The Petroleum Industry Governance Bill that could be passed before the end of this year will seek to create two regulators for Nigeria’s oil and gas sector, a move that could break apart the functions of the current regulator.
Timipre Sylva, in a recent press conference, said: “Special focus will be placed on the Midstream and Downstream sectors. Consequently, we are considering two regulators, one for the Upstream (the Commission) and another for the Midstream & Downstream (the Authority),” the minister said.
Under the current system, the Department of Petroleum Resources enforces all the regulatory measures relating to the general control of the petroleum sector. It regulates critical sections including acreage management, petroleum products pricing, local content, technical and commercial regulation and environmental regulation through Environment Impact Assessments.
However, the regulatory environment in Nigeria’s oil and gas sector is characterised by multiple regulators who duplicate functions. The different agencies carry out similar regulation as DPR and also the President and Ministers of Petroleum Resources and Environment, even the NNPC all carry out regulatory function.
This leads to a crowded regulatory space raising cost for operators, delaying projects, slowing decision making, causing heavy political influence and regulatory arbitrage.
In the previous PIGB, the eight assembly sought to create a single regulator, the Nigerian Petroleum Regulatory Commission (NPRC) merging the DPR with the Petroleum Products Pricing Regulatory Agency (PPPRA). It would have been the primary regulatory with board supervision and inbuilt accountability mechanism
From the minister’s pronouncement, Nigeria will be moving away from a multiple regulator model to a value chain or product regulation model where two or three regulators exist focused on different elements of the value chain.
This is similar to the system in the United Kingdom where the Oil & Gas Authority (OGA) is an independent regulator funded by levies from the private sector and is concerned with the upstream sector. Ofgem is a cross-sector regulator handling electricity and gas and the government issues specific regulators for environment, planning, health and safety.
In Ghana, the Petroleum Commission regulates the upstream sector, the National Petroleum Authority regulates the country’s downstream petroleum liquids and LPG, while the Energy Commission regulates the midstream and downstream natural gas and electricity.
“Whatever the regulatory architecture, the regulatory philosophy needs to be smart,” says Adeola Adefulu, energy partner at Odujinrin & Adefulu, a law practice based in Lagos, in a presentation at a recent BusinessDay Oil and Gas Forum.
“Smarter regulation equals to optimal way to design and implement the rules of regulation,” Adefulu said.
Adefulu said that smarter regulation focuses on improvements to policy and processes. Policy-wise, smarter regulation is consistent and coherent, proportional, targeted at risk, fair and non-distortive, clear and certain.
The process addresses a clear need, is transparent, reduces compliance burden, is opened to review, affords a right of appeal to an unhappy operator, is borne out of wide consultation and measures its impacts on the operators.
“On the upstream side, we are coming up with more robust fiscal provision, acreage management, drilling-or-drop programme, etc. We are not only going to retain investors, multitudes will join the leagues of high-value operators,” Sylva says of the new law.
The new PIB is however not going to be materially different from its predecessors. Like the previous ones, it will still be broken into four sets: Petroleum Industry Governance, Administration & Host Communities Bill, Petroleum Industry Fiscal Bill which he said could be passed within the first anniversary of the administration.
But for the regulatory aspect to meet international best practices, regulations must be efficient and effective, backed by appropriate institutional frameworks and related governance arrangements.
It needs to also be effective and provide fair operational processes and practices and it must empower high-quality administrators with capacity and resources to lead effectively analysts say.
These have been missing in the regulation of Nigeria’s oil and gas industry which has constrained investments and created high uncertainty in the sector. Companies say the biggest risk in doing business in Nigeria, in every sector including the oil and gas, is regulatory risk spurred by government officials sacrificing long-term growth for short-term revenues.