A Review of the Nigerian Energy Industry

Petroleum Industry Bill: Some unresolved issues

Adisa Adeleye

27 July 2012, Sweetcrude, Lagos –
At last, the correct version of the Petroleum Industry Bill (PIB) has been sent to the National Assembly for deliberation and enactment into law. To be fair, taking a cursory look at the bill, it looks like an elegant document – a Dictionary of the Petroleum Industry.

The Senate President who described it as the ‘Bible‘ of the petroleum industry meant well. This is a credit to those crafty hands that drafted the bill. The expectation is that the legislators would do justice to such an important document.

The bill, according to its sponsors, is a necessary document to explain the petroleum industry and to mark its relevance to the welfare of the people and economic development of the country. To many Nigerians, the petroleum industry law would open the gate to prosperity and change the perception in certain quarters that oil is not a blessing but a disaster to the nation.

However, the legislators should be able to differentiate between realism and undue optimism. On the question of the ownership of petroleum resources, a provision of the Bill says, “The entire property and control of all petroleum in, under or upon any lands within Nigeria, its territorial waters, on which forms part of its continental shelf and the Exclusive Economic area is vested in the Government of the Federation”.

This simply means that oil belongs to the Federal Government only. This runs widely against the notion of our friends in the difficult and heavily polluted terrains of the Niger Delta that ‘oil‘ belongs to them and the common phrase of ‘our oil ‘being used to develop Nigeria.

The seemingly bogus claim of the Federal Government (subject to legal definition) has duly affected its determination in the provisions of the Bill to have full control of the oil industry.

It may seem nice when there is that pleasant coincidence of having a President and the Minister of Petroleum Resources coming from the same state of the Niger Delta with the hope that the interests of the oil producing states would be favourably considered. What happens when the king who does not know “Joseph” is on the throne?

The intention of the Federal Government in having full control of the industry is reflected in the powers given to the Minister of Petroleum Resources.

Some of these are (a) Be responsible for the formulation, determination and monitoring of Government policy for the Petroleum Industry in Nigeria; (b) Advise the Government on all matters pertaining to the Petroleum Industry and also have direct access and seek information by right from agencies benefiting from licenses under the Act.

The power of the Minister is total because acting on the advice of the Inspectorate or Agency, can grant, amend, renew, extend or revoke upstream/downstream licenses and leases pursuant to the provisions of the Act.

Another provision of the Bill which needs close attention by the legislators is that which states that, “when enacted, the Petroleum Industry Act, will, in addition to the Ministry of Petroleum Resources provide for the establishment of nine agencies responsible for the operations of the oil and gas sector.

These agencies will be answerable to the Minister of Petroleum Resources. It appears funny that in an attempt to dismantle the Nigerian National Petroleum Corporation (NNPC); the bill makes provision for the creation of 9 agencies, each with a board (paid chairman and members). It looks like an invitation to undesirable waste of funds and unnecessary bureaucracy.

The logical argument is that if in managing the NNPC (which is either a government agency or a public venture), there is a lot of bungling and fumbling, managing nine agencies could be a direct invitation to chaos and disaster! Since the officials of these agencies would be appointed by the President or on the advice of the Minister, it could be a case of political nice jobs for the good boys.

The bill also provides for the return of the badly damaged Petroleum Equalization Fund. Under the complete deregulation of the downstream sector of the oil industry, there should be no need for uniform price of petroleum products in the country.

There is a provision for full deregulation of the downstream sector of the oil industry which stipulates that the price of products shall be deregulated to ensure (a) market related prices (b) adequate supply of petroleum products (c) removal of economic distortions and (d) the creation of fair market value for petroleum products in the Nigerian economy.

To my understanding, full deregulation would allow marketers to procure their products (crude oil), refine them, store them and transport them to their depots and to their customers through their network of retail outlets.

The pricing is normally based on the cost of crude, refinery charges, storage and distribution costs and allowance for profits. Government should not interfere with the pricing mechanism but ensure that no abnormal price is charged.

The provision of Downstream Petroleum Regulatory Agencies with its board (chairman and members) may not be necessary or may be limited in its activities to providing a favourable atmosphere for the growth of the sector through improved infrastructural developments which would invite foreign and Nigerian investments. The existing government facilities should either be leased or sold to the existing viable marketing organizations in the country.

There should be no room for government to come ‘through the back door‘ to control and disorganize the downstream sector after it has been sincerely deregulated. Another provision in the PIB is that every company that is involved in the oil and gas exploration and production is required to remit into a fund on a monthly basis, 10% of its net profit.

The fund is for the economic development of the oil producing areas. This, to me, is begging the question on having shares and control in the oil resources of the area. It would have been better to give a certain percentage of control and revenue in the agency responsible for the management of revenue and expenditure of the oil resources.

This would have been possible if the envisaged National Oil Company (NOC) is saddled with the responsibilities of funding production and sharing income according to designated agreement among shareholders.

According to some analysts, the intention of the Federal Government is to maximize returns from oil resources and having full control of the oil and gas operations.

The Minister of Petroleum Resources is like the ‘Leviathan‘ – having all executive powers on all the operations of both the upstream and downstream sectors of the industry. There is a fear that over-regulation and dominance of government’s presence might be a disincentive to foreign and local investments.

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  • ‘The Minister of Petroleum Resources is like the ‘Leviathan‘ – having all executive powers on all the operations of both the upstream and downstream sectors of the industry. There is a fear that over-regulation and dominance of government’s presence might be a disincentive to foreign and local investments.’ We share the concerns expressed here.

  • Nwankudu Jude via Facebook

    This is so fantastic and interesting.naw petroleum subsidy is over