Five major changes expected as Buhari signs PIB

After a 20-year journey, the Petroleum Industry Bill (PIB) on Thursday crossed a major landmark as President Muhammadu Buhari put the most debatable bill in the history of Nigeria’s oil and gas industry into law.

After missing at least 20 deadlines since conception, the passing into law of the PIB can be likened to the coming of a Messiah, which is expected to redefine Nigeria’s economic relationships with its foreign oil partners and alter everything from fiscal terms to the structure of the state-oil firm.

Some of the notable changes the Petroleum Industry Bill (PIB) would be making in Africa’s biggest oil-producing country include, allocation of 30 percent oil profit share to frontier areas, 3 percent operating expenditure to development of host communities, limitation of petrol importation to local refiners, scrapping of Petroleum Equalisation Fund, among others.

Frontier areas to get 30% oil profit share

The quests for oil in the Northern Nigeria and other parts of the country have received a significant boost with the signing of the PIB 2021.

Read Also: Buhari signs Petroleum Industry Bill into law

By assenting to the bill, which legislation was stalled for about 20 years before it was recently passed by the National Assembly, the President approved at least 30 percent of the profit to be generated by the proposed Nigerian National Petroleum Company Limited to go into the exploration of oil in ‘frontier basins,’ according to Section 9 of the PIB.

The nation’s frontier inland basins are basically in the North and include the Niger, Chad, Bida, Dahomey, Sokoto, and Benue basins.

According to Section 9(4) of the harmonised version of the PIB, “There shall be maintained, for the purpose of this section, a Frontier Exploration Fund. The fund shall be 30% of NNPC Limited’s profit oil and profit gas as in the production sharing, profit sharing and risk service contracts.”

Section 9(5), “NNPC Limited shall transfer the 30 percent of profit oil and profit gas to the frontier exploration fund escrow account dedicated for the development of frontier acreages and utilise the funds to carry out exploration activities in the frontier acreages subject to the appropriation by the National Assembly.”

Believed to be President Muhammadu Buhari’s pet project considering that he started the agitation over 40 years ago, this journey is costing Nigeria millions of dollars despite a warning by petroleum engineers, investment experts and geologists who insist the geography of the zone may not guarantee a commercial find.

Read Also: The PIB: Panacea to the ills of Nigeria’s Oil industry?

Host communities

The signed version of the PIB showed 3 percent has been reserved for the development of host communities by the Senate as against 5 percent earlier proposed by the House of Representatives.

“Each settlor, where applicable through the operator, shall make an annual contribution to the applicable host community development trust fund of an amount equal to 3percent of its actual annual operating expenditure,” the signed PIB showed.

Reacting to the above development, the Pan Niger Delta Forum slammed President Buhari for signing the controversial PIB 2021 into law.

The group led by elder statesman, Edwin Clark, said it was a very “sad and bad day” for Nigeria that despite the overwhelming outcry of the people of the South-South zone, the President still went ahead to sign the PIB into law.

PANDEF had insisted that the equity share must be 10 percent for host communities and rejected the 3 percent allocated in the just signed Petroleum Industry Act.

“It clearly shows the disregard for the feelings and concerns of the Niger Delta people by the Buhari administration,” PANDEF spokesman, Ken Robinson, said in a statement.

Read Also: Five curious gaps that may undermine PIB’s gains

Limits petrol importation to local refiners

The signed PIB also accepted the recommendation of the Senate, which recommended the importation of Premium Motor Spirit (PMS), popularly known as petrol, be limited to holders of local refining licence.

Holders of crude oil refining licences in Nigeria include Dangote Oil Refinery Company, Waltersmith Refining & Petrochemical Company Limited, OPAC Refineries, Niger Delta Petroleum Resources, BUA Refinery & Petrochemicals and Edo Refinery and Petrochemical Company Limited.

“The Authority shall apply the Backward Integration Policy in the downstream petroleum sector to encourage investment in local refining,” the document reads. “To support this, licence to import any product shortfalls shall be assigned only to companies with active local refining licences.”

The harmonised PIB also noted that holders of crude oil refining licences in Nigeria will pay for domestic crude oil supply in naira.

Deleting of PEF

The signed PIB also deleted the Petroleum Products Equalisation Fund (PEF) with a view of replacing it with a new agency to be known as the Nigerian Midstream and Downstream Regulatory Authority. It would be saddled with the responsibility of carrying out technical and commercial regulation of the midstream and upstream petroleum operations in the industry.

What happens to NNPC?

The signed PIB has also created an entity called the Nigerian National Petroleum Corporation Limited, a corporate entity incorporated under the Companies and Allied Matters Act. This must be done six months after the commencement of this bill by the Minister of Petroleum.

Section 53(3) provides that the ownership of all shares in the incorporated NNPC shall be vested with the government, and the Ministries of Finance and Petroleum shall hold the shares on behalf of the government. The shares are not transferable.

Sections 53 (7,8) provides that NNPC Limited must operate as an “efficient profit-making entity,” declare dividends and also pay all fees, rents, royalties, profit oil share taxes and other requirements on any lease or licence.

All assets, interests and liabilities of NNPC are to be transferred to NNPC Limited within 18 months of incorporation. At the end of the transfer, NNPC shall cease to exist. The government is to take over all interests, liabilities, and asset not transferred to NNPC limited. Sections 55 and 56 provide the process of managing the transition.

Experts’ take

The Major Oil Marketers Association of Nigeria (MOMAN) says the signing of the PIB into law does not mean automatic removal of petrol subsidy.

“In the next 60 days, the Honourable Minister of State Petroleum Resources will provide transitional regulations leading to the removal of subsidies,” MOMAN’s executive secretary, Clement Isong, says.

He advised all stakeholders in the energy sector to practice active citizenship by making sure the best benefit of the PIB reaches its over 200 million population.

“That the President signed PIB 2020 into law is laudable. It is a noble act that is worthy of celebration,” Isong states in a reply to BusinessDay.

Uche Uwaleke, professor of capital market and president, Capital Market Academics of Nigeria, thinks the assent to the PIB will open up the petroleum sector for more investments, thereby boosting the country’s economic growth.

“The Bill makes provision for speedy granting of licences to investors, especially in the downstream sector,” Uwaleke says, saying, “This is likely to translate to the establishment of more refineries in Nigeria, which will go a long way to meet local consumption with prospects of ending fuel importation and the loss of FOREX associated with it.”

He however admits that the signed PIB still has grey areas.

“The PIB made an attempt to curb pipeline vandalism and restiveness in the Niger Delta region through various provisions that entitle the Host Communities to a percentage of oil revenue,” Uwaleke notes. “Unfortunately, this area has not been properly tidied up as the percentage of oil revenue initially proposed for Host Communities was reduced.”

He noted that the PIB did not also make provision for eventual partial privatisation of NNPC Limited which guarantees a more efficiently run company.

Despite decades of sluggish progress, experts say the PIB, like the ones that have preceded it, ignores an open secret concerning how the world is undergoing an energy transition from fossil fuels to a system based on renewable energy sources.