Nigeria’s PIB Sparks Huge Debate – But What Will Change?

The subject of this year’s Annual Lecture at the British Nigeria Law Forum* was Nigeria’s Petroleum Industry Bill (PIB).  The PIB was first introduced to the National Assembly in September 2008, and has its origins in the early 2000s.  At last however it finally seems that there is the political will to turn it into law.

The Bill calls for a radical restructuring of the hydrocarbons industry and is therefore seen as critical because it will change fiscal terms and the way that the main oil and gas-producing joint ventures operate and are funded.  For this reason the PIB has been subject to intensive lobbying and significant change since its first draft.

The new law has the ambitious task of bringing together 16 laws and numerous regulations into one place.  A guiding principal in its drafting has been to bring greater transparency, accountability and efficiency to the oil and gas sector in Nigeria, thus forcing the industry there to conform to international norms.  There has also been a desire to improve the commercial performance of the state’s participation.

International Oil Companies (IOCs) and local investors alike hope that the PIB will bring greater clarity and stability of contract terms in the industry.  Unfortunately for investors the passage of the Bill through the National Assembly has been cumbersome and fraught with difficulty.

Investors are concerned that the PIB in its current form will presage a worse fiscal regime – especially for deep water exploration.  This concern is amplified by the fact that the Bill provides few details on how production sharing contracts will work under the new law.

Many observers are worried that the PIB concentrates too much power in the hands of the Minister and does little to address the difficulties that the Nigerian National Petroleum Corporation (NNPC) has meeting cash calls under the existing unincorporated joint venture structure.

The progress of the PIB has been further hampered by the fact that there are multiple versions of the Bill in circulation, making it much more difficult to build a consensus.

Many fear that such a negative sentiment has led to a steady drift of investment away from Nigeria towards other West African states such as the booming Ghana and Angola, and that the current political momentum to pass the Bill is long overdue.  Amongst investors ConocoPhillips has taken the most negative view with its announcement earlier this year that it intends to leave Nigeria.  Shell, Total and Eni have been divesting interests over the last couple of years.

However, the industry is divided over the impact a passed PIB will have and the uncertainty created by its slow progress through the National Assembly.  Essar, Afren, Perenco, Heritage and Addax (a part of Sinopec), along with a host of local companies, have shown interest in or picked up new licences.

With the PIB on perhaps the last lap of its passage through the National Assembly it is a good time to remind ourselves of its main features.  In its current form the PIB mandates the creation of the following posts and government departments:

Office of the Minister:  The Minister will beresponsible for the supervisionand co-ordination of the petroleum industry.  The Minister’s powers will be extensive and include the creation of government policy on petroleum and all matters to do with the granting of licences in the upstream, midstream and downstream.

In addition the Minister acts as the regulator, heeding only the advice of the various government agencies.

The Minister also plays a role in choosing the heads of the various institutions and government departments that are created under the PIB.

The Nigerian National Petroleum Corporation (NNPC) is to be replaced by the new National Oil Company (similarly a new National Gas Company will be created).  The remit of the new company will be to become a commercial and global organisation, a move inspired by the success of other state owned companies such as Petronas (Malaysia) and Petrobras (Brazil).

NNPC will therefore lose its current regulatory role and the new company will not inherit NNPC’s unincorporated joint venture interests.

The intention is for the state to divest to the public up to 30 per cent of the new National Oil Company within six years of its incorporation via the Nigerian Stock Exchange.

A new agency, called the Upstream Petroleum Inspectorate, is to be created to take over the role of the current Department of Petroleum Resources.  Its responsibilities will include the management of the licence system and providing regulatory advice to the Minister.  Interestingly the board of the inspectorate will include union representation.

The National Petroleum Assets Management Corporation, a newly created entity, will take over most of the assets of NNPC for the state, including the interests in the unincorporated joint ventures to be relinquished by NNPC.  The Minister will chair the board of this company.

The Petroleum Technical Bureau  is a special unit that is to sit within the office of the Minister.  Its purpose is to provide technical and professional support on issues as they arise and to create plans to implement government policy.

The Petroleum Host Communities Fund will be set up to manage the distribution of wealth to communities directly impacted by the oil and gas industry.  Ten per cent of the profit of E&P companies is to go to the fund.  The fund is to be used to develop the infrastructure of such communities and this will be the first time that that has been done.

Interestingly, the cost of repairing damage to petroleum facilities within a host community will be paid out of their share of the fund.

Funds for the training of Nigerians are to be provided by the Petroleum Technology Development Fund.  Even here, the Minister will yield significant influence through the ability to recommend to the President six of the fourteen members of the board.

The Downstream Petroleum Regulatory Agency is the new regulator for the refining, supply and marketing arm of the sector.  A major theme running through the PIB debate has been the need to deregulate downstream and, given recent rising fuel prices, it will be interesting to see what form this body takes.

The remit of the agency is set to include health and safety of operations, and the development of transportation infrastructure.  The board is appointed by the President on the recommendation of the Minister and there will be union representation.

And finally, the Petroleum Equalisation Fund  will be set up to reimburse petroleum products marketers for losses incurred relative to benchmark prices set by the fund.  This agency is to be chaired by the Minister.

*  I was a guest of Remi Aiyela at the BNLF Annual Lecture.  Remi is Vice Chair of the BNLF and Editor-in-Chief of NOGintelligence.  For further news, analysis and commentary on the oil and gas sector in Nigeria please see the NOGintelligence web site.

Speak Your Mind

Do NOT follow this link or you will be banned from the site!