Hope rises for PIB

20 December 2015, Abuja – Chineme Okafor writes that the federal government’s reported submission of a split Petroleum Industry Bill (PIB) to the national parliament may be the best way out of the stagnation in reforming Nigeria’s oil and gas sector

PIB-600x330According to a draft document recently seen by Reuters, the federal government has opted to break up the Petroleum Industry Bill (PIB), which has been stuck in the national parliament for years now.

The draft indicates that the government is replacing the previous PIB first with a law to overhaul the state oil company, as well as the sector, with the aim to close existing loopholes that create avenues for rent seeking which is now systemic in Nigeria’s oil industry.

Under the draft legislation before the parliament, state oil company, the Nigerian National Petroleum Corporation (NNPC), is expected to be split into two, and not a series of units as envisaged by the 2012 version of the PIB, which was stalled.

However, the Minister of State for Petroleum, Dr. Ibe Kachujwu said at a town hall meeting in Abuja last week that President Muhammed Buhari has approved the plan to split the NNPC into four different automous profit oriented companies. Analysts believe the contradiction has made it necessary to rework the PIB bill.

Accordingly, the split will see the emergence of a National Oil Company that will be run on commercial lines and partly privatised. It perhaps follows a November disclosure by the Minister of State for Petroleum Resource and Group Managing Director of NNPC, Dr. Ibe Kachikwu, at a press briefing that the government was working on a new PIB that would probably be passed in sections.

Kachikwu had said then that the government opted for such strategy to deal particularly with the thorny fiscal regimes, which has contributed largely to the inability of the bill to sail through the parliament as major international oil firms criticised and reportedly stood against it the way it was.

Nigeria, which is Africa’s biggest oil producer has in this regard tried without success for almost eight years to pass the PIB. Its lawmakers have never agreed on every aspect of the 200-page PIB. At a time, it was all about the controversy over the insertion of a community host fund in the bill which legislators of northern extraction frowned at.

Already, the inability of the legislators to pass such law as well as the resultant uncertainty around taxation in the industry has continued to stunt investment in the nation’s oil and gas sector, particularly in deep-water oil and gas fields.

In 2014, Elisabeth Proust, Managing Director of Total Upstream Companies in Nigeria, told THISDAY that irrespective of the oil major’s investments in Nigeria’s oil and gas industry which she described as being risky especially without certainty in terms, the company however hopes that the PIB when passed will come good for operators in the industry.

“Among the major things we seek in the PIB, apart from stable fiscal conditions that promote investment, is reduced bureaucracy. Today, getting approvals is very complex. The duration of getting approvals in Nigeria is the longest globally with the complexity in the number of agencies that we have to face.

“This is one of the areas we expected that the PIB will address. The other is on gas terms. The PIB should address both fiscal and non-fiscal policy that will accelerate the development of gas. And this is our expectation of the PIB,” Proust had said then.

New Version, New Hope

Now the government appears confident that by submitting a series of bills, individually and more modest in scope than the rounded 2012 version of PIB, it stands a better chance of getting the nod of the parliament on its intended reform of the sector using the parted bills.

Reports explained that the first new bill is drafted by the Senate and overseen by the oil ministry with the title: “Petroleum Industry Governance and Institutional Framework Bill 2015”.

Accordingly, it aims to create “commercially oriented and profit driven petroleum entities”. It is also expected to be tabled before the senators as soon as this week.

Contents of the new bill as reported, shows that it repeals the Act that created the NNPC and which contained legal gray areas that sort of allowed mismanagement of the corporation’s and Nigeria’s resources to go unchecked as huge revenues seemingly get unaccounted for in the disguise of operating costs which continually rockets.

Amendments

Also, some noticeably problematic amendments such as allowing the oil minister to decide what to do with any surplus or allowing the Nigerian president to allocate oil blocks for exploration are reportedly absent from the new bill.

While commenting on its content, Aaron Sayne, a US lawyer who focuses on the Nigerian energy sector however told Reuter that irrespective of its promising outlook, the new bill still has some loopholes that require attention.

Sayne said: “The bill leaves open lots of questions around what roles the new national oil companies will play in the sector, and how they will receive and manage money.

“But one can sense more strategic thinking behind it than in past drafts, and the bill does a better job than its predecessors of saying who will take key decisions after it becomes law.”

Earlier in the year, Prof. Niyi Ayoola-Daniel, President of the International Institute for Petroleum, Energy Law and Policy (IIPELP) had advocated that President Muhammadu Buhari initiate a new conversation around the PIB.

Ayoola-Daniel had in an interaction with THISDAY asked the government to take absolute ownership of the bill and sort out extant impediments to its passage.

“The president must take personal ownership of the bill. He must galvanise and build a consensus of supporters in the national assembly, taking advantage of the numerical superiority of his party in the parliament to get the bill passed; we can never have a perfect bill anywhere in the world but we must put the interest of our country at heart and protect the industry from hawks knowing fully well that the PIB has the capacity to protect the interest of generations of Nigerians.

“The uncertainty around the PIB has been a major handbrake and game stopper for Nigeria in the petroleum industry and government must realise this,” he stated.

Under the Nigerian constitution, NNPC is supposed to hand over its revenues to the federal government, which then returns what the firm needs to operate based on a budget approved by parliament. However, the act establishing the NNPC allows it to cover costs before remitting funds, thus giving it powers over its revenues. The new draft however seeks to stop this. It also has institutional changes which reports said sets it apart from the 2012 PIB that created many new regulators and broke up the oil company into separate downstream (refining and retail), as well as upstream oil and gas companies.

As noted, instead of the former proposals in the 2012 PIB, the NNPC is expected to be split into two companies: the Nigeria Petroleum Assets Management Company (NPAM) and a National Oil Company (NOC).

The draft document stated that the NOC will be an “integrated oil and gas company operating as a fully commercial entity”, and will run like a private company. It would have a board in line with corporate governance, which will have the responsibility to help it make profits and raise its own funding.

While the draft bill did not elaborate on the structural details of the proposed NOC, it explained however that the NOC will keep its revenues, deduct costs directly and pay dividends to the government.

Reuters noted that in theory, trimming the NNPC down into two leaner companies could solve the country’s chronic challenge of funding Joint Venture operations with foreign and local companies.

It is common knowledge that parts of Nigeria’s oil output comes from joint ventures with these foreign and local companies in which NNPC holds the majority stake in trust for the country, however, the corporation has always trailed behind on offsetting its share of costs to the joint venture due to the slow pace of government approvals. It was this bureaucratic processes that Proust said impacts the industry and thus expects the PIB to address.

Accordingly, the NOC will receive about $5 billion, or at least the five-year average of the amount of money NNPC had to put into joint venture operations, to start off in the new regime. It will also be partially privatised.

At least 30 per cent of the NOC shares will be divested within six years of its incorporation, that way, it is also able to raise funds from the alternative sources.

Managing Assets

As for the NPAM, the draft bill anticipates that it will manage assets “where the government is not obligated to provide any upfront funding”.

These assets according to reports would include oil licenses covered by production-sharing agreements in which independent oil companies cover operating costs and pay tax and royalties on output.

In comparison with the previous PIB of 2012, the new draft reportedly curtails ministerial powers as board appointments into the NOC are made by the Nigerian president and confirmed by the Senate. Also, if passed, the law would also create a Nigeria Petroleum Regulatory Commission (NPRC) to oversee everything from oil licensing bid rounds to fuel prices.

This regulatory responsibility is currently undertaken by many government bodies in the industry, all of which have unclear roles and thus seeing the NNPC act in part as its own watchdog especially in a conflict of interest scenario.

Additionally, reports stated that a Special Investigation Unit would be set up under the NPRC with the powers to seize items and make arrests without a warrant.

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