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Nigeria’s delayed PIB and disappearing opportunities

Having delayed the passing of the Petroleum Industry Bill (PIB) for more than a decade, the Nigerian government appears not to be in a hurry to reform the oil and gas sector, despite the new normal that has changed the course of events in the global energy space and economy.

Although the Minister of State for Petroleum Resources, Timipre Sylva, had said the much-awaited PIB will be passed into law by the National Assembly by mid-2020, the lawmakers are yet to receive a revised version of the bill for legislative processing and passage. With the coronavirus disrupting government earnings and investment decisions, there is no better time to revisit the bill and open up the oil and gas sector for investments.

For close to two decades, the Petroleum Industry Bill (PIB) has been in the works, as it was first introduced in the National Assembly in 2000, thereby making it easily the bill with the longest timeline at the National Assembly.

Indeed, a presidential committee set up in 2007 to look into the oil and gas sector came up with the idea of this bill, which aims to increase transparency at the Nigerian National Petroleum Corporation (NNPC), and to increase Nigeria’s share of oil revenue.

Drafts of the bill, however, became very contentious due to objections from the international oil companies (IOCs), and the NNPC. Consequently, the bill was never passed into law.

Having suffered a setback in the 7th Assembly, it was decided that a new approach would be adopted to facilitate its passage and signing into law.

Towards the end of 2015, the then Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, noted that the PIB was to be amended to speed up its passage.

Consequently, the PIB was broken into different bills, one of which was the Petroleum Industry Governance Bill (PIGB), to address various aspects of the oil industry. The Senate President noted that the plan was to pass quickly the aspects of the old law that were not controversial while the controversial bits could wait.

The PIB amongst other things looked into the ownership and management of petroleum resources, functions and powers of the Minister of Petroleum, the establishment of the Nigerian Petroleum Regulatory Commission (NPRC), which was to act as a regulator for the entire petroleum industry (upstream, midstream and downstream) and the restructuring of the NNPC.

In January 2018, the Petroleum Industry Governance Bill (PIGB), was passed by the House of Representatives, marking a significant milestone in the journey of replacing the obsolete Petroleum Act (1969), as the Senate had earlier passed the PIGB in May, 2017.

Recently, the Senate Committee on Petroleum (Upstream and Downstream), which said very little could be achieved without the bill from the presidency, told The Guardian that it was the desire of the National Assembly to pass the PIB before the end of 2020. The panel expressed worry that with the continued delay by the presidency, the plan could be endangered.

Senate President Ahmad Lawan had also earlier in the year, pledged that the Senate would ensure the transmission of the approved version of the PIB to President Buhari for his assent before the end of 2020.

“Our petroleum industry is almost stagnant and for long needing profound reform. Our oil and gas-related committees are, therefore, expected to work hard to take the lead in our determination to reform this vital sector. It is the desire, indeed the design of this Senate that the Petroleum Industry Bill is passed before the end of 2020.”

Expectations versus reality

Despite the promises on the passage of the bill, the reality is far from expectations going by the concerns of the legislators. While the PIGB is one of four parts of the proposed petroleum law submitted for consideration by the National Assembly, the other parts include the Petroleum Industry Administration Bill (PIAB), Petroleum Industry Fiscal Bill (PIFB), and Petroleum Host and Impacted Communities Bill (PHICB).

The PIAB focuses on the transparent and efficient management of exploration and production operations, while the PIFB deals with fiscal terms, in term of tax regimes and contractual terms to help realize full value in line with global standards.

Also, the PHICB takes care of the rights and opportunities for local benefits, in terms of restitution for environmental and social costs of resource extraction activities.

Similarly, investors have had to stall final investment decisions on a couple of projects over lack of clarity in the regulatory regime. Many oil companies believe new investments in the oil sector is dependent on the passage of the PIB, which would take a more holistic approach in addressing issues around the fiscal terms especially following the passage of the Deep Offshore and Inland Basin Production Sharing Contracts (amendment) Bill, 2019 (PSC Amendment Bill).

The revised Act introduced a price-based royalty payment system, which adds between 0% and 10%, depending on the prevailing oil price in the market and makes oil firms executing deep offshore projects in Nigeria pay varying percentages based on the prevailing price of a barrel of oil at the time.

Currently, Nigeria is said to have one of the least competitive Deepwater fisc

al terms in Africa, and is increasingly losing significant amounts of potential investments to other African countries.

The Director-General of the Lagos Chamber of Commerce and Industry (LCCI), Muda Yusuf, urged the government to pass the PIB into law noting that despite the huge domestic market for energy in the country, investors are constrained by the policy, governance and political environments.

“The importance of passing the PIB is underscored by the fact that the oil and gas industry is very strategic to the economy of Nigeria. The industry currently accounts for about 80 percent of the government revenue and about 95 percent of foreign exchange earnings. Today, that revenue is facing a serious risk of shortfall from illegal bunkering, declining demand from buyers, stalled investments in the oil and gas sector and emerging technology in renewable energy,” he added.

Harmonizing the PIB and Nigeria’s energy policies

Proponents of the need for harmonization, observe that if the passage of the PIB is being pursued without matching the goals and vision of the PIB and the country’s energy policies, Nigeria is unlikely to achieve effective organization and progress in the oil and gas sector.

Specifically, the Chairman of Major Marketers Association of Nigeria (MOMAN), Tunji Oyebanji, reiterated his call to the Federal Government to urgently restructure the petroleum industry with a view to opening it up for more participants.

According to him, reforms in the industry would help to address some of the challenges plaguing the sector for some time. He said the industry believes the passage of PIB presents a unique opportunity for necessary reforms and changes to take place in the downstream industry.

Participants in a one-day roundtable on PIB organised by the Nigeria Natural Resource Charter (NNRC), in Abuja, said the absence of the PIB was driving fresh investments in the oil industry to rival destinations in the continent.

This development, they noted, had cost Nigeria’s oil and gas industry several billions of dollars investment and returns to the economy. The event organised in collaboration with the Media Initiative on Transparency in Extractive Industries (MITEI), blamed the loss on uncertainties in the operational environment, particularly on legal terms of contracts and acreage allocations.

“Nigeria’s competitive advantage is consistently being eroded by increasing discoveries of crude oil in more stable economies operating within Africa, such as Tanzania, Ghana, Mozambique, etc,” the communique from the meeting noted.

Similarly, participants from PENGASSAN, NUPENG, Ministry of Labor and Employment, NECA, industrial relations managers, Human Resources managers, Academia, Media, civil society organizations, petroleum industry, past and present leaders of oil and gas union at the virtual session. This was organised recently by the African Initiative for Transparency and Responsible Leadership (AfriTAL) under its Save Nigeria Oil Gas Initiative Programme, which also urged that the new PIB should promote good governance, allow for indigenous participation, revitalize the midstream and downstream operations, protect the environment, emplace fiscal regimes that will at the end attract investors and address community concerns.

Harnessing Nigeria’s energy potential

The current PIB emphasizes ‘revenue maximization’ (which itself is threatened by several ‘anti-transparency’ provisions currently engaging public attention).

Without linking the PIB to a clear energy policy direction that responds to the troubling issues of epileptic power supply, security of local consumption of gas, reform of the downstream sector and refineries, enhancement of local content, linkages between the Oil and Gas sector and local economy in order to unleash the industrialization potentials in Nigeria, the country may never be able to harness the full development potentials in the sector.

According to Muda Yusuf, the reform of the downstream oil and gas sector would create a number of advantages for the economy and will free resources for investment in critical infrastructures such as power, roads, the rail systems, health sector, education sector among others.

“The deficit in all of these infrastructure areas are phenomenal. Fixing infrastructure will greatly improve productivity and efficiency in the economy and impact positively on the welfare of the people. It will unlock the huge private investment potentials in the downstream oil sector especially in petroleum product refining.

“This will ultimately reduce importation of petroleum products and ease the pressure on the foreign exchange market as well as the burden on our foreign reserves.

“It will eliminate the patronage, rent seeking activities and corruption that currently characterise the downstream oil sector”, he added. With many projects yet to be sanctioned, especially in the face of the volatility in the industry, the concern for most stakeholders is that changes to the global economy, oil and gas prices, capital expenditure and other germane factors may undermine projected economic value from the projects.

One of the oil majors in a chat with The Guardian said the firm was yet to take a final investment decision on the over 200,000bpd project because it was concerned about the regulatory environment in the country.

According to the operator, fiscal stability is key to attracting investments in the country, noting that the investment climate needs to be able to attract capital.

Although Sylva is optimistic that given the cordial relationship between the Executive arm of government and the Nineth Assembly, the PIB would be passed on or before mid-2020, stakeholders worry that the post-COVID-19 oil economy will see investments in the sector shrink as operators evaluate their business operations and commitment in each country.

Experts estimate that the country loses approximately $15million annually in lost investment due to loss of investor confidence in the industry. The passage of the bill is expected to engender investor confidence in the industry and attract more Foreign Direct Investments.

Post COVID-19 oil economy

With oil prices hitting an all-time low as a result of price wars between Saudi Arabia and Russia as well as reduced demand occasioned by the COVID-19 pandemic, it is apparent that oil dominance as an energy source of choice in the post-COVID-19 economy will be challenged. The time is therefore ripe to streamline the number of MDA’s involved in the governance structure in the Nigerian Oil and Gas Industry, which conforms to the overall target of the Government in reducing cost of governance based on current realities and scarce resources.

A single regulatory body would ensure end to end project cycle approval which will greatly reduce transaction cost, eliminate regulatory competition and enhance value maximisation. It will also promote the Executive Order 001 on Ease of Doing Business in Nigeria.

 

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