It had been 20 years in the making. And it was first tabled before parliament 14 years ago. Last week, Thursday 1st July, the Senate finally passed the long-awaited Petroleum Industry Bill (PIB).
A milestone in the history of our legislative affairs. Too many interests had repeatedly scuttled it over the years. Prolonged uncertainty had humongous costs in lost income and foregone investments.
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According to an industry source, of the $70 billion of FDI that went into the oil and gas sector in Africa between 2015 and 2019, a mere 4%came to Nigeria — despite the fact that Nigeria remains the largest producer on the continent.
According to the NBS, of the total FDI of $9.680 billion that flowed into Nigeria in 2020, a paltry $53.5 million (0.55%) went into oil and gas. Investors have stayed action as would be expected of rational economic actors under conditions of uncertainty. We have been the worse for it.
Nigeria should reaffirm her commitment to respect for all contracts and for protection of foreign investments in line with best global practices and the norms of international economic law
The industry has undergone profound transformations since oil was first discovered in Oloibiri, Delta State, in 1956. Novel exploration techniques and new technologies such as fracking have brought in new players.
There has been a tendency for supply to outstrip demand, with OPEC’s cartel power being eroded. Competition for market share has further driven down prices. At the peak of the Covid-19 lockdown, oil prices fell to an unprecedented $12 per barrel. North America even registered -$37 per barrel.
Under the laws of probability, Covid is a Black Swan. If it has happened once, it can happen again.
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For much of the seventies, up to the nineties, oil accounted for as much as 50% of our national GDP. Following the 2014 GDP re-basing, it now accounts for a mere 10 percent. But oil still accounts for 60% of government revenue and a staggering 92% of foreign-exchange earnings.
The hydrocarbon industrial civilisation that we have known for more than a century is in retreat, thanks to recent global protocols on climate change. Advanced industrial nations have given deadlines to their auto manufacturers to transition from petrol to electric vehicles. Globally, the oil will continue to be important for another decade or two. But its sun has gone well past its zenith.
The ambitions of FGN are to attain 40 billion barrels of reserves and production levels of 4 million barrels per day. The PIB aims to drive that agenda. The PIB re-affirms the oversight and supervisory role of the Honourable Minister of Petroleum in driving government policy in the sector. The new provisions curtail the powers of the Minister in approving or revoking an oil license.
New regulatory agencies, the Upstream Regulatory Commission (NURC) and the Midstream and Downstream Petroleum Regulatory Authority have been created to ensure a more level-playing field for operators. The Minister now has to act based on recommendations from the new Downstream Commission.
Clause 53 requires that the Minister of Petroleum incorporates the NNPC into a Limited Company with 100% FGN and shall operate in accordance with the Companies and Allied Matters Act (CAMA).
One of the particularly contentious issues has been the question of the Fund for Host Communities. Representatives from the oil-producing areas inevitably demanded 5% of the total profits of the oil firms to be paid to host communities. They were, however, outvoted by the majority. Under Clause 240 (2), the matter was settled at 3 percent. Host communities have also been re-defined to include areas traversed by pipelines.
Other important aspects of the new bill cover finance, taxation, environment, and gas-flaring. Tax and finance provisions have been streamlined to ensure greater transparency. The Upstream Regulatory Commission is empowered to monitor and ensure compliance with environmental regulations. But it falls short of providing a transition framework to clean, renewable energy.
The PIB runs short in many key areas. Gas-flaring should have been outlawed altogether. I also wished that we took the bull by the horn by putting a date by which Nigeria will export only refined petroleum. This will put our country at the higher end of the value chain while boosting jobs and revenue.
The amount of 30% of NNPC profits for exploratory activities is way too high. A figure of 10% would be more like it.
We also look askance at the secrecy and lack of transparency surrounding exploratory activities in the North East and other areas. There are in fact rumours that oil is already being lifted in the northeast and that the insurgency has largely been a smokescreen to cover up the pillage. It is reminiscent of Zamfara gold and the dust and blood surrounding it. It makes Southerners understandably very incensed.
We need to reaffirm Nigeria’s full and permanent sovereignty over all its hydrocarbon and other natural resources. The metering system must be enforced not only as a matter of law. Equally important is the principle of fairness and transparency for foreign investors. Nigeria should reaffirm its commitment to respect for all contracts and for the protection of foreign investments in line with best global practices and the norms of international economic law.
The success of the PIB will very much depend on political leadership and commitment to effective implementation. The competencies of the new regulatory agencies will be crucial. Nigeria’s oil industry has historically been a very murky business. For succeeding governments, the sector only served to fuel the kind of pork-barrel political economy that has become a curse rather than a blessing.
Much will depend on the construction of the Articles of Association for NNPC Ltd. There are successful models that we can draw on: Saudi Aramco, Petronas of Malaysia, and, to a lesser extent, Petrobras of Brazil. Far from the Byzantine behemoth of grand larceny and sloth that it has been for years; we must reinvent the NNPC to be a commercial enterprise that is anchored on merit, excellence, and professionalism. Repositioning the oil sector is the first step in the quest for a New Nigeria.
