producers and top importers have begun to export. Future trends for the oil industry do not look too good because a number of developed countries have set ambitious targets for reduced green house emissions.
According to OPEC projection, by 2040 oil sector is going to be playing less and less role in global energy usage. If the projection comes true, in the next 20 years from now the world’s dependence on oil would have reduced to 50 percent. That the future usefulness of petroleum resources in near decades had increased level of uncertainty on oil demand calls for great concern but the passing of PIB would overhaul the sector that has not been operate optimally in line with global standards.
Going by OPEC projection, it’s likely petroleum would have no much value in the next 20 years due to new technologies. Fossil fuel may be less attractive as projected but it is time for Nigeria to maximum the benefit of its fossil fuel reserves through this reform before it fades away with new technologies. It is to act fast in repositioning the oil and gas industry with desirable legislation that would strengthen transparency, accountability limiting economic loss for the gas and petroleum industries and the country.
The Bill consists of five distinct chapters, with Miscellaneous Provisions comprising 319 clauses and eight schedules. Most importantly, the PIB will create a sustainable investment climate, where business in the sector will flourish. The NNPC operation will be commercially oriented, which would bring much-needed dividends to Nigerians. NNPC will metamorphose into a limited liability company. In the coming months, NNPC will play more vital role in the petroleum marketplace, just like other marketers in the downstream space. In the meantime, NNPC Limited initial shareholders will be open for the general public to invest. Then with regards to the fiscal regime, the laws will bring it in tandem with international best practices, to make the oil and gas industry in Nigeria much more competitive and attract the much-needed investments into the country. The initial shareholders are going to be the Ministry of Finance Incorporated and Ministry of Petroleum Incorporated.
On three percent for Host Community Development Fund, the House of Representatives made efforts to return to the Senate to discuss the possibility of renegotiation to 5% but the Senate had already passed the report thereby foreclosing any review. Therefore, members of the conference committee of tbe House had to return and pass it. That is what House rules say. As we don’t want PIB to suffer the same fate that it had suffered in the past. Therefore, the House of Representatives adopted Conference Report on the Petroleum Industry Bill approving 3% as the financial provision for the Host Communities Fund to align with the position of the senate on the same matter.
The three per cent should be paid annually as contribution to the Host Community Development Fund Operating Expenditure of Oil Companies (OPEX). Another good aspect for communities component in the bill provides that each settlor must set up a development trust fund and appoint a Board of Trustee which must apply to the Corporate Affairs Commission (CAC) to register the trust as a Host Communities Development Trust.
Clause 236 of the bill gives the time frame for the registration of a trust fund for oil asset. For existing leases and existing designated facilities, the period for setting up the fund is within 12 months of the bill coming into effect. Existing prospective licences must set up the Fund before application for the field development plan. And failure to comply with setting up of the trust fund in line with the Act, a holder risks revocation of the applicable licence.
The 3% should be paid annually as contribution to the host Community Development Fund Operating Expenditure of Oil Companies (OPEX). The bill provides that each settlor must set up a development trust fund and appoint a Board of Trustee which must apply to the Corporate Affairs Commission (CAC) to register the trust as a Host Communities Development Trust.
The quest for oil explorations in the North and other parts of the country have received a huge boost. Based on Section 9 of the PIB, at least 30% of the profit generated by the proposed Nigerian National Petroleum Company Limited will go to the exploration of oil in ‘frontier basins’. Although the proposed law doesn’t identify the frontier basins, a statement by the president in 2019 identified the frontier basins as Chad Basin, Gongola Basin, Anambra Basin, Sokoto Basin, Dahomey Basin, Bida Basin and Benue Trough.
The proposed law stipulates that the 30% profits from oil operations will be held in Escrow Account that process completing of transaction. Money, securities, funds, and other assets can all be held in escrow. In a situation where it is not being used, it would be returned to the treasury.
The main objective of 30% frontier exploration activities is to promote the exploration of petroleum resources in Nigeria for the benefit of the Nigerian people and promote sustainable development of the industry, ensure safe, efficient transportation and distribution of infrastructure, and transparency and accountability in the administration of petroleum resources in Nigeria.
PIB assent by PMB will clear the concerns raised by investors and have greater clarity on the direction of the industry, especially with respect to the new fiscal rules and Nigeria’s oil and gas industry and Nigeria’s economy to witness an exponential growth soon. The bill also promotes the competitive and liberalised downstream sector of the petroleum industry as well as the development of fuel and chemical industries.
Hon Gaya writes from the House of Representatives, Abuja