PETROLEUM INDUSTRY BILL (PIB) 2020—ANALYSIS & ASSESSMENT

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Tim Nwaobilo

 

Background

The Petroleum Industry Bill (“the Bill” or “the PIB”) in its current format was presented by the President to the National Assembly in September 2020. The bill has suffered several setbacks since it was first introduced in 2008 that have prevented it from being signed into law. A factor responsible for this is the several disagreements among competing interests ranging from the host communities to the oil companies. Also, the fact that a bill has to be reintroduced in another legislative cycle if it is not passed in a particular Assembly has hampered the progress of the PIB.

In 2018, a fractioned segment of the Bill, the Petroleum Industry Governance Bill (PIGB) was passed by the Assembly and subsequently sent to President Buhari for assent. He never signed it into law. However, the current bill before the Assembly harmonizes the PIGB, Petroleum Industry Administration Bill (PIAB), Petroleum Host Community Bill (PHCB), and the Petroleum Industry Fiscal Bill (PIFB) into a single document, albeit with some amendments.

The Bill seeks to promote better governance and administrative regime; establish progressive fiscal policies within the Petroleum Industry by strengthening the legal framework guiding the Industry; encourage investments in the sector; increase government revenue from oil and enhance the well-being of the host communities impacted by oil and gas exploitation activities. 

Governance and Administration

Critically, the Bill seeks to establish 2 new regulatory bodies. One for upstream activities—Nigerian Upstream Regulatory Commission (NURC) and the other—Nigerian Midstream and Downstream Regulatory Authority (NMDRA). They both have technical, commercial, and operational oversight over their respective streams. The bill effectively repeals the existence of the Department of Petroleum Resources (DPR) and the Petroleum Products Pricing and Regulatory Agency (PPPRA). Controversially, the Minister of Petroleum is given the powers to grant and revoke Petroleum Mining Leases (PML) and Petroleum Prospecting Licenses (PPL) albeit following a recommendation from the NURC. The power to suspend and renew the licenses and leases however rests with the Commission, without any stipulated recourse to the Minister.

The Bill also stipulates that for new field development plans, a decommissioning & abandonment fund must be established and maintained by the company holding a petroleum license or lease and prohibits decommissioning & abandonment without the express formal approval of either the NURC or NMDRA. The fund is also directed to align with a decommissioning & abandonment plan submitted by the company to the regulators. 

The Nigerian National Petroleum Company (NNPC) will cease to exist, a new company (NNPC Ltd.) will be incorporated under extant laws, and ownership of the assets and liabilities of the NNPC will be transferred to the NNPC Ltd. Over time, the bill suggests that the new company will be open for non-government ownership.

Fiscal 

The Bill scraps the Petroleum Profits Tax (PPT) and introduces Hydrocarbon Tax (HT) which applies at different rates to upstream onshore, offshore and shallow offshore activities associated with crude oil, condensates, natural gas liquids produced from associated gas. The PIB also aligns with Company Income Tax—30%, Tertiary Education Tax—2%, and Withholding Tax (dividends) on operators in the Petroleum Industry. 

Fundamentally, the Bill also inhibits companies from being involved in more than one stream (Up, Mid or Down) and must incorporate and register a separate company for each stream they intend to be involved in.

Host Community 

Following several cries and hues from host communities about being undeveloped or largely underdeveloped despite the huge resources being exploited from their community, the PIB dictates that every oil company with an operator interest in petroleum upstream (prospecting or mining) or midstream must incorporate a trust fund to benefit their host community. A 2.5% levy of their preceding year capital expenditure is to be set aside into the trust fund and defaulting companies could risk the loss of their licenses or leases.

 

Assessment and Recommendations

The NMDRA is awarded full powers of granting, revoking, suspension, and renewal of licenses and leases in the midstream and downstream sector. However similar powers for the upstream sector are shared between the NURC and the Minister of Petroleum. Given that the bill is intended to strengthen the government institutions, it is recommended that full rights of granting and revoking upstream licenses and leases be left to the Commission. This will forestall undue interference from the Minister as was also prescribed by the preceding Petroleum Industry Governance Bill.

The provision of the decommissioning & abandonment fund and plan remains a positive step, but only mentions this fund and plan for new projects. Advisedly and realistically, the bill should include the same provisions for existing projects as they would also require decommissioning & abandonment sometime in their life cycle.

The Nigerian National Petroleum Company Ltd, which replaces the NNPC is intended to be open to non-government ownership, but a definite time frame within which this should happen is not captured by the bill. This could potentially be discouraging to private investors who might be wary of investing in a government-majority-shares company.

The fiscal components of the bill appear positive and progressive but must be enforced for their full benefits to be gained.

The inclusion of the host community component into the bill is a welcome development and should be given the seriousness it deserves. However, some points stand out as worrying within the PIB. The bill does not explicitly require member(s) of the host community to sit on the board of the Trust Fund, neither does it expressly require the communities to be involved in determining which communities make up the ‘host’ communities. The PIB gives this right to the company alone. 

Front line protection of oil facilities is assigned to the host community advisory committee. The bill mentions that any vandalism or sabotage of oil facilities or production will lead to a forfeiture of the community’s entitlement to the extent of the cost of repairs of the damage that resulted from such damaging activity. This places undue responsibility on the host community as the penalty might be unjust if the damage was not caused by the activities of members of the host community. 

Appropriate attention should be given to the environment and damages to it. The bill establishes the Environmental Remediation Fund (ERF) but is not clear as to the manner of management of the Fund. The fund is domiciled with the NURC and NMDPRA but given that these agencies will largely be concerned with commercial and operational dealings, the environmental task now assigned to them might suffer over time. A better approach would be to domicile the ERF within the Ministry of Environment under the National Oil Spill Detection & Response Agency (NOSDRA) as they have the focus and ready competencies to give the required attention to environmental damage/pollution issues caused by the activities of the petroleum sector.

The Petroleum Industry Bill, if signed into law, will generally be positive news but it must be prevented from stalling or dying like its predecessors. Only then can it bring the blessings that all relevant stakeholders hope it will.

 

 

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