The Next Incarnation of the Petroleum Industry Bill (2)

Last week, we started a series on the tortuous journey of the Petroleum Industry Bill, starting with the initial foundation laid by President Obasanjo; to the more robust efforts under the Umaru Musa Yar’ Adua and Goodluck Jonathan presidencies. The series has been triggered by the recent announcement by the Minister of State for Petroleum, Mr. Timipre Silver that the Federal Government was sending a new draft of the Petroleum Industry Bill to the National Assembly for deliberation and passage. The historical analysis by Ikechi Ibeji is to educate EnergyHub customers and website visitors on the hows, whys, and ifs behind the contentious history of the PIB, providing insight on the issues which have kept the reform law on the drawing board since 1999.

As e said last week, the biggest undoing of the Dieziani Bill was the enormous and unconstitutional powers that draft conferred on the Minister of Petroleum Resources. Operators and commentators were particularly piqued and apprehensive because a convention established by the Petroleum Act 1969, as amended at different times (which unfortunately is the subsisting governance law in operation), allows a convention where the “Ministerial Letters” laying out fiscal policies or interim regulations, carried the force of law, although it could be overturned by the National Assembly. Given the volumes of investment and the tenor or gestation period of oil and gas investments, abuse of such enormous ministerial powers would be calamitous for the industry.

Arguably the most contentious issue, which caused the failure to pass the PIB under President Jonathan was the Host or “Impacted” Community Equity Fund provision in the PIB, which the Northern Nigerian establishment viewed with suspicion – describing it as superfluous, since in their view, the Niger Delta Development Commission, the 13 percent derivation provision in constitutional revenue allocation formula, and the creation of Ministry of Niger Delta Affairs were enough to cater to the interests of host communities. To a lesser degree, many Northern interest groups also opposed the divestment of government interest in the Nigerian National Petroleum Corporation and instead establish the Petroleum Regulatory Commission. They, therefore, used their numbers in the National Assembly to foreclose passage of the bill.

Such critics of the Community Equity Fund were further agitated when the then Special Adviser to the President on Petroleum Matters Dr. Emmanuel Egbogah announced that projected annual payments to the 187 identified oil-bearing communities would reach at least $630 million. The government he said, was working on ensuring that only people of voting age in the communities, could receive the payment.

Egbogah inadvertently reinforced the critics by admitting that the governors of the oil-producing states, who received the 13 percent derivation on behalf of their people, mismanaged the funds, hence the paucity of development in the Niger Delta, despite huge resources poured into the region by the Federal Government. He however promised that unlike the 13 percent derivation, the Community Equity dividends, just like the Alaska Fund, from where the idea was borrowed, will be paid directly to every adult in the affected communities.

 “This money shall be paid directly to the communities or, hopefully through Trust Funds or cooperative groups that shall be set up by the communities themselves, to do whatever they want to do with it. And I can assure you that no governor or local government council would smell this money” Egbogah said at the time.

The Alaska Permanent Fund is established by the constitution of the US state of Alaska, known to be home to indigenous peoples thousands of years before the European adventures arrived. The Alaska Permanent Fund Corporation has been managing the fund since 1980. By 2016, the fund had grown to about $55 billion.

By law, a certain percentage of oil revenues from Alaskan oilfields are set aside every year and the accruals are managed by the corporation with oversight of the state legislature, which must approve any payouts. Monies are paid annually as dividends to every adult Alaska resident. 

Next week, we look at the breakup of the PIB into four different legislations. The thinking here, as encapsulated in the proceedings of the 2014 Abuja Petroleum Roundtable was to separate the fiscal and governance issues from the “political” issues where consensus was difficult. According to Professor Omowunmi Iledare, a world-renowned petroleum economist, who advised the Federal Government in the push to pass the governance bill during the sixth National Assembly, “We came so close and that is sad”. Speaking at a recent Webinar organised by Emmanuel Egbogah Foundation, Iledare argued forcefully that with the drastic changes that have occurred in the industry when two periods are compared (2011 -2015 and 2015 – 2019), have raised the stakes for the lost opportunity Nigeria had to reform the industry.

According to Iledare, the opportunities lost by not following up quickly on the foundation laid by President Obasanjo to reform the industry led to the challenges we had in the period 2011 – 2015; and the continued failure to execute the reform agenda snowballed into even bigger challenges as we see them today.

Iledare concludes that oil industry reform is key to the diversification of the Nigerian economy because it is the oil industry that can generate the quantum of money required to implement the major pillars of such economic re-engineering.

Speaking at the Global Petroleum Show in Calgary, Canada in June 2010, Egbogah said inter alia: “How is the PIB perceived by the international community, whether it be multilateral institutions, sovereign jurisdictions, IOCs, lending institutions and influential media? In my assessment, it is viewed as an integrated, viable, functional, sovereign enterprise with geostrategic capacity and global market understanding equaling sustainable economic development. The PIB represents an investor-friendly environment with greatly enhanced business investment opportunities. We invite you to explore these opportunities”.

It is not clear what the Buhari/Silver incarnation of the PIB will be. But the original bill pushed under Yar’Adua and Jonathan had the following as its outlines, according to the late Dr. Emmanuel Egbogah:

The reform agenda is encapsulated in the Petroleum Industry Bill (PIB) which sets out the structural, legal, and commercial/fiscal framework for the operation of Nigeria’s oil and gas industry. The PIB was based on the report of the Oil and Gas Reform Implementation Committee (OGIC) set up by the Federal Government of Nigeria in the year 2000 to carry out a comprehensive reform of the oil industry. I will, therefore, go on to outline some of the key features of the reforms proposals.

Consolidation of all Existing Laws:

Over the years, the laws regulating Nigeria’s oil and gas industry have become obsolete and do not meet the requirements of modern petroleum industry practices and have not been comprehensively reviewed. The main laws are the Petroleum Act 1969 (as amended), the Petroleum Profits Tax Act 1959 (as amended), and the Nigerian National Petroleum Corporation Act of 1977 (as amended). There are also a number of other laws, mostly decrees which have become obsolete and proven to be impotent in regulating the country’s petroleum industry. The PIB coalesces all the existing 16 laws into one comprehensive, all-encompassing legislation, which captures all the experience of the past more than 50 years in addressing all institutional matters: policy, structure, legal and governance.

Three Different Sectors of the Industry

The reform clearly defines three different sectors of the industry, to facilitate the governance processes and regulatory functions. These sectors are:

Upstream Sector: covering Oil and Gas exploration & development

Midstream Sector: covering oil transportation & gas transmission; gas processing; LNG/CNG/GTL; Derivative processing/production; and Oil refining.

Downstream Sector: covering gas distribution and sale; petroleum products distribution & storage; and Petroleum product retail.

Transparency

The PIB will serve to promote transparency in the operation of the oil and gas industry in Nigeria. Transparency, good governance and accountability will be promoted through the removal of confidentiality, which in a way encourages corruption. With the passage of the PIB, Petroleum Prospecting Licenses (PPLs) and Petroleum Mining Leases (PMLs) can only be granted by the Minister through a truly competitive bid process. Such process will be open and accessible to all qualified companies. The details of all licenses, leases and contracts, and any of the changes to such documents will no longer be confidential. 

It is therefore the expectation of Government that the new law will transform the industry from “the most opaque” to probably “one of the most open and transparent in the world”. To that extent, PIB has the prospects of bringing to an end the age-long decadence and orgy of exploitation and corruption in the industry.

Clear Delineation of Roles

Another key feature of the reforms is separation of policy, regulatory and commercial roles of the public sector entities. Over the years, the National Oil Company, the Nigerian National Petroleum Corporation, NNPC has assumed the conflicting roles of policy, regulation and national asset management. The reform will introduce clear separation of roles, which will be assigned to appropriate agencies to ensure clear delineation of functions and responsibilities. The new structure will comprise of the following:

One Policy Body – National Petroleum Directorate that will be responsible for detailed policy initiation, formulation and development for optimum resource utilisation.

Three Regulatory Bodies: 

National Petroleum Inspectorate; will be an autonomous stand-alone technical and cost regulator of the upstream petroleum industry. The inspectorate will also ensure the efficient, safe, effective and sustainable infrastructural development of upstream petroleum operations.

Petroleum Products Regulatory Authority, will regulate the downstream sector of the industry, and promote implementation of national technical and commercial policies for the downstream operations.

National Midstream Regulatory Agency, will regulate the midstream petroleum operations, and promote the implementation of national technical and commercial policies of the midstream sector of petroleum operations in Nigeria.

One Commercial Centre, Nigerian National Petroleum Company Ltd; will have strict commercial orientation and focus, vertically integrated and capable of competing both locally and internationally in all elevant segments of the oil and gas industry.

The National Frontier Exploration Agency will be responsible for regulating and stimulating petroleum exploration activities in the unassigned frontier acreages.

• Above are excerpts from the Keynote presentation by Dr. Egbogah at the 2010 Global Petroleum Show which held at Stampede Park, Calgary, Alberta, Canada in June 2010.