• Tuesday, March 19, 2024
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Experts give insight into how PIGB can transform oil and gas sector, boost economy

Petrol

Experts in the oil and gas sector have asserted that the passage and enactment of the Petroleum Industry Governance Bill, PIGB can transform the oil and gas sector, thereby boosting the Nigerian economy as the sector is the country’s main foreign exchange.

According to the experts the provisions in the bill such as the restructuring of  the Nigerian National Petroleum Corporation, NNPC by splitting the assets and liabilities of the company, reduction of the powers of the Minister of Petroleum, shareholders participation and flexibility of granting licenses would enhance production that could make the 2.3 million barrels per day bench mark of the Federal Government in the 2019 budget realizable.

The bill seeks to create efficient and effective governing institutions with clear and separate roles for the petroleum industry, establish a framework for the creation of commercially oriented and profit driven petroleum entities to ensure value addition and internationalization of the petroleum industry, promote transparency and accountability in the administration of petroleum resources of Nigeria; and foster a conducive business environment for petroleum industry operations.

The PIGB was first passed in 2018 by the National Assembly but it was rejected by President Muhammadu Buhari who declined assent to the bill. The PIGB as passed in 2018 made provisions that focused on the following key areas:

Phasing out NNPC and introducing NPC

The provisions of the regulatory bill state that NNPC will be restructured by splitting the assets and liabilities of the company. This essentially means that much of what comprises NNPC today, including the refineries, the Nigerian Petroleum Development Company (NPDC) Ltd and the joint venture (JV) assets, will be transferred to the proposed National Petroleum Company (NPC). The NPC will not be subject to the provisions of the Fiscal Responsibility Act 2007 and the Public Procurement Act 2007.

New Entities

The bill proposes the establishment of the Nigerian Petroleum Regulatory Commission (NPRC), the Petroleum Equalization Fund  (PEF) and the incorporation of three commercial entities including the Nigeria Petroleum Assets Management Company (NPAMC), National Petroleum Company (NPC) and the Nigeria Petroleum Liability Management Company (NPLMC).

The NPRC which will be formed by merging the Department of Petroleum Resources (DPR) and the Petroleum Products Pricing Regulatory Agency (PPPRA). It will be the regulatory entity for the whole industry. The NPAMC will manage production sharing contracts and back-in rights provisions, while NPC will be in charge of current NNPC joint ventures with international oil companies (IOCs) upon incorporation.

Funding the New Entities

The bill states that the funding of the NPRC shall be from the Appropriation Act through the national assembly. A five percent levy on all fuel sold and distributed within the federation will finance the PEF, subject to appropriation by the national assembly. The NPAMC will be funded by the national assembly appropriation for the initial capitalization and subsequent financing of the company while NPC will also be funded by appropriation through the national assembly for the initial capitalization.

The Petroleum Equalization Fund (PEF)

PEF will ensure “economic balance of petroleum prices across all regions”. Uniformity is meant to be achieved through re-reimbursement of oil marketing companies for any loss that they incur solely and exclusively as a result of the transportation of petroleum products and for their provision of financing for infrastructural development throughout the federation. The PEF will determine the amount of reimbursement due to any oil marketing company for the purposes of equalizing products prices.

Regulatory Overlap

Full responsibility for environmental matters in the petroleum industry is now vested in the NPRC and not the federal ministry of environment. The NPRC is toensure strict implementation of environmental policies, laws, regulations and standards as it pertains to oil and gas operations. The regulatory body will also promote the healthy, safe and efficient conduct of all petroleum operations in an environmentally friendly and sustainable manner. However, the bill adds a clause that includes a voluntary collaboration of the commission with the Ministry of Environment.

Reduction of Minister’s Powers

The Minister of petroleum was stripped of absolute power to incorporate other entities  to assume and manage some of the liabilities of the NNPC. Under the petroleum act and the oil pipelines act, the regulatory functions of the minister of petroleum resources will be transferred to the NPRC, which will be governed by a nine-man board with a fixed tenure. The board’s composition includes one representative each from the ministries of petroleum resources, finance, and environment. The commission is vested with the power to make regulations, similar to the powers of the minister of petroleum resources under the petroleum act but the PIGB enables the minister to retain certain powers of discretion to “do all such other things as are incidental and necessary” for the performance of his ministerial functions.

Expanded Representation

The number of executive directors of the NPAMC increased from three to four. Similarly, the NPRC will have a governing board made up of 11 commissioners. The number commissioners also increased from nine to 11 in order to ensure proper coverage of the industry regulatory functions while the number of non-executive commissioners increased from 1 to 2 in order to strengthen the board. The bill requires that the principles of federal character in making the appointments into the governing board. Appointment and removal of the commissioners are subject to senate approval.

Increased Shareholders Participation

PIGB requires federal government to divest 10 percent of shareholding in the NPC in a transparent manner, within five years from the date of incorporation. An additional 30 percent is to be further divested within 10 years from the date of incorporation. This means that citizens can own a stake in the national oil company subject to any terms put forward for the privatisation exercise.

Alignment to Public Procurement Act

The NPRC is subject to the public procurement act and a corporate governance code will be defined for the Nigerian Stock Exchange for the NNPC successor companies. The, NPC however, will not be subject to the provisions of the Fiscal Responsibility Act 2007 and the Public Procurement Act 2007.

Buhari had declined assent to the bill, on the ground that, if signed into law, it would whittle down his power as Minister of Petroleum and that he did not see any “fiscal content” in the bill.

Following the Presidential decline of assent, the National Assembly, particularly the Senate set up a Technical Committee on Declined Assent to Bills by the President, chaired by Senator David Umaru (APC, Niger East) and the Committee submitted its report in March while the Senate vetoed the President and passed the bill in accordance with the observations and recommendations of the President Wednesday, 17th April 2019.

President Buhari had also refused assent to the PIGB in August 2018, because of the provision permitting the Petroleum Regulatory Commission (PRC) to retain as much as 10% of the revenue generated, and the provision expanding the functions of the Petroleum Equalisation Fund (PEF), the Senate agreed with the President’s submission and reduced the amount retained from the revenue generated by the regulatory Commission from 10% to 5% while it  expunged the Petroleum Equalisation Fund (PEF) from Part IV of the new bill passed.

Prior to the passage of the reviewed version of the PIGB, experts at the just concluded content development workshop on oil and gas sector reform organised by the Facility for Sector Transformation (FOSTER) affirmed that the bill when fully passed, enacted and implemented would act as a catalyst for the revolution been expected in the petroleum industry which is the mainstay of Nigeria’s economy.

Israel Aye, Senior Partner, Energy and Commercial Transactions Primera Africa Legal postulated that, the policy and legislative framework of the Petroleum industry is more focused and support the need to redirect petroleum to act as a stimulant or catalyst for economic development, particularly focusing on midstream activities such as refining and processing as well as encouraging domestic utilization of petrol sources and its derivatives.

According to Aye, bidding policies and legislative frameworks such as the PIGB are fundamental for maximizing the potential of Nigeria’s hydrocarbon resources.

Analysing the bill further, he said, “Nigeria Petroleum Regulation Commission(NPRC) shall award mainstream licenses through an open, transparent and competitive bidding process- details of the process is documented in the bill.

“The President may direct the Commission to negotiate and award petroleum licenses to qualified persons outside of a bid process for strategic and bilateral considerations.

“The award of petroleum licenses to existing holders of OPLs who should ordinarily convert to oil mining leases, will not require a bidding process. Holders of these licenses would be converted to petroleum licenses commencing prior production period once they have achieved the necessary conditions for conversion.

“The bill requires that the prior consent of the Commission be given for certain transfers of licenses : Any assignment of interests in whole or in part in a petroleum license. The farm-out of a field or prospects within license.

“The creation of a security interest in a license; change of control in the holder of license and such change of control will be deemed to have occurred where; a transaction involves or granting of a beneficial interest of more than 50% of the shares in the licensee.

“The transaction vests the right to a majority of  the votes at a general meeting. The transaction enables appointment or veto over the appointment of the majority directors.The transfer of majority shares in a holding company where it’s subsidiary holds petroleum license”.

The energy legal expert concludes that, the bill would among others, “enhance value creation and addition to stakeholders, reduce cost, ensure accountability and transparency, regain and sustain competitive advantage and eliminate barriers to entry and create level playing fields”.

Also, Joe Nwakwue of Zera Advisory Consultancy, identified the strengths and opportunities of PIGB in the transformation of the oil and gas sectors to include; institutional and governance, role separation and clarity (Commercial/Regulatory policy) and removal of overlaps.

“Robust qualification standards for leadership and entities, transparency and reporting standards, creation of super regulator, streamlined regulatory function(Upstream/Midstream/Downstream. Creation of oil and gas infrastructural fund and better legacy liability management framework”, he stated.

Nwakwue stressed that the fundamental reform of the Nigeria oil and gas industry through the enactment of PIGB is urgent and vital to survival of the industry and the country.

He noted that the reforms could bring about, “increase oil and gas production and government take, reserves growth, enable more investments through FDI, catalyze midstream development, reduce development cycle and cost competitiveness”.

 

James Kwen, Abuja