Nation

PIB: What Future for the Oil Sector and the Nation?

 
It was cheering news when federal legislators ended their 20-year foot-dragging on the Petroleum Industry Bill (PIB). The bill was first sent to the National Assembly in December 2008 by the then President Umaru Yar’Adua. But it was never signed into law due to objections from the International Oil Companies (IOCs) and the Nigerian National Petroleum Corporation (NNPC) over certain contents. Again in 2018, a version of the Bill, the Petroleum Industry Governance Bill (PIGB), was passed by the 8th National Assembly. However, President Muhammadu Buhari refused to assent to it. President Buhari on September 29, 2020, transmitted the current PIB to the legislators.
 

The new PIB was titled: ‘A Bill for an Act to Provide Legal, Governance, Regulatory and Fiscal Framework for the Nigerian Petroleum Industry, the Development of Host Community and for Related Matters’. The Bill, which was beset by disagreements, eventually awarded a three percent development fund to host communities.

 Nigeria, due to corruption, inefficiency, high production costs, and security concerns, is said to have drawn only a small fraction of global petroleum investments. The PIB is supposed to provide a clearer framework for oil companies working in Nigeria, which currently produces around 1.9 million Barrels Per Day (BPD). It is also to attract new foreign investment to the country’s struggling petroleum industry.

The Bill also gives the legal power for the government to remove fuel subsidies. But if assented by the President, analysts feel petrol price will rise to as much as N280 per litre. Industry analysts are of the view that it is unripe for Nigerians to rejoice at the passage of the Bill, stressing that there are still many hurdles ahead of it. 

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After years of underdevelopment and environmental damage in Nigeria’s oil-producing states, the local communities had asked for more than the initial proposal that companies invest: 2.5 percent of their operating expenses into local projects. Chief Bebe Okpabi, traditional leader of oil-producing communities in Ogoniland in Rivers State, said they were at last being recognised and compensated for the oil resources in their regions. While Fegalo Nsuke, President of Movement for the Survival of Ogoni People (MOSOP) activist group, stated that “the approved Bill fell short of our expectation. We had expected something like 25 percent for the host communities. I believe a lot more can be done. The Bill, as currently passed, is work in progress.”

The Deputy Senate President, Ovie Omo-Agege, who is from Delta State, said that the people of Niger Delta “want a deal.” Omo-Agege said funds obtained as penalties from gas flaring should be invested in development for host communities, and not in gas infrastructure as proposed. There may be more agitation following this new Bill due to the stakeholders’ demands of 10 percent equity shareholding in the oil companies operating in their communities.
This was against the provision of the Bill, which provides for the creation of Petroleum Host Communities Fund (PHCF) to grant the victimised people 2.5 per cent of the oil companies’ actual operating expenditure for the preceding year.
 
The agitation for 10 percent equity shares in mostly foreign-owned oil companies that already pay tax to Nigeria is said to be an unrealistic expectation.
So, the proposed community funding, although a fair demand, is an indictment on the managers of the 13 percent derivation fund designed to salvage the Niger Delta. The probe of NDDC MD, Daniel Pondei, on the mismanagement of N40 billion, gives credence to what has happened to the region. In spite of the opposition to the proposed 2.5 percent, the Minister of State for Petroleum, Timipre Sylva, had said the amount was fair before the Senate.

However, analysis shows the revised Bill has some contentious provisions, as it mandates oil companies called ‘Settlor’ to incorporate a trust for the benefit of the host communities and to appoint and authorise a Board of Trustees to execute its plans. “The settlor shall, in the determination of membership of the Board of Trustees, include persons of high integrity and professional standing, who may not necessarily come from any of the host communities,” says Section 242 (2).

The problem with this provision is that the host communities have no sense of ownership in the projects to be executed. If they have no say in the projects that would be executed on their behalf, they will not support it. The Bill sets up an advisory body, but the selection is also based entirely on the discretion of the settlor – giving it undue influence.
Another troubling aspect is Section 257 (2), which says that “Where in any year, an act of vandalism, sabotage or other civil unrest occurs that causes damage to petroleum and designated facilities or disrupts production activities within the host community, the community shall forfeit its entitlement to the extent of the cost of repairs of the damage that resulted from the activity concerning the provisions of this Act within that financial year.”

 
Section 257 (3) says “The basis for computation of the trust fund in any year shall always exclude the cost of repairs of damaged facilities attributable to any act of vandalism, sabotage or other civil unrest.”
According to Ayodele Oni, energy lawyer, and partner at Bloomfield law firm, “The intention is to have a win-win situation. You protect installations and benefit from the income from the same.”

The new Bill seeks to scrap the Petroleum Equalisation Fund (PEF) and Petroleum Products Pricing Regulatory Agency (PPPRA) and replace them with a new agency to be known as Nigerian Midstream and Downstream Regulatory Authority (NMDRA). But industry watchers opined that reorganising the industry is largely a mere change of acronyms in some areas, unless the institutions are strengthened to resist political interference. According to them, the DPR that is to be scrapped “does to the oil and gas industry what CBN does to banks – oversight”. In the industry, only 49 percent of Nigerian Liquefied Natural Gas (NLNG) Limited, for instance, is owned by Nigeria (NNPC), with the other shares belonging to Shell (25.6 percent), Total (15 percent), and Eni (10.4percent). For instance, in its 43 years of operation, NNPC only got to publish its first-ever audited financial accounts last year.
 
The proposed incorporation of NNPC as a limited liability company under the Company and Allied Matter Act (CAMA) does not imply that the shares are available for the public or private enterprises, as people want to compare the new firm to the massively successful Saudi Aramco or even the NLNG. Stakeholders’ concern revolves around the commercialisation of the NNPC and the uncertainty of its shareholding structure, because NNPC Limited, like any company, shall be based on dividends, which are not a monthly business. So, where does a country that has relied almost entirely on the proceeds of oil intend to source money while it awaits dividends?

However, the Nigeria Extractive Industries Transparency Initiative (NEITI), an anti-corruption agency in the sector, has welcomed the passage of the Bill. The Executive Secretary of NEITI, Dr. Orji Ogbonnaya Orji, said “NEITI’s interest is because of the urgency and strategic importance of a new law to replace the existing archaic legislation that has aided huge revenue losses, impeded transparency, accountability, and investment opportunities in the nation’s oil and gas industry”.
He noted that the current stagnation of investment opportunities in the Petroleum Industry as a result of the absence of a new law for the sector has led to huge revenue losses to the tune of over $200 billion. NEITI argued that the “revenue losses were as a result of investments withheld or diverted by investors to other (more predictable) jurisdictions.”

 “The hedging by investors stems from the expectation that the old rules would no longer apply, but not knowing when the new ones would materialise,” the statement added.
NEITI Reports in the sector had also disclosed that over $10.4bn and N378.7bn were lost through under-remittances, inefficiencies, theft, or absence of a clear governance framework for the oil and gas industry. The NEITI Executive Secretary lamented that “the implementation of the global Extractive Industries Transparency Initiative, of which Nigeria is a key signatory, has over the years been frustrated by the absence of a dynamic law that suits modern business modules and trends in the ever-evolving oil and gas industry”.

He has expressed his confidence that with the new governance law for the industry, these huge revenue losses to the nation as a result of process lapses and outright stealing will be strictly checked, if not eliminated. Accordingly, he said that the PIB, when assented to by the President, will provide a dynamic governance framework required to re-position the Petroleum industry to fully embrace competition, openness, accountability, professionalism, and better profit returns on investments to both companies and government.
 

Chairman of the committee, Mohammed Sabo (Jigawa South West), who presented the report earlier, said the Bill, when passed, will strengthen the accountability and transparency of NNPC Limited as a full-fledged CAMA company under statutory oversight, with better returns to its shareholders. Commenting on the Frontier Basins, he said the committee recognised the need for the country to urgently and aggressively explore and develop the country’s Frontier Basins to take advantage of the foreseeable threats to the funding of fossil fuel projects across the world due to the speedy shift from fossil fuel-to other alternative energy sources.

Sabo said, “To this end, the Committee recommends a funding mechanism of 30 percent of NNPC Limited’s profit oil and profit gas as in the production sharing, profit sharing, and risk service contracts to fund exploration of frontier basins.”

For the petroleum industry’s fiscal framework, he said the legislation, when passed into law, will attract and unlock the long-awaited capital investment inflows to the country’s oil and gas industry, since it contains enhanced incentives in the land, swamp, shallow, and deep waters terrains.

Pundits have, however, argued that Seplat Petroleum Development Company (SPDC) and Lekoil Plc. are among the local companies with the best relationship with their host communities. These companies have operated without the usual rancour oil majors like Shell has faced. One key reason behind their success is that they developed a holistic Global Memorandum of Understanding (GMOU) with their host communities – not for their host communities. 

This means that both parties sat across a room and hatched out practical areas of cooperation. “This process involves transparent communication with all local stakeholders and ensures multi-party engagement between the company, community, civil society groups, and government,” the company said.
The revised PIB should have been built on these kinds of initiatives to reduce agitations in the Niger Delta. But it should never be a substitute for the government’s responsibility in developing the region.

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