The National Assembly has taken a huge step on a proposed legislation meant to be an Executive Bill, considering the pivotal moment this represents. However, there are still questions on the pre-emption rights of the minister to seize all petroleum products during national emergency, the status of investments in the gas sector which were not properly defined…
Six years ago, as an officer in the strategy department of a bank, I was assigned a duty to review the Petroleum Industry Bill. I was brimming with great excitement, that this would occasion the fully restructuring of Nigeria’s oil and gas industry. How can a country’s key legislation for its “goose that lays the golden eggs” be written in 1969 and key fiscal terms be set in 1993? I felt it was just rational for Nigerian leaders to put the PIB on the top of their priorities. However, years have passed with the PIB convulsing through different administrations. It is quite awful that Nigeria did not find it expedient to pass the bill during the oil boom period, but yet this is another chance for this as the price of oil is on the upward move again.
The omnibus bill has been broken down into four parts – the Petroleum Industry Governance Bill (PIGB), Petroleum Industry Administration Bill (PIAB), Petroleum Industry Fiscal Bill (PIFB), and Petroleum Host Community Bill (PHCB).
The PIGB has reached an advanced stage with the National Assembly chambers passing separate versions of it, with slight differences expected to be harmonised in the coming weeks. The current bill creates new institutions: The Nigerian Petroleum Regulatory Commission, as the regulatory entity for the whole industry; the Nigeria Petroleum Assets Management Company, that will manage the Production Sharing Contracts; and the National Petroleum Company, which will be in charge of current NNPC Joint ventures with IOCs upon incorporation. There is also the creation of the the Nigeria Petroleum Liabilities Management Company, that will assume all liabilities of NNPC, so as to provide squeaky clean entities to wet the appetite of investors.
There are the seven things to note and also lingering issues in the separate versions passed by the Senate and House of Representatives:
Fist, inclusion of the Petroleum Equalisation Fund: In a liberalised environment the PIGB is meant to deliver, it would have been rational to accept that the pricing of petroleum products will be determined by the operators. And, it would have been expected that places close to ports or refineries will have cheaper access to finished petroleum products. This might even lead to competition among ports in Nigeria, considering that Lagos handles most cargoes. The two chambers of the National Assembly added the Petroleum Equalisation Fund, which has an objective to ensure “economic balance of petroleum price across all regions”. How is the price of Indomie still the same in Lagos and Kano? This will be funded by a 5 percent levy on all petroleum products and it certainly creates another opportunity for arbitrage. There have been arguments that even in the current regime, several places in Nigeria don’t buy fuel at the official pump price. While the Senate version states that the position of the executive director of the fund will be nominated by the minister, the House of Representatives chooses to give that role to the president.
Second, the powers of the minister: In the original bill (SB 237/HB 477), the powers granted the minister were huge. This included that the Nigerian Petroleum Commission will have to send recommendations on the issuance and revocation of upstream licences. The power of bestowing the final authority for such actions on the minister has been removed, providing an autonomous cover for the regulatory agency. The right of the minister to create new entities for NNPC successor companies, as stated in the initial bill, was also expunged, as such control can easily be abused. The right of the minister to present a clear plan to initiate the implementation of the Act is well intentioned but this excluded a deadline. This might not trigger the immediate implementation of the bill, considering the period of politicking that Nigeria is about to delve into.
However, this is a step forward and huge questions are rising on the fate of the three other bills currently in the second reading phase. In a pre-election year with no certainty of the next government, where does this leave this effort? Time will tell again, like it did six years ago.
Third, the environmental issues: Both chambers of the National Assembly state that the Nigerian Petroleum Regulatory Commission will be fully responsible for all environmental issues involved in the sector. Sections related to consultations with the Ministry of Environment by the the minister of Petroleum were also removed. The clauses added include a voluntary collaboration of the Commission with the Ministry of Environment. This seems to be a key weakness of the bill, considering the issues of gas flaring, oil spills, and their attendant effects on the environment. A joint committee should have been made compulsory to appraise all environmental issues involved, rather than making this a voluntary clause on the part of the commission.
Fourth, the role of the National Assembly: Considering how this practically revises a 1969 decree, the National Assembly must approve the removal of the commissioner in the Nigerian Petroleum Commission, which is critical as it limits the overbearing powers of the president in an era which we have often seen the president double as the minister of Petroleum. It is also noteworthy that the National Assembly included the right to appropriate the use of funds raised by the Commission, which will be entitled to 10 percent of the revenue generated. The addition clause in Section 26 on the rights of the Commission to impose a special levy on the licensees need to reviewed, interrogated and also guided by a proper structure.
Fifth, alignment to the Public Procurement Act: The final bills passed by the chambers included clauses that state that the Regulatory Commission is subject to the Public Procurement Act and a Corporate Governance Code will be defined for the Nigerian Stock Exchange for the NNPC successor companies. This is a step in the right direction to ensure that certain exclusivity is not created for the petroleum entities.
Sixth, the Nigeria Petroleum Liabilities Management Company Operations: While the Senate version of the final bill states that funding must be from the Appropriation Act, the House of Representatives’ version does not include any financial implication for funding. The operations of the Nigeria Petroleum Liabilities Management Company were clearly stated, but considering the huge liabilities of NNPC and other agencies, it is important that a route to the winding down of the Nigeria Petroleum Liabilities Management Company should be clearly spelt out, considering that private capital is expected in NNPC successor companies.
Seventh, the National Petroleum Company Holdings: The House of Representatives’ version states that shares of the National Petroleum Company will be held in a ratio of 51 percent by the Ministry of Petroleum Incorporated, while BPE will hold 49 percent for onward sale to the public. The Senate version states that 40 percent of the shares will will be held by Ministry of Petroleum Incorporated, 20 percent by Ministry of Finance Incorporated and 20 percent by the Bureau of Public Procurement. It is important that this confusion is well debated and settled.
The National Assembly has taken a huge step on a proposed legislation meant to be an Executive Bill, considering the pivotal moment this represents. However, there are still questions on the pre-emption rights of the minister to seize all petroleum products during national emergency, the status of investments in the gas sector which were not properly defined, and also other allied investments of NNPC. However, this is a step forward and huge questions are rising on the fate of the three other bills currently in the second reading phase. In a pre-election year with no certainty of the next government, where does this leave this effort? Time will tell again, like it did six years ago.
Oluseun Onigbinde is the Lead Partner of BudgIT.
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