Nigerian lawmakers kick off work on the new Petroleum Industry Bill (PIB).
- The Bill seeks to model the state-owned oil firm to a commercial entity operating as a limited-liability company, independent of government and its funding;
- It makes provisions for fostering sustainable prosperity within host communities, enhancing peace and cordial relationship between licensees and lessees, and the communities;
- It proposes a pecuniary NNPC limited and a powerful Commission – acting as a supervisor;
- Section 55 (4) of the Bill implies that taxpayers will fund the process of NNPC Limited takeover.
The Nigerian National Petroleum Corporation (NNPC) in its present form may soon phase out if lawmakers pass the new Petroleum Industry Bill (PIB) into law. The Bill, in the works for two decades, passed first reading at the National Assembly on Wednesday, September 30, 2020.
It seeks to model the state-owned oil corporation into a commercial entity operating as a limited-liability company, independent of government and its funding. It provides governance, fiscal, and regulatory frameworks for the oil and gas industry.
Other countries that operate this model include Saudi Aramco, the Saudi Arabian Oil Company, Chile’s ENAP, Equinor of Norway, and Russia’s Rosneft. Like the proposed Nigerian Upstream Regulatory Commission, the Russian government has a Federal Energy Commission. Likewise, Saudi Arabia with its Royal Commission for Jubail and Yanbu; there’s also the Chile National Energy Commission.
The aim of the Bill is to promote transparency, good governance, and accountability in Nigeria’s petroleum resource administration. So without delay, here’s DATAPHYTE’s analysis of the 252-page document, citing key findings from the new PIB Bill:
1. Creation of a profit-driven Nigerian National Petroleum Company Limited
Enter Nigerian National Petroleum Company Limited. According to the proposed PIB, this entity will carry out petroleum business commercially; this includes lifting and selling of royalty oil and profit oil for commercial fees, payable by the government. The NNPC limited would take over assets and liabilities of the current NNPC.
2. Room for Initial public offering (IPO)
The indenture further hinted on a tendency for sale or transfer of shares of the new NNPC limited. This, however, was the government’s prerogative as they held approval as to the company’s privatisation. Again, the Bill stipulates that such development must be at fair market value and subject to a transparent and competitive bidding process. A good example here is that of the Saudi Aramco IPO of 2019.
3. New Sheriff in town – the Nigerian Upstream Regulatory Commission and the Nigerian Midstream and Downstream Petroleum Regulatory Authority.
Regulatory checks to all activities in the upstream petroleum operations remain the purview of the novel Nigerian Upstream Regulatory Commission. Per the proposed bill, her activities include technical, operational, and commercial activities. Enshrined within her responsibilities were also ensuring the efficient, safe, effective, and sustainable infrastructural development of upstream petroleum operations.
Again, the Commission would determine, administer, and ensure the implementation and maintenance of technical standards. These codes applicable to upstream petroleum operations also have to reflect international petroleum industry practices.
The NURC would further engage in the commercial aspects of field development plans by supervising costs and cost control in the upstream petroleum operations. Like the upstream sector, there is also provision for a regulatory body for the downstream sector – the Nigerian Midstream and Downstream Petroleum Regulatory Authority.
4. Environmental management plan
It seems the proposed Bill also took into account the environmental impact of oil exploration. It mandates licensees in the upstream and midstream petroleum operations to make provisions for environmental management plans for necessitating projects. More so, every licensee must rehabilitate and manage the effects of petroleum operations on the environment, the Bill states.
5. Incorporation of host communities development trusts
The host communities’ development trusts would foster sustainable prosperity within host communities, enhance peace and cordial relationship between licensees and lessees, and the communities. The Bill proposes 12 months after the commencement date for new or existing oil mining leases.
6. Compulsory Audit of NNPC Limited and the Commission
The PIB provides for an annual audit of the oil company by an independent and qualified auditor. Per the guidelines of the Auditor-General of the Federation, said auditors will check the accounts of the Nigerian Upstream Regulatory Commission.
7. Tax provision and penalties for the Petroleum Industry
The Bill also proposes a robust tax administration and regulations for the Oil industry. It makes provisions for penalties on defaulters, incorrect accounts, false statements, and returns.
Shortcomings of the proposed Bill
Here are three not-so-good observations from the proposed PIB, noteworthy of revision by the National Assembly.
- The Bill created NNPC limited in uniformity to NNPC operations and runnings by the same government cronies. It dwells more on the regulatory part to promote transparency and accountability. Section 57(1) talks about absorbing NNPC employees by NNPC limited on terms no less favourable than previous terms or from any applicable law. It seems more like inheriting the huge salary costs from the NNPC.
- The Bill is silent on the timeline for winding down the assets, interests, and liabilities of NNPC. The process might create a legal lacuna as some forces may try to elongate the winding down the corporation.
- Despite being a multi-trillion naira industry, the Bill (Section 55, 4) stipulates that the federal government pay for winding down the assets, interests, and liabilities of NNPC. By implication, taxpayers will fund the process of NNPC Limited takeover. The government should emancipate the NNPC Limited, causing it to raise the cost of business and other related expenses. Instead, it created another powerful Commission – the Nigerian Upstream Regulatory Commission – for the management and administration of the overall oil business.
This report is part of the fulfillment for the ATUPA fellowship by Civic Hive in collaboration with US Embassy.