A Review of the Nigerian Energy Industry

Nigeria’s Petroleum Industry Bill

21 July 2012, Sweetcrude – The national assembly has acknowledged receipt of the long-delayed Petroleum Industry Bill (PIB) on Thursday but will not begin debating it until at least Sept. 17 when it returns from recess.

The ambitious law has been years in the making and several other versions have been debated by parliament but this is a draft backed by President Goodluck Jonathan.
Here is some of what the 223-page bill says:

Key PIB objectives
* Enhance exploration and exploitation of petroleum resources in Nigeria for the benefit of the people
* Optimize domestic gas supplies, particularly for power generation and industrial development
* Establish a progressive fiscal framework that encourages further investment in the petroleum industry while optimising revenues accruing to the government
* Establish commercially oriented and profit driven oil and gas entities
* Deregulate and liberalise the downstream petroleum sector
* Promote transparency and openness

National Oil Company
* Create an incorporated National Oil Company (NOC)
* The oil minister within three months of the bill passing create the NOC, which will hold certain assets and liabilities of the state-owned Nigerian National Petroleum Corp (NNPC)
* The initial shares of the NOC will be held by a nominee of the Ministry of Petroleum Resources and Ministry of Finance Incorporated on behalf of the government
* The Government shall at any time within six years from the date of incorporation of the NOC, divest up to 30 percent of the authorised shares to the public on the Nigerian Stock Exchange
* The assets and liabilities held by the NNPC on behalf of the government, except the interests in the unincorporated joint ventures and Nigerian Gas Company shall be vested in the NOC within 12-24 months
* NOC will not hold NNPC assets in unincorporated joint ventures, which together make up much of Nigeria’s large oil and gas assets. The government may later divest these to the NOC
* NNPC joint ventures will be held by National Petroleum Assets Management Corp, which will be incorporated within 12-24 months. The oil minister will be the chairman of the board. The asset management company will not pay tax

* Oil companies will pay tax on a percentage of the chargeable profits as follows:
50 % for onshore and shallow water areas
25 pct for frontier acreage and deep water areas, this is up from 20 pct in a May draft of the PIB

Petroleum Minister
* The Petroleum Minister will co-ordinate the activities and supervise all the institutions of the industry
* Any person or company who fails to comply with an order made by or on behalf of the minister or who obstructs or interferes with the minister or their servants or agents is liable to a fine or imprisonment

Petroleum Host Communities Fund
* Oil companies will contribute into the fund for Niger Delta communities 10 pct of net profits – less royalties, deductions and allowances, hydrocarbon tax and income tax
* The host fund will cover the cost of repairs to any oil facilities damaged by vandalism, sabotage and civil unrest. This is currently paid for by oil companies

Other Key Points
* The pricing of petroleum products in the downstream product sector will be deregulated to ensure a market related pricing and removal of economic distortions
* Nigeria attempted to remove fuel subsidies in January, prompting more than a week of strikes and public protests after the price of gasoline more than doubled. The president then partially reinstated subsidies
* The president will have the power to grant oil licenses
* Gas flaring will be banned at a date to be decided by the oil minister. It was to be banned by the end of this year in the version then edited by cabinet
* Confidentiality clauses for licences, leases, agreements or contracts for upstream petroleum operations in respect of any payments of royalties, fees and bonuses of whatever nature, and taxes, shall be void and of no effect

Other New Institutions
* National Petroleum Assets Management Corp – will own and manage many of NNPC’s assets not handed to the new NOC
* National Gas Company. Will divest up to 49 pct of shares to the stock exchange within six years of being incorporated
* Upstream Petroleum Inspectorate – will regulate oil and gas production, enforce laws, grant licenses and carry out bid licensing rounds
* Petroleum Technical Bureau – includes group of oil and gas experts. Takes over duties of NNPC’s frontier exploration service. Assists the oil minister in formulating strategies
* Downstream Petroleum Regulatory Agency – regulates the downstream sector, taking over from the current Petroleum Products Pricing Regulatory Agency
This article was culled from Reuters and written by Joe Brock.

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