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The compelling intrigues allegely scripted by IOCs, entrenched local political-economic interests and shadowy business cabals to hobble or dilute the initial structuring of the Petroleum Industry Bill for parliamentary endorsement was indicative of its critical importance to the transformation of Nigeria. Today, after a 12-year marathon kicked off by efforts of the Oil and Gas Reform Implementation Committee (OGIC), an authentic executive bill, encapsulating a blue-print for the reinvention and management of the nation’s hydro-carbon resources was transmitted to the National Assembly last week. LOUIS ACHI examines the bill to elucidate the key highlights and how it will impact various socio-economic dimensions along the line.
Why do Saudi Arabia’s Aramco,Brazil’s Petrobras and Malaysia’s Petronas represent world-class oil companies, cutting-edge models of economic drivers of their countries while their peer, the Nigerian National Petroleum Corporation (NNPC) is not?
Urgent, soul-searching questions in the strangely opaque management arena of the nation’s hydro-carbon resources sparked efforts to undertake a fundamental restructuring of the industry to maximize returns on the country’s investment in the oil and gas sector.
The central target of the Oil and Gas Reform Implementation Committee (OGIC) was to fundamentally review the subsisting 16 laws that governed the nation’s hydro-carbon resources arena and generate a one-stop-shop legislation that would guide the sector and effect a pro-Nigeria restructuring of the country’s lop-sided relationship with international oil companies (IOCs).
From OGIC’s work, a new draft legislation known as the Petroleum Industry Bill (PIB) was produced and first transmitted to the Sixth National Assembly.
This was scuttled by intense intrigues thereby provoking business divestment from Nigeria as well as prospective investors heading to nearby countries such as Angola, Ghana and Burkina Faso which boasted more stable policies. Today, for Nigeria, the story appears different.
The PIB essentially incorporates the legal outline that will delineate and shape the oil sector. The creation of a conducive business environment for petroleum operations; optimization of domestic gas supplies, especially for power generation and industrial development; establishment of a progressive fiscal framework that encourages further investment in the petroleum industry while optimising revenues accruing to the government; the establishment of commercially oriented and profit-driven oil and gas entities; as well as the deregulation and liberalisation ofthe downstream petroleum sector form central pegs of the PIB.
Both chambers of the National Assembly have confirmed receipt of the magical Petroleum Industry Bill and pledged accelerated consideration.
Between vision and specific executive action, what remains to give teeth to the painstaking efforts to produce a transformative blue-print to guide operation of the nation’s petroleum sector is consideration and endorsement by the national parliament. Nigerians wait with bated breath. But meanwhile, what are the key highlights of the all-important bill?
Highlights: (New Agencies And Corporates) Sector Driver: Ministry of Petroleum Resources
If given parliamentary enactment in its current form, the Petroleum Industry Bill willprovide for the establishment of nine agencies accountable for the operations of the oil and gas sector. This scenario is in addition to affirming the existence of theMinistry of Petroleum Resources as sector driver, running with policy guidance.
The nine agencies which will be answerable to the Minister of Petroleum Resources include - Upstream Petroleum Inspectorate and Downstream Petroleum Regulatory Agency (Regulatory); Petroleum Technology Development Fund, Petroleum Equalisation Fund, Petroleum Host Community Fund (Funds); National Oil Company; National Gas Company Plc. and National Petroleum Assets Management Company (operations under commercial terms); National Frontier Exploration Service and Petroleum Technical Bureau (technical and support bureau.)
The Agencies: Upstream Petroleum Inspectorate (Regulatory)
Empowered to acquire, hold, mortgage, purchase and deal with property, whether movable or immovable, real or personal amongst others isthe Upstream Petroleum Inspectorate (UPI). It shall also be empowered to take over assets and liabilities relating to the upstream petroleum sector, which were hitherto vested in the Department of Petroleum Resources (DPR).
These include regulating all technical aspects and commercial activities of the upstream sector; promoting the efficient, safe, effective and sustainable infrastructural development of the upstream sector.
Downstream Petroleum Regulatory Agency (Regulatory)
In the new setting, the Downstream Petroleum Regulatory Agency shall be in charge of assets and liabilities relating to the downstream petroleum industry, which before nowwas performed by the DPR and the Petroleum Products Pricing Regulatory Agency (PPPRA).
It shall enforce compliance with the terms and conditions of all licences, permits and authorisations issued in respect of downstream petroleum operations amongst others.
Petroleum Technology Development Fund (Funds)
The existing Petroleum Technology Development Fund (PTDF), under Section 73 will be retained. The PTDF shall be responsible for training Nigerians to qualify as graduates, professionals, technicians and craftsmen in the fields of engineering, geology, science and management and other related fields in the petroleum industry.”
It will source its fund from grants accruing from multilateral agencies, bilateral institutions and related sources and donations dedicated for capacity building, as well as the outstanding balance of the monetary assets of the PTDF, which was created by the PTD Act of 2004.
Petroleum Equalisation Fund (Funds)
Section 100 of the PIB also provides for the continued existence of the Petroleum Equalisation Fund (PEF).Where any net surplus revenue recovered from petroleum products marketing companies and such sums as may be provided by the Federal Government for the purpose of the equalisation fund shall be paid into.
A fundamental aspect of the PEF will be to hold the equalisation fund in safe custody and in trust, for reimbursement of petroleum products marketing companies suffering loss solely and exclusively as a result of the sale of petroleum products at uniform benchmark prices throughout the country.
Petroleum Host Communities Fund (Funds)
An inclusive footing, the PIB provides for the creation of a fund to be known as the Petroleum Host Communities Fund (PHC Fund) to be utilised for the development of the economic and social infrastructure of communities within petroleum producing area. Basically, this is slanted to involve the oil-producing communities in the joint ownership of oil and gas assets.
Every company that is involved in oil and gas exploration and production, under Section 118 of the bill, is required to remit into the fund on a monthly basis, 10 per cent of its net profit, which the reform bill defined as the adjusted profit minus the Nigerian hydrocarbon tax and minus the companies’ income tax.
Petroleum Technical Bureau (Technical Support)
The Petroleum Technical Bureau (PTB) will serve as a special unit in the office of the petroleum ministerand will in addition to its other duties, carry out the functions of the former Frontiers Exploration Services of the NNPC.
The PTB will be responsible for developing exploration strategies and portfolio management for the exploration of unassigned frontier acreages in Nigeria, and will undertake activities to stimulate the interest of local and international oil and gas companies in exploration of the country’s frontiers basins.
CORPORATES: National Petroleum Assets Management Corporation (NPAMC)
The NPAMC will operate fully on commercial principles and shall be responsible for the acquisition and management of investments of the government in the Nigerian upstream petroleum industry.
National Oil Company (NOC) (Corporates)
Within three months of the commencement of the Act, the Minister of Petroleum will take necessary steps as stipulated under the Companies and Allied Matters Act to incorporate the National Oil Company (NOC) as a public company to be vested with certain assets and liabilities of the Nigerian National Petroleum Corporation (NNPC).
Its shares shall be held by a nominee of the Ministry of Petroleum Resources and Ministry of Finance Incorporated on behalf of the government.
National Gas Company (NGC) Plc. (Corporates)
After incorporation under the Companies and Allied Matters Act the National Gas Company Plc., as a company, limited by shares, shall be vested with certain asset assets and liabilities of the NNPC.
This action will be taken by the minister not later than 3 months following the effective date of the enactment of PIB by parliament
National Frontier Exploration Service (Corporates)
There is established by this Act a body to be known as the National Frontier Exploration Services (The Frontier Service) which shall be a body corporate with perpetual succession and a common seal.
The Frontier Service shall, amongst other things, promote the exploration of hydro-carbons in the frontier basins of Nigeria and evaluate all unassigned frontier acreages in the country.
Effect On JVCs
At press time, the impact that the PIB will have on the Joint Venture Companies cannot totally be gauged. But for one, it is clearly going to redefine that relationship in ways that should benefit Nigeria more.
After 50 years of a lopsided relationship in the upstream petroleum with JVCs mostly dictating proceedings, the PIB in the works has streamlining that cooperative business partnerships into formats that will serve the nation’s economic interest better.
Gas Flaring Deadline/Penalties
Perhaps the expected clarity and specific time-line for total stoppage of gas flaring in the PIB were not as defined as it should be.
However, Section 275 (General Terms) of the Bill states that “Natural gas shall not be flared or vented after a date (‘the flare-out date’) to be prescribed by the Minister in regulations made pursuant to this Part, in any oil and gas production operation, block or field, onshore or offshore, or gas facility such as, processing or treatment plant, with the exception of permits granted under subsection (1) of section 277 of this Act.”
Section 276 (1) further states that “The oil and gas operators with flared gas resources shall within six months of the commencement of this Act categorize all of their flared gas resources (daily flare quantity, reserve, location, composition) and submit this data along with gas utilization plans to the Inspectorate for the gas they intend to utilize before the flare out date as stated in section 275 of this Act.
Section 277 (1) (Prohibition of Flaring) states, “A person shall not direct, permit or otherwise aid, empower or authorize any company engaged in petroleum operations to flare or vent gas with the exception of such permits granted under this section.
Section 277 (2) The Minister may grant a permit of not more than one hundred days, or such longer period as may be approved by the Minister, to flare or vent gas in cases of start-up, equipment failure, shut down, safety flaring or due to inability of Gas customer to off-take-Gas.
Where IOCs Stand
The PIB, pushing international best practices in the strategic oil sector, is expected to demand from International Oil Companies (IOCs) a higher level of responsibility in its operations in the sector. From henceforth, changes in the game-rule are afoot.
At press time specific feedbacks from the major IOC players in the sector are muted. But given the fact that they allegedly played a role in the delays experienced in passing the bill into law suggest they are not unfamiliar with the new policy footing contained in it.
But specific positions are expected to be expressed by them in good time.
How Will PIB Impact Petrol Prices In The North?
By Scrapping the Petroleum Equalisation Fund (PEF), currently under the Ministry of Petroleum Resources, and replacing it with the Petroleum Host Communities Fund, which will now provide 10 per cent stake in the profits of oil and gas companies to host communities, northern Nigeria would pay more for Fuel.
In effect, prices of petroleum products in the north will be higher than what will be paid by users of fuel in the south if the current version of the proposed Petroleum Industry Bill (PIB) is enacted into law. PEF has two key objectives.
One is to apply the laws of the Federal Republic of Nigeria as they affect the uniform pricing system, in ensuring that each marketing company complies with the laws regarding the management of the transportation equalisation process. The second is to equalise the transportation differentials in product marketing in the country.
PEF has been an avenue to equalise the differential gap that marketers incur as a result of the transportation of petroleum products from the coastal part of the country to the hinterlands.
About 90 percent of the fuel used in north Nigeria is transported by road, using diesel-powered tankers by marketers.
Currenntly, the transportation cost of a 44,000 liters tanker from Lagos or Port Harcourt to either Maiduguri, Kano or Sokoto is between is between N380,000 to N500,000, depending on the destination. Because of this, PEF reimburses the marketers the fees that cover the cost of transporting petroleum products from depots to filling stations.
“If really there is no provision for the bridging and equalisation fund in the new bill, then we should get ready to pay more prices for petroleum products in this part of the country,” said DanladiPasali, a national official of independent marketers.
Source: Leadership
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