…the president has the right to withhold assent, but the reasons advanced are meritorious in some cases and requires further scrutiny in some other cases. In line with the dictates of Nigeria’s constitutional framework, industry stakeholders and citizens are watching with bated breath to see how the executive and the legislature would work together to locate common grounds around the interesting areas of dissent.
On August 29, 2018, Nigeria’s Presidency withheld assent to the Petroleum Industry Governance Bill (PIGB) 2018, citing a number of constitutional and legal reasons, which include the shrinking ministerial powers, inadequate fiscal provisions, revenue retention powers of the petroleum regulatory body and so forth. The announcement caught many industry watchers by surprise, stirring debates and evoking commentary in public and private domains.
The PIGB is one of the four draft petroleum statutes that emerged after splitting the parent Petroleum Industry Bill (PIB) 2012 into four distinct bills to ease its passage, following several years of delay in securing parliamentary approval. The other subsets of the PIB are the Petroleum Host and Impacted Communities Development Bill (PHCDB), the Petroleum Industry Fiscal Bill 2018 and the Petroleum Industry Administration Bill 2018, all of which are currently under parliamentary consideration. The objective of the Petroleum Industry Bill and its evolved subordinates is to establish a comprehensive legal, fiscal and regulatory framework for reforming the petroleum industry in Nigeria.
Presidential ‘Dissent/Assent’
The president has the constitutional power to veto, or more technically, withhold assent to a bill passed by both houses of the Nigerian National Assembly. In other words, the Nigerian Constitution vests the president with the authority to assent to, and withhold assent from bills presented to him/her with reasons. What this means is that the Constitution does not contemplate that the president will render assent to every bill passed by the National Assembly. As such, the withholding of presidential assent is a constitutional right, which provides constitutional checks and balances between the Presidency and legislature and an opportunity for deepening democratic engagement between the executive and the legislature during the process of policy development.
As it is within the constitutional powers of President Muhammadu Buhari to withhold assent to the PIGB, what is now pertinent is to assess whether the presidential objections are well-informed, based on reasons that positively impact the economy and long-term sustainability of the petroleum industry. An analysis of the three main presidential objections provide a basis for measuring their consistency with these tests of reasonableness and unassailability.
Reasons Given By the Presidency For Dissent
(1) The provision of the bill permitting the Petroleum Regulatory Commission (NPRC) to retain as much as 10 per cent of generated Petroleum Revenues:
The first objection is that the provision of the Bill permitting the National Petroleum Regulatory Commission (NPRC) to retain as much as 10 per cent of the revenue it generates unduly increases the funds accruing to the Commission to the detriment of the revenue available to the three tiers of government which includes the federal, thirty six states, Federal Capital Territory, 774 local governments, special funds and statutory transfers in the country.
On the president’s request for rectification of the inconsistency between the PEF provisions and the current subsidy reform policies of the administration as one of the bases for the Presidency’s objections to the PIGB, we take the view that this concern is again, meritorious.
It is instructive to note that the proposed regulatory body, the NPRC, will take over the regulatory functions of three existing institutions, namely the Department of Petroleum Resources (DPR), Petroleum Products Pricing Regulatory Agency (PPPRA) and the Petroleum Inspectorate of Nigeria. The PIGB seeks to imbue the NPRC with the operational independence needed to initiate and set its own work programmes within stipulated rules and mandate. Along this line, the Bill made provisions for a special statutory funding mechanism through the retention of a fraction of its revenues, plus funding via appropriation through the National Assembly. Using legislation to secure this funding source ostensibly aims to give the NPRC a certain amount of flexibility to undertake work on longer-terms, sustaining the Commission and insulating the institution from political interference. While the intention underlying these arrangements is a noble one, the proposed retention of as much as 10 per cent of gross revenues due to the federation account to one single agency is quite superfluous. Singling out the NPRC for special revenue retention considerations does not differ significantly from the present arrangement whereby the Nigerian National Petroleum Corporation (NNPC) exercises excessive levels of discretion over remitting revenues to the treasury, and how to spend the funds that it keeps. According to a report, NNPC withholds billions of dollars each year with unclear legal authority and no defined repayment plan.
In light of the above, permitting the NPRC to retain 10 per cent of its revenues will take Nigeria back to the pre-PIGB reform era whereby the national oil corporation not only withholds, but also provides little or no explanation for revenues running into millions of petrodollars every year. On this point, the president has a very valid objection. It is our opinion that the legislature and the Presidency work together towards reaching an amendment that focuses on sufficiently funding the agency to defray its operational costs in a fiscally responsible manner.
(2) Expansion of the scope of the Petroleum Equalisation Fund (PEF) and some provisions that diverge from this administration’s policy which if assented to in the form presented will create ambiguity and conflict in interpretation.
Although this objection provides little clue regarding the actual government policies referenced, it could be inferred that the Bill’s provisions regarding the PEF sharply contrast with the administration’s previous public statements of its intention to do away with petroleum products consumption subsidies. PEF operates as a subsidy set aside for the reimbursement of petroleum products marketing companies who incur losses solely and exclusively as a result of selling petroleum products at uniform benchmark prices across the country. The Fund is used to even out the prices of petroleum products as a result of bridging/transportation costs so that they can be purchased at a uniform price across the country, irrespective of the distance and costs incurred in transporting the products from the depots to retail outlets.
As several independent studies have shown, the Nigerian petroleum products subsidy regime is vulnerable to misappropriation, encourages smuggling of petroleum products out of Nigeria across our borders, and is very difficult to effectively manage from a budgeting perspective, due to its very dynamic price fluctuations and because it is a rapidly consumed product. President Muhammadu Buhari’s administration had previously removed retail subsidy on Premium Motor Spirit in May 2016 and kerosene in January 2016. At the time, crude oil prices were very low. It must be noted though that with the increase in crude oil prices and the attendant increase in the market price of the derivative petroleum products, substantiated media reports and industry analysis have established that the annual expenditure on fuel subsidy, now referred to as “under-recovery”, for supply of petroleum products across the country has risen drastically. Reports indicate that over N1.4 trillion has been spent so far on “under recovery” between January and April 2018. The retention of the PEF in the PIGB contradicts previous policy indication towards the eradication of payment of petroleum products subsidy to marketers.
Other options that are being explored to reduce the government’s exposure to exorbitant petroleum products consumption subsidy costs, include more effective downstream operations which promote the participation of private and public partnership in the construction of pipelines and new refineries across the country. On the president’s request for rectification of the inconsistency between the PEF provisions and the current subsidy reform policies of the administration as one of the bases for the Presidency’s objections to the PIGB, we take the view that this concern is again, meritorious.
The second and probably more important element to address in the PIGB, is the need for a constitutional prohibition preventing a sitting president from also acting as the petroleum minister under any circumstance… This violates constitutional provisions, particularly Section 138 of the 1999 Constitution as amended.
(3) Others (Unsubstantiated Reasons)
Inadequacy of the fiscal content of the draft law: This objection is unfounded and does not need an exhaustive analysis. First, it fails to consider that a separate draft bill called the Petroleum Industry Fiscal Bill 2018, deals with the issue of petroleum fiscal policy. Second, the PIGB leaves no doubt regarding its contracted focus on the establishment of a legal framework for governance, institutional reorganisation and industry regulation only. Through this governance-focused approach, the bill aims to create efficient and effective governing institutions with clear and separate roles for the petroleum industry and establish a legal basis for the creation of commercially-oriented and profit-driven petroleum entities that ensure value addition.
Reduction of presidential powers over the control and award of petroleum exploration and production licenses: This objection lacks merit. The PIGB gives the president the power to appoint the heads of the relevant agencies. As such, the president holds the power to hire and fire his appointees, wielding ultimate power. This is one aspect in which the PIGB did not go far enough to insulate the regulatory agency from political interference. The current president is also the minister of petroleum, and there is no statute yet that prevents this, though it is advisable for future amendments of relevant statutes.
Two other issues:
It is our opinion that two other issues are pertinent for the PIGB. The first is the proposed legislative arrangement for the protection of petroleum host communities. The issues raised in the Petroleum Host and Impacted Communities Development Bill (PHICDB) mainly relate to the governance, administration and institutional framework of the Petroleum Host Community Fund. Therefore, the PHICDB provisions could have been accommodated under the Petroleum Industry Governance Bill (PIGB), obviating the need for a separate legislation on this matter. What is more, the provisions in the PHICDB do not seem to present a beneficial, effective nor sustainable arrangement for host-communities, and there is a lot of opportunity for reforming several provisions of the Bill.
The second and probably more important element to address in the PIGB, is the need for a constitutional prohibition preventing a sitting president from also acting as the petroleum minister under any circumstance. Allowing a sitting president to double as the minister of petroleum resources has been witnessed under the Obasanjo and Buhari administrations. This violates constitutional provisions, particularly Section 138 of the 1999 Constitution as amended. That section provides that the president shall not during his tenure of office, hold any other executive office or paid employment in any form whatsoever.
We have written before that this violation also hurts the industry in other ways. For instance, the Bill empowers the president to appoint the members of the Governing Board of the NPRC, subject to Senate confirmation. At the same time, the Bill domiciles the power to issue and revoke licenses in the Commission. The wider commitment to transparency by separating the function of Board appointments and NPRC’s institutional independence is defeated if the same person that appoints the Board members is also a serving minister of petroleum resources duly assigned by law to exercise general supervision over the affairs and operations of the petroleum industry. This sort of arrangement breeds conflict of interest and obfuscates accountability because it elevates the president to the status of both the judge and the jury in the same case. These roles should be separated through legislative prohibition.
From the foregoing, the president has the right to withhold assent, but the reasons advanced are meritorious in some cases and requires further scrutiny in some other cases. In line with the dictates of Nigeria’s constitutional framework, industry stakeholders and citizens are watching with bated breath to see how the executive and the legislature would work together to locate common grounds around the interesting areas of dissent.
Victoria Ohaeri is the executive director of Spaces for Change (www.spacesforchange.org), a energy research and policy advocacy organization based in Lagos, Nigeria. She can be reached on Victoria@spacesforchange.org. Samuel Diminas is chairman of the Board of Spaces for Change (www.spacesforchange.org). He can be reached on s_diminas@yahoo.com
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