One year on, PIA struggles to brighten Nigeria’s oil outlook
One year after a new law came into force, the Nigerian oil and gas industry is still struggling to shake off the doldrums caused by the more than decade-long delay in passing the Petroleum Industry Bill (PIB).
On August 16, 2022, the PIB was signed into law by President Muhammadu Buhari and transformed into the Petroleum Industry Act (PIA), which was publicised as the tonic to rewrite Nigeria’s decades-old relationship with its foreign oil partners and alter everything from fiscal terms to the structure of the state-oil firm.
But operators say the failure of the Federal Government to implement in full the provisions of the PIA, indifferent attitude towards deregulation, uncertainties caused by oil theft, and a face-off between the presidency and regulatory agency have worsened situations for a sector in desperate need of private investments.
“What we noticed in the Seplat/ExxonMobil deal is a discouraging signal for investors in the sector despite the PIA,” Ayodele Oni, energy lawyer and partner at Bloomfield law firm, said.
“Although the PIA does encourage the Nigerian National Petroleum Company Limited (NNPC) to act commercially and like a private company, the federal government still appoints politicians to its board as the PIA does not prevent this,” he added.
Jide Pratt, an energy analyst exposed to Nigeria’s energy sector, said although the PIA set the tone for more investment in the sector with reference to the upstream sector, litigation seemed to have taken over the transfer or sale of some assets that could add value to the country’s production.
“Issues like subsidy removal, which the PIA states should happen in six months, have been jettisoned by the government,” Pratt said. “In my opinion, the gains of a deregulated market are still not clear enough.”
For Tunde Balogun, an investment analyst attached to one of Nigeria’s tier-one banks, the PIA has streamlined regulatory authorities, a development that reduced administrative costs and improved transparency.
“The PIA has not impacted foreign investment into the country,” Balogun said.
She attributed the development to structural challenges in the country, “as we saw a significant decline in oil and gas investment in the first quarter of 2022”.
Data obtained from the National Bureau of Statistics showed foreign investment into Nigeria’s oil and gas sector is still at its lowest ebb as inflow hit a low of $61 million in the first quarter of 2022, 56 percent lower than the $139.72 million inflow recorded in Q2 2019 and 69 percent lower than the $200.39 million inflow recorded in Q2 2019.
“PIA was designed as historic legislation to unlock investments and attract more global capital into the oil and gas sector. It is too early in the life of PIA to be seeing embarrassing policy and operational dissonance from those entrusted to guide the execution of the law for the benefit of Nigerians,” Tope Ajayi, a public affairs analyst and a company executive, said.
The PIA seeks to ensure “an increased level of transparency and accountability in the sector by strengthening the governing institutions to attract investment capital through changes to the governance, administrative, regulatory and fiscal framework of the Nigerian oil and gas industry”, according to a note published by Ernst & Young last year.
The formation of new institutions for the regulation of the Nigerian oil and gas sector, the development of host communities and a fiscal framework “that encourages investment in the Nigerian petroleum industry, provides clarity and enhances revenues for the government while ensuring a fair return for investors” are some of the changes brought in by the Act, according to a report by professional services firm KPMG.
The Act came into effect after about 20 years of dilly-dallying due to the politics of interest that was played by several forces and stakeholders, which characterised its enactment process.
In line with the provision of the PIA, President Buhari unveiled the new NNPC last month, officially changing the oil firm from a wholly state-run entity to a commercial oil company, limited by shares.
The NNPC is expected to run like other state-owned entities like Saudi Aramco, owned partly by the Kingdom of Saudi Arabia and American oil investors, and PETRONAS Global, owned by Malaysia.
“Unlike its state-owned counterparts Saudi’s Aramco, the former NNPC had a structure that largely depended on government funding thus making it less competitive and less attractive to global investors, especially international oil companies who were uncomfortable doing business with the corporation due to fears of undue government influence, grotesque policies and unnecessary bureaucratic delays,” lawyers at Centurion Law Group said in a note.
Stakeholders also raised concern about section 53 of the PIA which states “employees of NNPC and its subsidiaries shall be deemed to be employees of NNPC Limited on terms and conditions not less favourable than that enjoyed prior to the transfer of service and shall be deemed to be service for employment-related entitlements as specified under any applicable law”.
“This means that NNPCL will have substantially the same employees as the former NNPC which is tantamount to pouring new wine into old wineskins,” Centurion Law Group said.