With series of engagements with key stakeholders in the Nigerian oil and gas industry, particularly with the upstream players, in the drafting of post Petroleum Industry Act regulations, the latest being on the Frontier Exploration Fund and the Host Community Development Trust, the Nigerian Upstream Petroleum Regulatory Commission is bent on steering the industry to path of growth and increased value addition
Two of the many landmark outcomes of the Petroleum Industry Act (PIA) 2021 are the introduction of the Frontier Exploration Fund (FEF) and the Host Community Development Trust (HCDT).
The two inventions of the law are primarily meant to help the Nigerian oil industry to record exponential growth through the optimisation of the hydrocarbon resources for increased value addition to the industry investors and operators, the federation’s economy and through the development of oil communities.
The PIA provided that 30 per cent of the Nigerian National Petroleum Company Limited’s (NNPCL) profit oil and profit gas be devoted to exploration activities in the frontier basins to rev up exploration operations and help raise the nation’s oil reserve.
This represents an aggressive intervention aimed at shoring up Nigeria’s oil reserve and prevent the foretold depletion of the reserve. It also tries to offer some funding buffer to the national oil company in the face of the emerging dwindling fossil fuel funding resulting from the energy transition campaign.
The FEF was basically aimed at increasing oil reserve and production to 40 billion barrels and three million barrels per day respectively as well as boosting the nation’s natural gas reserve and production to ultimately increase export gas, raise domestic supply and industrialise the nation on the back of utilising gas potentials.
On the other hand, the new petroleum law made provision for the oil producing companies to devote three per cent of their yearly capital expenditure for the development of their host communities, which will be managed through the HCDT.
The HCDT is meant to address the hostilities in or by oil producing communities towards the operators, which has led to the stealing of massive volumes of crude oil daily and wanton destruction of oil facilities.
It is also intended to enhance the development of oil communities, improve their living standard, and to give them a sense of belonging in the ownership and operation of oil and gas assets in their domain.
NUPRC STEPS IN WITH ENABLING REGULATIONS
However, these brilliant provisions of the law cannot only in themselves produce the needed impacts excepts robust policy actions are taken by relevant authorities to see to their implementation in a manner that gets the best result out of them.
This informed the ongoing stakeholders’ consultations on FEF and the HCDT fund by the NUPRC, which has been bent on ensuring that contributions of the relevant stakeholder groups such as the NNPCL, IOCs, independent oil producers, state actors and community leaders are well considered and factored into the regulations.
Penultimate week, the commission began the second phase of consultations on the FEF as well as the regulations on decommissioning and abandonment of assets by oil and gas operators.
The PIA has provided for the 30 per cent FEF which would be deployed annually to fund search for oil and gas in the frontier basins of Nigeria.
At the stakeholders’ meeting in Abuja, the Chief Executive Officer of NUPRC, Mr Gbenga Komolafe, discloed that progress had also been made on the phase one of the exercise, leading to the gazetting of the host communities’ fund.
The fund is expected to provide the much-needed relief for oil producing areas of the Niger Delta who have been subjected to years of neglect by the oil companies and the government.
Other draft regulations to be considered include: Acreage Management (Drilling and Production); Regulations and Upstream Petroleum Environmental Regulations as well as the Upstream Petroleum Environmental Remediation Fund Regulations.
Komolafe, who was represented at the meeting by the Executive Commissioner, Health, Safety, Environment and Community, NUPRC, Capt. John Tonlagha, stated that the consultation was in furtherance of the initial rules reviewed in April.
He recalled that six draft regulations were presented for discussion in April during the first phase of its consultations with stakeholders.
Komolafe noted that the stakeholders’ inputs from the engagement were incorporated where necessary, in the draft regulations which were forwarded to the Attorney General of the Federation and Minister of Justice, Mr. Abubakar Malami, for vetting, legislative standardisation and approval.
The chief executive explained that while one of the regulations, the host communities’ trust fund regulation had been gazetted, adding that the remaining five had been finalised and ready to be gazetted.
“Our commitment to create an enabling environment for growth and investments in the upstream oil and gas industry in Nigeria has steered our focus towards working with all stakeholders.
“This can be seen in our efforts to ensure that regulations and key policies necessitated by the PIA are developed and gazetted timely so that the industry operators can align their operations with the PIA provisions as quickly as possible,” he stated.
Komolafe reiterated that the process of formulating the regulations had been rigorous being products of critical evaluation and hard work by the commission’s regulatory development team and the presidential implementation committee on PIA.
He explained, “Please permit me to reiterate that the process of formulating the above regulations has been a rigorous and strenuous exercise. They are products of critical thinking and evaluation, and hard work by the commission’s regulation development team and the Presidential Implementation Committee on PIA.
“Despite this however, the process is not complete until the stakeholders’ critical inputs are obtained, discussed, and incorporated, where necessary, in the regulations.
“To this end, I am of the firm view that with the level of turnout today, we will have healthy, robust, and intellectual discussion on the regulations during the syndicate sessions to come out with robust regulations with best international best standard.
“In conclusion, this phase in our regulations development is by no means a final or exhaustive one in our drive to support the upstream industry operators. The commission will continue to embark on programmes and policies that will create enabling environment for growth and more investments in the Nigerian upstream oil and gas sector.”
ESSENCE OF HARVESTING STAKEHOLDERS’ VIEWS
The commission explained that the decision to carry all stakeholders along was to ensure that the regulations reflect the collective yearning of everyone and to make implementation of the regulations and the law itself easier and participatory.
According to the Head of Compliance and Enforcement, NUPRC, Dr Joseph Tolorunse, the stakeholders’ forum served as an avenue to listen to stakeholders’ views on the regulations and secure their buy-in which would determine PIA’s implementation.
Tolorunse stated that it had been confirmed empirically that if stakeholders were part of the regulations making process, compliance would be achieved easily.
“With this procedure of rulemaking, it is believed that consensus will be built, trust between the regulator and the regulated entities will improve and ultimately the regulations will be easier to implement and sustained,” he stated.
FOSTERING PROSPERITY OF HOSCOM
At the recent Iwereland Petroleum communities summit on the implementation of the HCDT fund, in oil producing Itsekiri communities under the PIA 2021, Komolafe had said the enactment of the PIA opened new opportunities in the country’s oil and gas industry.
He said that the Act contained extensive provisions to foster sustainable prosperity of host communities and enhance peaceful and harmonious co-existence of oil companies with their host communities.
He explained that Section 235 of the Act specifically provides for the incorporation of HCDT by the Settlors (the oil and gas companies) for the benefit of the host communities.
Komolafe noted that although the responsibility to set up HCDT and appoint the Board of Trustees was vested in the companies in consultation with the host communities, Section 247 of the Act requires the BoT to set up a management committee to handle the general administration of the fund.
In addition, he noted that the management committee was required to in turn, set up an advisory committee to advise on activities as well as monitor and report progress of projects in the community to the body.
“The law provides that the host communities should be represented in the Board of Trustees, Management Committee and Advisory Committee, while Section 235(6) empowers the NUPRC to make regulations on the administration, guide and safeguard the utilisation of the trust fund and have the oversight responsibility for ensuring that the projects proposed by the Board of Trustees are implemented,” he noted.
According to him, the commission has concluded arrangements to ensure the regulations guiding the implementation of the host community development fund under the PIA 2021 comes into effect before the end of June 2022.
Komolafe said this would signal the commencement of a seamless implementation of the host community development fund for the benefit of oil producing communities.
He pledged that the commission would focus on working with the host communities and other stakeholders to ensure investments in the oil and gas sector are adequately protected, while ensuring the safety and sustainability of the environment.
The chief executive said the commission was committed to ensuring that the three per cent deduction required from the Settlor’s annual operating expenditure (OPEX) was not short-changed and that funds were remitted in good time.
He added: “We shall also ensure that projects and programmes proposed by the HCDT are implemented as well as ensure fair and adequate compensation for damaged environment and apply sanctions where necessary on defaulters.”
Engaging Indigenous Operators
With the gradual existing of the international oil companies (IOCs) from Nigeria’s oil industry and the need to keep the industry going after the IOCs’ department, NUPRC under Komolafe’s watch has taken priority in boosting the capacity of indigenous oil producers.
This, the commission is doing through regular engagements with the independent companies both individually and collectively to understand their challenges, harvest inputs from them and work collaboratively with them in order to address the problems they face.
Upon his assumption of duty as the Commission’s Chief Executive, Komolafe had during a stakeholders’ engagement meeting with the Independent Petroleum Producers Group (IPPG) held in Lagos, said the PIA has provided robust fiscal provisions to enable investments in the upstream sector, but specifically stressed that this can only be achieved through various partnerships.
He explained that the industry was facing critical challenges and with discussions at the COP26 in Glasgow (COP26), Scotland, it was understood that the outcome of the deliberations there would equally impact the industry due to the fact that they (stakeholders) were setting the global warming standard at 1.5 degrees Celsius as they target at impacting financing in the energy transition regime.
He said such challenge had made it imperative for the commission to work in collaboration with the IPPG member companies to see how to save the sector.
Komolafe said, “I want to assure your members (IPPG) that we will not because of energy transition abandon our hydrocarbon and so we really need to think outside the box and also we want to get feed-back from our stakeholders to see how we can get a structural financing group to commit on financing critical projects in our upstream sector. I know that financing is a critical issue posed by energy transition and I know that if we sit down to think together, there will be results.
“The PIA had not only made the commission a technical regulator but a commercial regulator. We will upgrade to being a business enabler and other different regulatory culture and this is the prescription of the law and the law has made the commission a technical and commercial regulator and so in that wise, we will be concerned equally as to how we will facilitate financing for stakeholders in the industry and we will not do that in isolation of the members”.
He added that if initiatives would be spearheaded by the regulator in terms of attracting financing for IPPG members, it would empower the members to be able to leverage the divestment by IOCs to enhance their capacity in the onshore and shallow water aspect of the investment in the upstream.
“We can look at ways to optimise production in the upstream and thereby enhancing federation’s revenue”, he added.
