Beyond Planned Unbundling of PIB

15 November 2015, Abuja – Industry stakeholders welcome Vice President Yemi Osinbajo’s statement indicating government’s intent to unbundle the Petroleum Industry Bill (PIB) which seats in the National Assembly since 2007 when it was first presented, writes Olaseni Durojaiye

Vice President Yemi Osinbajo

Vice President Yemi Osinbajo

The recent disclosure by the Vice President, Professor Yemi Osinbajo that the federal government will unbundle the Petroleum Industry Bill (PIB) which currently seats in the National Assembly has drawn cautious cheer from some of the players and activists in the sector as some of those that responded to THISDAY enquiries described it as a the right steps adding that they hope the government will demonstrate the political will to see the process through.
Industry stakeholders who spoke to THISDAY lamented the absence of a transparent fiscal regime prior to the bill being sent to the parliament, adding that the absence of it undermine revenue generation and accountability in the sector and insisted that there was the need to put in place bills that specifically speaks to specific segments of the industry especially contractual transparency, exploration and production, and midstream operations of the sector.
Vice President Yemi Osinbajo had in a media interview in stated that as part of plans by the federal government to restructure the oil and gas industry government plans to split the PIB and resubmit it to the National Assembly by the first quarter of next year. In the interview, Professor Osinbajo noted that unbundling the bill was what the market has been waiting for and implied further that while the government does not plan to sell the four state owned refineries it plans to encourage private owned refineries to be built near the state run units so “they can benefit from available infrastructures,” he stated.
Professor Osinbajo was reported first by Bloomberg and national dailies in October to have explained that breaking up the bill into smaller laws focused on fiscal and regulatory measures in the country’s energy industry will make the bill easier to pass through the parliament.
“Separating the PIB,  breaking it up obviously is the way that I would think we’ll proceed,” Osinbajo was quoted as telling Bloomberg; and insisted that “In the medium term, we will be able to get cheaper pump price oil because we will be importing far less refined petroleum,” he stated.
Prior to the vice president’s disclosure, Group Managing Director of the Nigerian National Petroleum Industry, Dr. Ibe Kachiukwu had echoed the same sentiments when he appeared before the Senate to be screened as a ministerial nominee. Dr. Kachiukwu who had since been sworn-in as the Minister of State Petroleum stated that the non passage of the PIB had cost the country $15 billion annually.
It will be recalled that Osinbajo’s disclosure resonates with what some indigenous players in the industry have been agitating for.

The call for the unbundling was also re-echoed by some discussants during the break out session of the Energy Policy Commission at the 21st Nigeria Economic Summit (NES). One of the discussants, Gbite Adeniji in an interview with THISDAY kicked against composition of the bill and called for it to be broken down into specifics to address the peculiar issues faced by the different sector in the industry adding that there was need for an independent regulator that will midwife investments by private sector in the gas sector.
“You can’t run an energy sector profitably without an independent regulator in place. As the petroleum sector is structured today, the regulator is not an independent regulator. DPR is reports directly to the Minister of Petroleum Resources and it is whatever the minister does that the DPR does,” he stated in an interview with THISDAY in October.

The Petroleum Industry Bill
The Petroleum Industry Bill (PIB) was first presented to the National Assembly in 2007 in the National Assembly largely by political wrangling and objections by international oil companies which maintained that the government was demanding too much increase in its share of revenue. The proposed law has continued to generate intense debate as Nigeria depends on crude oil for about two-thirds of state revenue over 80 per cent of export earnings.
However, a slump in crude prices in the global oil market has put pressure on government finances while the naira has also declined seven per cent against the dollar this year leading economist to suggest various strategies out of the woods including devaluation of the naira and reflating the economy to encourage diversification of the economy away from oil.

Stakeholders’ reactions
In response to THISDAY enquiries, Adeniji explained that “I have right from the outset advised that the PIB must be unbundled. Some issues are non – contentious. For instance, everyone wants checks and balances around the powers of the Minister and certain level of separation between the policy making role and the participant role, or at least a high degree of regulatory control over any business unit that the Government chooses to retain. Regulatory capacity is also a key issue. We didn’t need 10 years to ponder over whether to legislate this. Also, lack of clarity around gas regulation is a disaster for a country with such abundance. It is a paradox to have so much gas and be in an energy crises. The gas reform work was substantially complete as of 10 years ago. Unfortunately, some smart alecs wound that clock back. So, there are low hanging fruits that we could quickly bed, whilst we then move on at a more opportune time to the knotty ones such as fiscals and community take.
“On the latter, in any event, that is a constitutional issue and not best dealt with in sector legislation. Small wonder it became one of the poison pills to the PIB. In short, you have to be strategic when you want to restructure a sector, otherwise you run into the mess that we have had with the fanciful idea of a catch all legislation. Nigeria and the petroleum industry is too complex for that. It has become such a costly embarrassment for us all, so I do support the Vice President and Dr. Kachikwu who, brilliant guys that they are, have cut through the issues,“ he explained.
In an interview with THISDAY, oil industry activist and Coordinator, Publish What You Pay (PWYP) Nigeria Coalition, Faith Nwadishi said the vice president’s statement was a welcome development adding that it was what the coalition and other industry stakeholders have been suggesting to government and insisted that it was not feasible to have one law for the whole oil and gas industry.
According to her there was the need to unbundle the PIB as it stands to address specific areas like Exploration and Production, Marketing, and administration of the industry adding that the state owned oil company needed to be restructured and split up for improved efficiency and transparency.
“If the federal government is serious, the thing to do is unbundle the Petroleum Industry Bill (PIB), this is what some of us in the industry have been calling for a long time. The bill need to be broken down into smaller laws to address specific sector and this is what obtains elsewhere; now that the Vice President has said government will do so it is a welcome development and a step in the right direction but we hope they will demonstrate the political will to do it right and see it through,” Nwadishi stated.
Continuing in a telephone interview with THISDAY, she stressed that “If you look at the entire value chain of the oil and gas industry it will be difficult to have one single law that deals with all the issues that we have identified in the industry, like issues of contract transparency, issue of block ownership and list of operators of the oil blocks. We also need to also know how people get the oil blocks among other issues and what template is used to calculate signature bonuses. Many of the oil majors determines what they pay as taxes and royalties,  so if government is serious about sanitizing the industry in line with the change mantra of the APC government at the federal level we should unbundle the bill so that there will be specialists who will monitor performances of the various specific laws and regulations,” Nwadishi stated.
Speaking further, she posited the need to articulate how the upstream, downstream and midstream of the industry works and what is expected of everybody. For instance, “The multinationals should be made to take responsibility in the in transportation particularly of gas and pipelines. We should also be able to articulate what we do with our gas.”
Speaking further Adeniji argued that “Gas is Nigeria’s most abundant energy resource and is often processed, transported and distributed in infrastructures that require huge upfront costs. The nature of gas infrastructure is such that these infrastructure pieces have monopoly – type features as they are quite difficult to duplicate. How these monopoly element infrastructure pieces are operated and regulated will have a major impact on the long term growth and viability of the domestic gas sector, and hence the achievement of Nigeria’s strategic intent to leverage on its gas resources for industrial development. You cannot do this without a clear regulatory framework implemented by an independent regulator. A stand–alone legislation around midstream and downstream gas, dealing with these issues will send a strong signal to the private sector and help usher in the critical investment required for accelerated investment in gas infrastructure, and in market development.
“Unbundling is only one facet of a wider sector reform program. All downstream industries, including the power sector, will ultimately benefit from gas sector restructuring,” he concluded.

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