5 ways the new PIBG will reform Nigeria’s oil sector

Nigeria’s upper legislative chambers, the Senate has passed the Petroleum Industry Governance Bill (PIGB) following its third and final reading on May 25, almost a decade after it was first initiated. A harmonised version is yet to be passed in the House of Representatives.

Here are five ways it will impact the sector:

Petroleum minister can no longer award oil blocks

A lot of dust has been raised over the discretion to award oil blocks by the petroleum minister and dozens of oil blocks remain unexploited because those awarded them lack technical and financial competence to develop them. It fuels militancy in the Niger Delta where oil producing communities are angry that they have no ownership of vast oil assets in their domain.

The PIGB passed by the Senate vests approval for allocation of oil blocks to a new regulator: the Nigerian Petroleum Regulatory Commission (NRPC). The commission now has the power to issue, modify, amend, extend, suspend, review, cancel and reissue, revoke and / or terminate upstream licences made in compliance with applicable laws and regulations of the country.

Removes over regulation in the sector

Operators in the petroleum sector complain of too much regulation. They answer to multiple regulators with similar functions paying multiple fees for the same thing. Worse still, it slows down projects because the same approvals are demanded for the same purpose.

This will change with the new PIGB as it establishes one regulator, NRPC which will assume the rights, interests, obligations and liabilities of the Petroleum Inspectorate, the Department of Petroleum Resources (DPR) and the Petroleum Products Pricing Regulatory Agency (PPPRA) and regulate the upstream, midstream and downstream sub-sectors of the oil and gas industry.

It also vests the Commission with the assets, funds, resources and other movable and immovable properties, which are held by the Inspectorate, DPR and the PPPRA. This will ease regulation, save cost for the government and enhance projects delivery timeline.

Members of the board of the Commission will be appointed by the President but their appointments are subject to the confirmation by the Senate. The minister cannot sit on the Board and only the president can remove a board member.

NNPC may finally behave like a business rather than drainpipe

For many years, NNPC has operated without accountability. The corporation cannot produce even a financial statement after years of operation. NNPC has not played the role of national oil companies as have Statoil or Saudi Aramco which have contributed massively to the economy of their countries.

Therefore the PIGB splits the NNPC into three commercial entities providing for the incorporation of two entities to be known as the Nigerian Petroleum Assets Management Company (NPAMC) and the National Petroleum Company (NPC), which will be vested with certain liabilities and assets of the NNPC. There is also the regulator, the Nigerian Petroleum Regulatory Commission (NRPC).

The NPAMC shall be responsible for the management of the NNPC’s oil and gas investment in assets where government is not obligated to provide any upfront funding (essentially the production sharing contracts), whilst the NPC shall be an integrated oil and gas company operating as a fully commercial entity across the energy value chain.

A key objective of this bill is to make the organisation run like a commercial entity rather than a drain on the country.

Tougher sanctions for defaulters

Nigeria lost billions of dollars through scams in the petroleum products import subsidy regime between 2009 and 2012. The Federal Government paid oil marketers subsidy for 59 million litres of petrol per day when Nigeria’s daily consumption is less than 35 million litres. Diezani Maduake, who superintended over the petroleum minister at the time, has corruption case pending in court.

In 2011 alone, Nigeria spent N2.5 trillion on fuel subsidy, a 900 percent increase from the N245 billion that was budgeted for it. It only secured a 10 year conviction in January this year, for a marketer, Ada Ugo-Ngali, the managing director of Ontario Oil and Gas Ltd for defrauding the government of N754 million in subsidy payments.

The PIGB that has been passed is proposing a 10 year jail term, forfeiture of petroleum products and facilities for oil marketers who engage in economic sabotage.

Economic sabotage in terms of the bill is seen as actions that violate the terms of the conditions for licenses granted an oil company or marketer, or a failure to comply with the directions of the minster with regards of fuel importation.

Paves way for transparency in the sector

A major problem in the governance of Nigeria’s oil and gas sector is the absence of transparency. This is shown in the lack of competitive bidding for contracts and poor regulation in the sector.

The new PIGB sets to change all that by clarifying the regulator and its powers including checks to it and modifying contrary provisions in other laws relating to the sector.

“There seems to a lot of uncertainty around the fiscal framework, issues with communities and levies to NDDC, this governance bill while not addressing fiscal issues is still a good development,” says Taiwo Oyedele, head of Tax at PwC.

FRANK UZUEGBUNAM