…As Ghana’s feat puts nation on the spot
28 August 2016, Sweetcrude, Abuja – In its latest oil and gas review report, the global professional auditing and services firm, PriceWaterHouse Coopers (PwC) charged that Nigeria must reform its regulatory, fiscal and licensing systems to attract oil and gas investors. PwC contends that the country needs the petroleum industry act for better management of the oil and gas sector of the economy
The PwC’s ‘Africa Oil and Gas Review 2016’ report noted that the decline in the global oil price had led to a reduced level of activity industry, stressing that the impact was more acute on countries like Nigeria that traditionally depend on oil and gas revenue.
The company’s Africa Oil and Gas Advisory Leader, Chris Bredenhann, said, “It is an opportune time for local governments that want to attract oil and gas investors to reform their regulatory, fiscal and licensing systems.”
Bredenhann said the complexities and challenges facing the oil and gas industry had become daunting. He said, “As uncertain regulatory frameworks, taxation requirements and corruption continue to rank at the top of industry’s challenges in the country, it is also high time that government made significant changes.
“Furthermore, players must look at the current state of the industry as an opportunity to reinvent themselves. Given the state of the industry, we think that stakeholders must also consider making changes to their business models. Change is the way to survive in the ‘new energy future’. We need to see new business models, new products, new energy sources and new strategies to meet the new reality,” he stated.
Even with all the anticipated positive impact of the Petroleum Industry Bill (PIB) on the oil and gas sector of the economy, it has remained mired in inexplicable stalemate, unable to find its way back to the legislature from the executive to which it was returned in 2014.
In contrast, Ghana, which has a very young oil industry compared to Nigeria, this month passed the Petroleum Production and Exploration Bill into law to replace the Petroleum (Exploration and Production) Act, 1984, an indication of the seriousness the country attaches to it.
First introduced in December 2008 by the late President Musa Umaru Yar’Adua to the sixth National Assembly, the PIB aims to re-position the oil and gas industry for greater efficiency, openness, and competition. Designed to strengthen the capacity of indigenous Nigerian companies so they can compete with international oil companies in the search for, and acquisition of, hydrocarbons, the legislation also proposes to reduce exploitation in the sector and limit, to the barest minimum, government exposure to oil and gas production through joint venture operations.
However, the bill has never been well received by the International Oil Companies operating in Nigeria most of whose officials fear that some provisions therein may be inimical to their investment interests. There were other contentious issues of environmental concerns and community rights that stakeholders have also bickered over, necessitating a review and its withdrawal in 2011.
The dust of controversy had not settled when President Goodluck Jonathan reintroduced the bill in 2012 and several attempts to revise it in order to arrive at a consensus led to its proliferation. With many versions of the proposed legislation in circulation, the seventh National Assembly stood it down in 2014 and requested the executive to produce a fresh bill for its consideration.
Hopes that the advent of a new government would bring a sense of urgency to the review, presentation and passage of the all-important piece of legislation would appear to be evaporating. More than a year after ascending power, the Buhari administration does not seem to have a grip on the way forward, forcing the Speaker of the House of Representatives, Hon. Yakubu Dogara, to lash out at the executive recently, saying that the legislature would no longer wait for the presidency to send it a fresh version of the bill for deliberation and passage.
According to Dogara, the National Assembly would go ahead to consider and pass the existing version of the bill in its possession. “I have at least three different occasions publicly requested the executive to as a matter of urgency send an executive bill on its intended reforms in the petroleum sector. We had hoped to avoid the situation in the past two assemblies (sixth and seventh) where the PIB was sent to the National Assembly very late thereby guaranteeing failure to pass the bill,” he said.
While the executive dithered, the uncertainties created by the stalemate has confused investors and weakened their confidence, leading to massive divestment in the sector. This situation could only worsen with the restiveness in the Niger Delta region, where militants are up in arms against several years of environmental degradation and chronic underdevelopment. Yet investors now have alternative destinations in new emerging sub-Sahara oil states of Ghana, Angola, Sao-Tome and Principe.
Ghana, again, sets an example
Ghana’s legislature recently enacted the Petroleum (Exploration and Production) Act 2016 to replace the Petroleum (Exploration and Production) Act, 1984. The bill was first laid before Parliament in 2012 but years of stakeholder consultations delayed its passage.
Emmanuel Buah, Ghana’s Energy Minister, said the new law would create an attractive environment for potential investors to participate in the sector by providing certainty and transparency in the ground rules for operations.
Energy think tank, Africa Centre for Energy Policy (ACEP), says the passage of the Petroleum (Exploration and Production) Act 2016 by Parliament is welcome news for the oil and gas sector.
However, ACEP says the absence of punitive actions for conflict of interest by public officials blots the impeccable work by Parliament.
“We are however worried that an important provision relating to penalty for conflict of interest of public officers has not been incorporated in the Act despite many calls for it”, said ACEP in a statement.
Though the ACEP says it has also taken positive note of the provisions of the new Act that will foster transparency in the sector. But the think tank says it will continue to campaign for the provision on conflict of interest to eventually reflect in future amendments to the Act.
“I believe Ghana’s ability to quickly pass their oil law lends more credence to their drive for investments in the energy space while ours continues to drive investments away”, said Dolapo Oni, Head, Energy Research, Ecobank Plc, adding that there is a good degree of focus on transparency in Ghana’s Petroleum (Exploration and Production) Act.
“The law includes elements such as ensuring the Minister of Petroleum publishes a register of all petroleum contracts and agreements signed with oil companies, which will be available to the public (however this does not imply the actual agreements and contract documents will be available to the public). Any invitation to an oil company to negotiate over a block must be gazetted and published in two forms of media – electronic/print/social media etc. These among several other clauses ensure there’s a higher degree of public access to information about the government’s dealings in the oil and gas industry.
“Nevertheless, there is room for more transparency still for Ghana including full disclosure of bids submitted in a competitive bidding process, ownership information of blocks awarded, including all beneficial ownership”, Oni said.
Ghana’s Petroleum Act 2016 essentially puts Nigeria’s non-passage of Petroleum Industry Bill (PIB) in the limelight, said Oni. He outlined the issues with the PIB to include transparency, access to information, clarity on fiscal terms, beneficial ownership adding that while Nigeria’s oil industry is a lot more complex and the issues are far more diverse.
“It is important we bring the PIGB (Petroleum Industry Governance Bill) out again and address the issues, pass it and move on to deepwater fiscal terms, pass it, move on downstream deregulation and pass it as well. Nigeria needs to hold a licensing round for the many OPLs that have been awarded, some since 2003 and nothing has happened on the asset since then.
“I think the key points to emulate are in the access to information and transparency. While the National Assembly is seeking to limit the powers of the executive in the oil sector via the PIGB, the powers of the NASS and the executive need to be checked, by the public. This can be achieved if there’s more public access to the industry”, Oni said.
Lessons for Nigeria
“I believe the key lesson for the National Assembly is the need to find a way to pass the PIB because the country’s interests come first. The global economy is fast developing other alternatives to crude oil for transportation and energy uses. If we delay passing the PIB and developing our resources, the country stands to lose a whole lot more than it is losing currently,” said Oni.
Writing in a local newspaper recently, Donna Obaseki-Ogunnaike, Partner with ACAS-Law, remarked that the PIB has gone through 2 past administrations and has not been able to pass the litmus test of legislation partly due to its length (comprising 222 pages and 362 sections) and its far-reaching provisions that cut across fiscal, governance and regulatory matters.
“In reaction to the desperate situation, the PIB has been split into 4 bills namely: the PIGB (the subject matter of this piece), the Fiscal Regime Bill, the Upstream and Midstream Administration Bill, and the Petroleum Revenue Bill.
“Where the PIGB is enacted in its current form, it will repeal the PPPRA (Establishment) Act from the effective date of the PIGB, while the NNPC Act shall be deemed to be repealed on the date the Minister signifies by legal notice in the Federation’s Gazette that the assets and liabilities of the NNPC are fully vested in successor entities,” stated Obaseki-Ogunnaike.
However, anxieties remain about the possibility of the PIB ever becoming law.
The Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN) has expressed worry that the current version of the PIB in the National Assembly may suffer the same fate that befell it during the last two consecutive legislative tenures.
The Chairman, PENGASSAN PIB Committee and immediate past Chairman, Trade Union Congress of Nigeria, Rivers State, Mr. Chika Onuegbu, stated this in a presentation at a workshop organised by the association’s Kaduna Zone in Minna, Niger State on Wednesday.
Onuegbu said for some 16 years, the country had been dithering on the reforms in the critical oil and gas sector.
“For some eight years, the PIB has been in the National Assembly, while the future of the Nigerian economy and the oil and gas sector hung in the balance. Indeed, there has been discomforting signals from the National Assembly and the Executive arm on the new PIB which seem to indicate that if nothing drastic is done, the PIB may not be passed by the eighth National Assembly.”
He said the association hoped that the current National Assembly and the Executive arm led by President Muhammadu Buhari would pass the PIB, not just the first part but all the parts before the end of December 2017.
According to Onuegbu, the first part, which is entitled, ‘Petroleum Industry Governance and Institutional Framework Bill (PIGIF),’ aims to create commercially oriented and profit-driven petroleum entities.
He noted that the PIGB passed first reading on the floor of the Senate on April 13, 2016, before it suffered setbacks.
He said, “As an instrument intended to bring direction to the hydrocarbon sector, the PIB represents a great opportunity for Nigeria to ensure a solid legislative foundation on which the future of oil and gas operations in the country will rest.”
Onuegbu said PENGASSAN had recommended the adoption of the Nigerian LNG model for running the government-owned refineries and to encourage private sector participation in the refining and downstream sector.
On host community issues, he said, “We strongly support the establishment of the Petroleum Host Community Fund to provide socio-economic infrastructure in the host communities but from which such communities cannot draw if there is sabotage of petroleum facilities in their domain.
“We, however, believe that the PHCF should include not just oil-producing communities but all communities hosting oil and gas resources and assets including downstream infrastructure since the entire value chain of the oil and gas industry has peculiar health, safety, environmental and community-related problems.”
He said a mechanism could be developed to determine each asset’s criticality, with the producing communities being the most critical.
“Unfortunately, the two versions of the PIGIF 2016 we have seen have no provision for PHCF,” Onuegbu said.
He said the present arrangement where the Group Managing Director of the Nigerian National Petroleum Corporation could be appointed or removed from office via radio announcement should be discontinued in the PIB.
He said, “The present arrangement where the board of the national oil company is chaired by the Minister of Petroleum Resources should similarly be discontinued as it essentially subjects the operations of the company to the murky waters of the Nigerian politics and this is not proper if the national oil company will run as a profitable and transparent company.”
He said it had been reported that the non-passage of the PIB had stalled some $80bn worth of investments in the Nigerian oil and gas sector as investors adopted a wait-and-see attitude.
Onuegbu said, “Obviously, we expect that the passage of the PIB will unlock new investments in the Nigerian petroleum industry as investors will be willing to invest in the sector since they will then know the terms and conditions for such investments.