The absence of a national plan in the Petroleum Industry Act (PIA) is a fundamental flaw as it negates an emerging industry that could dominate the future of energy, experts say.
The Petroleum Industry Bill which was signed into law by President Muhammadu Buhari on August 16, 2021 is considered a game-changer for the oil and gas industry in Nigeria.
Among its many objectives, the PIA seeks to create efficient and effective governing institutions with clear and separate roles for the petroleum industry, establish a framework for the creation of a commercially oriented and profit-driven national petroleum company, promote transparency, good governance, and accountability in the administration of petroleum resources of Nigeria, foster a business environment conducive for petroleum operations and deepen local content practice in Nigeria’s oil and gas industry.
Tengi George-Ikoli, programm coordinator, Nigeria Natural Resource Charter at a recent webinar on the future of the energy industry hosted by the American Business Council, said the PIA was “a bit late in the game.” For her, the best time to have passed the law was 20 years ago when the country began to talk about it; the second-best time was 10 years ago.
The bill which has now been passed into law is contending with new developments such as increased emphasis on climate change and the global movement towards renewable sources of energy. This is why Nigeria requires an over-arching renewable energy plan to enable it to transition seamlessly into the future of energy and position itself rightly among the countries already doing so.
Margaret Olele, chief executive officer, American Business Council said this national plan would help the country pay attention to new energy sources it has prior to now neglected.
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Nevertheless, the PIA gives Nigeria an opportunity to get the few benefits it can before the world moves away from oil. Ikoli also applauded the PIA for the clarity it has brought in the industry which was a challenge like the muddling of the commercial and the regulatory roles of the NNPC and its departments. The PIA gives a very structured administrative framework.
Taiwo Oyedele, partner and head of tax at PricewaterhouseCoopers said the passing of the PIA became essential because of the dwindling government revenue and the uncertainties around policy environment and administration and the world was beginning to move away from fossil.
“The question now is how do you make more money when investment is beginning to move in a different direction and how do you make more money when you want to make the sector commercially attractive. It is a tough balance. What I think the government has done is to try and see how it could drive efficiency to make more money and help reduce investors losing money, because it is not a zero-sum game. The PIA was intentional in trying to drive efficiency,” Oyedele said.
He also noted that the PIA was more than just fixing the challenges in the oil and gas. The law would impact every single sector of the Nigerian economy. However, the oil and gas sector would most likely see the biggest impact than other sectors.
The price of oil and gas is rising globally and David Williams, co-founder D’Carbon Africa, said this is because countries and multinational companies are preparing for a life without oil. “Nonetheless, the Nigerian government stands to benefit from the PIA only if the provisions laid down in the Act are executed precisely,” Williams added.
The authorities would also need to build its credibility and improve certainty in the market in order to bring in new capital in the oil and gas.
However, in the long term, the government would need to consider financing more resilient energy resources with hydrocarbons on top of the list.
There is also a need for infrastructure that is compliant to climate change and also increases the role of renewable content in the energy sector. Places like California are moving to low carbon and seeing demands for renewables and more stability in the grid because the city has hydrocarbon resources to balance the industry.
Hamilton Esi, head, corporate communications, LekOil also applauded the PIA on the provision for host communities, saying it closely mirrors what the company has in place. The PIA specifies the amount of money that goes into the host communities’ trust fund which is 3 percent from the previous year’s CAPEX. While this may be a little high, it is also reasonable, Esi said, from the perspective of strengthening the relationship between the host communities and the oil companies.
“There are 12 months in order to transition into compliance and I think it shouldn’t be a difficult thing for other companies to transition,” Esi added.
For him, although the PIA may have come late, the oil and gas industry in Nigeria has an opportunity to address real issues such as energy poverty which is widespread in the host communities. The high cost of using energy sources such as gas forces people to resort to alternatives such as wood which burns ten times worse than gas.
Esi, however, averred that the country is sitting on about a trillion cubic feet of gas and this needs to be exploited and at the same time consider renewable energy transition.