Buhari’s advisers kick against two oil sector regulators in new PIB

Members of the Presidential Economic Advisory Council (PEAC) who met with President Muhammadu Buhari are calling for a review of a provision of the petroleum industry bill under consideration providing for two regulators in the oil sector.

A memo presented by the group after its 6th Regular Meeting last week stated that the current position of the PIB seeking to create two regulators – A Commission for Upstream Regulation and an Authority to oversee mid and downstream regulation is not efficient.

“One regulator with relevant departments will be more efficient and allow for greater synergy in regulating the entire industry value chain,” the president’s advisers said in the memo.

Under the new PIB, there would be two regulatory agencies, the Nigerian Upstream Regulatory Commission which subsumes the role of the Department of Petroleum Resources and the Authority to regulate the downstream sector.

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Analysts in the oil sector have also questioned the decision to for a dual regulatory body.

“What is the philosophy driving the structure and what efficiency is hoped for?,” asked analysts at the Centre for Petroleum Information, an energy sector think tank, in a newly published book on ‘Energy Insight Nigeria’ edited by Victor Eromosele, raising fears that the era of conflicting rules in the oil sector may continue.

The PEAC chaired by Doyin Salami, an economist, rather calls for a single regulator as seen in the Nigerian Communications Commission (NCC) and the Nigerian Electricity Regulatory Commission (NERC).

The revised PIB provides for the Nigerian Upstream Regulatory Commission to regulate upstream petroleum operations including technical, operational, and commercial activities, and also to ensure compliance with all applicable laws and regulations governing upstream petroleum operations.

It shall be a body corporate with perpetual succession and a common seal.

The powers and functions allocated to this regulator are so broad and that it cancels out the functions of many agencies already in existence. It has both technical and commercial functions and would oversee frontier basin exploration activities.

The technical regulatory functions of the Commission include enforcing, administer and implement laws, regulations, and policies relating to upstream petroleum operations; ensure compliance with applicable national and international petroleum industry policies, standards, and practices for upstream petroleum operations; and establish, monitor, regulate and enforce health, safety and environmental measures and standards relating to upstream petroleum operations.

For industry operators, this raises the concern for potential conflicting regulations. For example, the Ministry of Environment and the Commission could insist on separate Environmental Impact Assessments for the same project as currently obtains.

Section 10 of the PIB empowers the Commission to enforce regulations, policies, or guidelines formerly administered by the Department of Petroleum Resources and it would issue guidelines on the generation, use, storage, and transportation of radioactive sources and materials in consultation with the Nigerian Nuclear Regulatory Authority. This creates the potential for conflict among the agencies.

Some of its commercial regulatory functions include to review and approve the commercial aspects of field development plans and other related upstream petroleum operations; supervise costs and cost control in upstream petroleum operations; and review and approve commercial aspects of work programmes and field development plans for all licensees, lessees, or permit holders in upstream petroleum operations, including the NNPC and NNPC Limited.

Under the new PIB, the Nigerian Midstream and Downstream Petroleum Regulatory Authority will regulate midstream and downstream petroleum operations, including technical, operational, and commercial activities, and also ensure efficient, safe, effective, and sustainable infrastructural development of midstream and downstream petroleum operations.

Its key functions include to regulate and monitor technical and commercial midstream and downstream petroleum operations in Nigeria; regulate commercial midstream and downstream petroleum operations, including – petroleum liquids operations, domestic natural gas operations, and export natural gas operations.

It would also determine appropriate tariff methodology for processing of natural gas, transportation, and transmission of natural gas, transportation of crude oil, and bulk storage of crude oil and natural gas.

This role is causing serious unease among oil sector operators. At a recent public hearing organised by the Joint Committee on Petroleum Upstream, Downstream and Gas, Mike Sangster, Chairman of Oil Producing Trade Section (OPTS) a trade group of oil producers said the bill does not address the major challenges facing gas development in Nigeria, such as inadequate midstream infrastructure, regulated gas pricing, and huge and debts.

“Will the gas price regime implicit in the revised bill not perpetuate “fixed prices” contrary to the spirit of deregulation?” analysts at CPI stated in their presentation to the national assembly.

Price regulation continues for gas supply to Power and Gas-based Industries in the new PIB, however, the president advisers are uneasy about this too.

“Deregulation is key to stimulating investment. To avoid price shocks, a transitional arrangement can be included. Such arrangement must specify timeline to end price regulation,” they said.