As PIB Faces Fresh Hurdles…

After over two decades in the works, the Petroleum Industry Bill (PIB), arguably the piece of legislation with the most tortuous journey in the nation’s history, is again faced with what looks like new impediments. With all the parties, seemingly sticking to their old rigid positions during a two-day public hearing at the National Assembly during the week, it’s uncertain who will blink first or whether there will be a middle ground in the next few months. In this report, Emmanuel Addeh wonders if the bill, one that has been described as pivotal to the long-term overall survival of the oil and gas industry, will survive the turbulence this time or be finally confined to the dustbin of history

On September 28, 2020, President Muhammadu Buhari, like some of his predecessors, sent the Petroleum Industry Bill (PIB) to the National Assembly for consideration. But that would not be the first time the most talked about bill would get to the level of the executive and the legislature in the country. Indeed, it had been a long time coming.

Many persons with vast knowledge of the industry and its workings believe that unless national interest is allowed to supersede personal and vested interests, the bill will continue to be in the cooler.

So complicated is the issue that Senate President Ahmed Lawan recently said that some “demons” were behind its non-passage, promising to put them to shame once and for all.

Brief History

An offshoot of the Oil and Gas Sector Reform Implementation Committee (OGIC), which was inaugurated on 24 April 2000 under the chairmanship of Dr. Rilwanu Lukman, who was then the Presidential Adviser on Petroleum and Energy, the original body was charged with the task of making recommendations for a far-reaching restructuring of Nigeria’s oil and gas industry.

At the time, the recommendations of OGIC included a proposal to separate the commercial institutions within the industry from the regulatory institutions. Seven years later, the government introduced the National Oil and Gas Policy and further reconstituted OGIC to make recommendations towards the emergence of a new institutional framework to govern the operations of the oil and gas industry.

That framework was also expected to oversee the emergence of a new national oil company, new regulatory bodies and a new national directorate, for a more effective policy formulation for the industry.

In 2008, the discussions that ensued on ways to strengthen the OGIC produced the Lukman Report which recommended a new regulatory and institutional framework that, when implemented, would guarantee greater transparency and accountability

Eventually, this report formed the basis of the first PIB that was submitted in 2008 as an Executive Bill under the Late President Umaru Musa Yar’Adua. Since then the bill has hit several roadblocks as vested interests attempt to get their full slices.

Having undergone numerous revisions and divisive debates, on the 18th of July 2012, the then President Goodluck Jonathan presented a new version of the PIB to the seventh session of the national assembly for consideration and enactment, further throwing it into the front burner of national discourse.

Why Nigeria Needs Comprehensive Industry Law

The proponents of the PIB say that the aim is to strengthen the governing institutions, establish a strong regulatory framework, ensure transparency and accountability as well as promote exploration and exploitation of oil resources.

It also seeks to safeguard the long term macroeconomic stability of the country, reform the extractive industry institutional framework, provide better clarity for Nigeria and its partners, entrenching a domestic gas to power market as well as increasing oil and gas production whilst protecting the environment.

The PIB has undergone some evolution, including a split which was done during the 8th national assembly, following the inability of stakeholders to agree on certain clauses.

They included the Petroleum Industry Governance Bill (PIGB), Petroleum Industry Administration Bill (PIAB), Petroleum Industry Fiscal Bill (PIFB) and Petroleum Host Community Bill (PHCB).

The PIGB was approved by the national assembly, but it couldn’t sail through the presidential assent and was thereafter returned to the legislature for further work.

In the main, the latest version of the bill which has now returned as a whole, seeks to replace the Nigeria National Petroleum Commission (NNPC) with NNPC Limited, create separate regulatory authorities for upstream, midstream and downstream operations as well as reduce the royalty from 10 per cent to 7.5 per cent for offshore fields producing not more than 15,000 barrels per day.

Added to that, it is also meant to increase the benchmark threshold of crude oil price for charging royalty from $35 per barrel to $50 per barrel and make gas flaring penalties non-tax deductible in order to discourage the phenomenon.

In the course of its evolution, the bill has also effected changes to what host communities are entitled to and their obligations, which has been a main source of discord in the proposed law.

Opposition from Big Guns

Aside the host communities which have kicked against certain provisions of the bill, oil majors in the industry have also expressed dissatisfaction with some of the clauses in the proposed legislation.

At the national assembly hearing organised by the Joint Committee on Petroleum Upstream, Downstream and Gas, during the week, the Oil Producing Trade Section (OPTS) expressed some discontent over some provisions of the proposed law.

Chairman of OPTS, Mike Sangster, who made his presentations on behalf of Total, Chevron, Exxon Mobil and Shell companies, complained that the PIB does not have a favourable environment for future deep-water investments and for the launching of new projects.

He proposed that to ensure investors are encouraged to finance deep-water projects, the PIB should grant deep-water oil projects a full royalty relief during the first five years of production or a graduated royalty scheme as detailed in their submission.

He also proposed that PIB should remove Hydrocarbon Tax considering that companies will still be subject to Company Income Tax (CIT), noting that the bill does not address the key challenges facing gas development in Nigeria, such as inadequate midstream infrastructure, regulated gas pricing, huge and long outstanding debts.

The group called for the provision of a clear path for transitioning to free market-based pricing, remove additional compliance conditions on domestic gas delivery obligations as a precondition for export gas supply and allow pre-existing contracts and agreements to run their course

Sangster said: “OPTS recognises the government’s right to change laws. However, to maintain Nigeria’s reputation amongst investors, it is important for the PIB to explicitly preserve base businesses and rights for existing Joint Venture licenses and leases and Production Sharing Contracts, which form the basis for future growth.

“Operators should be allowed to retain the entirety of their lease areas and new terms should apply only to new contracts, licenses and leases.”

The oil giants also called for a savings provision to allow post-conversion continuity of activities undertaken by a single legal entity, instead of being segregated as independent companies.

In addition they sought the harmonisation of taxes into a single tax system and allow for consolidated filing and tax reporting and also to harmonise tax practices and ensure capital allowances and allowable deductions are consistent with existing tax legislations.

Angry Host Communities Insist on 10% Equity

In the course of the two-day public hearing, some angry host communities’ representatives, claimed that the proposed law as it concerns them, was designed to further enslave them and create further confusion in the region and expose the communities to environmental degradation and untold hardship.

Some of them accused the national assembly of not allowing a fair and adequate opportunity for vulnerable stakeholders in the region to have a say in the legislative processes towards passing the PIB, saying that they were denied the opportunity to speak. At a point during the sessions, there were exchange of fisticuffs after heated arguments.

But one of the representatives of the communities, the Host Communities of Nigeria Producing Oil and Gas, (HOSTCOM) which made a representation during the event, insisted on 10 per cent equity shareholding from oil companies.

While threatening that only then would they guarantee the security of the area if the said fund is given, Chief Benjamin Tamaranebi, noted that the host communities have been relegated to the background.

HOSTCOM maintained that it is imperative that the communities get the 10 percent as provided for during late President Yar’Adua in order to enable the people participate fully through the protection of infrastructure and oil installation.

The group vehemently rejected the percentage for host communities from oil companies pegged at 2.5 per cent in the new bill, saying that the 10 per cent offered in the bill considered during the 7th Assembly should be retained.

” Imagine a provision that was put at 10 per cent during the 7th Assembly , reduced to 5 per cent during the 8th Assembly and now further reduced to 2.5 per cent in the new bill for consideration and approval by the present 9th Assembly.

“After 60 years of marginalisation and bearing the brunt of the negative impacts of exploration and exploitation. Today, some states have started discovering and enjoying their natural resources but the producing states and HostCom are not envious of them therefore our position is sacrosanct.

“It will be very absurd and economically very illogical to deprive HostCom the right to equity shareholding in both the establishment of the NNPC Limited, the Commission, the Authority and the Boards,” the host communities said.

As for the gas flare penalty funds, the communities insisted that they who are the direct recipient of the negative effects are the ones to receive the proceeds from the gas flare penalty.

They noted that if Nigeria must divest or privatise the oil and gas assets, then the host communities must have the right of first refusal before they open up the sale or bid to other Nigerians “because the oil and gas in Nigeria, indeed, belongs to the producing states and host communities in the first place.”

Petroleum Ministry, NNPC Take Stand

At the National Assembly, the Group Managing Director of Nigerian National Petroleum Corporation (NNPC), Mallam Mele Kyari, said the PIB needed to be passed as soon as possible to attract significant investment into the sector.

“This industry does not tolerate uncertainties. When we started the journey to PIB in the year 2000, through the oil and gas reform committee that was the beginning of the interruption of uncertainties in the industry.

“And since 2000 until this moment, that the industry has not seen significant investment except one particular area, production sharing which we still have challenges because of the fiscal uncertainties.

“This industry refused to develop from 2000 till today. We haven’t seen significant development in this industry since 2000 and the reason is very clear. The three attempts to make this legislation work have not succeed, but every time you have such situation you have uncertainties.

“We will not find other investors coming as long as we remain a very high cost environment, a very uncertain fiscal environment and with other associated issues that come with it.

“Passing the PIB so that we become more competitive, compared to where we were 20 years ago will bring us back to reality. That reality is to take advantage of the resources that we have today to enable us develop the midstream which is what is lacking today.

In the same vein, the Minister of State for Petroleum Resources, Chief Timipre Sylva, said when passed, the PIB will essentially overhaul the legal and regulatory framework of the Nigerian petroleum industry and clarify the rules of engagement for the monetisation of the country’s valuable hydrocarbon resources.

“This day has been anticipated for a very long time given the chequered history of the various attempt to pass the bill and has been made possible by the effort of the different stakeholders within the executive and legislature who have worked with patriotic and selfless zeal to make this happen.

“The journey to improve a viable and investment-friendly regulatory framework for the Nigerian petroleum industry has been on for the past 20 years and has been characterised by all sorts of challenges that have prevented that journey from reaching the desired destination till date.

“That notwithstanding, the necessity for reform of the Nigeria petroleum industry to make it conform to the current realities to proper position it for the challenges of the future has made it imperative for the effort to pass the bill to be sustained and finalised.

“Indeed the world has changed significantly since the first effort of reform was made in the year 2000 to pass the PIB. The Nigerian petroleum industry faces challenges arising not from the domestic environment but from the wider international environment.

“The volatility of global crude prices which crashed into negativity into territory at the height of Covid-19, the proliferation of country’s funding hydrocarbons and make it seem available for exploitation have also impacted on demand for crude as well as the revenue and profits accrual

“The above scenario underscores the urgency that necessitates the passing of the PIB which overhauls the legal and regulatory framework of the Nigerian petroleum industry and clarifies the rules of engagement for the monetisation of our valuable hydrocarbon resources,” he argued.

Between Demons and Vested Interests

Indeed, there’s no gainsaying the fact that some persons and groups are wont to pursue their personal interests far above the national interest. If anything, the senate president who should know better, has already admitted that there are demons that do not want the bill to become law.

A former Secretary and Legal Adviser to the Nigerian National Petroleum Corporation (NNPC), Prof. Yinka Omorogbe, puts it succinctly in a recent interview.

Omorogbe, who traced the origin of the bill and her role , maintained that it was being delayed due to various vested interests within and outside the country. The professor of energy law and former Dean, faculty of law, University of Ibadan, declared that the journey of the bill which commenced about 20 years ago had been tortuous because many of the decision makers were putting their stakes above that of the generality of the country.

The serving professor at the Nigerian Institute of Advanced Legal studies (NIALS), argued that the rest of the world was leaving Nigeria behind, noting that with increasing attention to renewable sources of energy, the country’s oil asset was fast losing value.

Lawan, the President of the Senate, had said: “PIB is like a demon. People both within and outside the country are ready to work against it as they have been doing for the past 14 years, but the 9th Senate and by extension, 9th National Assembly, will defeat the demon with the current bill before both chambers.”

But Omorogbe maintained that although Lawan didn’t mention names, he was perhaps talking about vested interests, including even within the national assembly.

“There are huge vested interests and it’s these vested interests that have militated against the passage of the bill for a long time. We have been on this for about 20 year, from when the first oil and gas sector implementation committee was created by President Olusegun Obasanjo at the time.

“We worked on the oil and gas policy. We continued until 2006, then when the new president, Umaru Musa Yar’Adua came in, the Oil and Gas Sector Implementation Committee was reconstituted. It was given the mandate to push the reform. I was part of the 2008 OGIC.

“And I got in and I found out that there were huge interests and a lot of the interests were internal interests that time militating against its passage. The senate president did not tell us what the demons are or what their names are or where they are located, but my strong guess is that it is the same interests concentrated in Nigeria.

“Some are external that are working against the passage of the deal. We are still waiting for the passage, forgetting that that the passage of that law is the beginning of reforms not the end,” the professor noted.

She argued that the bill was doable, but that “if there are clauses there that we cannot live with, we can try to amend these clauses or work with them in some way.”

“But to have an industry that is so important to us, being operated under obsolete laws that cannot assist the people of Nigeria is just untenable. These interests are not for Nigeria, otherwise the bill would have been passed by now.

“This is because the ultimate intent of reform is that the benefits should go to Nigerians and not to private pockets or any organisation. It is to cut out wastage, cut out opaque practices and to ensure we actually benefit. A lot of the interests are personal and they are institutional interest and that is the main problem,” she noted.

She advocated the passing of the law as a whole, rather than in parts, saying that many implementation challenges will arise if passed in bits and pieces.

“We just need to pass something and move on while people still have some interest in oil. Among the groups with different interests are persons in the national assembly and even persons in the national assembly from different blocks, holding different positions.

“We need to confront all these demons, knowing that if we fight too much over a particular cake, we could end up destroying it and then have nothing,” Omorogbe said.

Lawan, Gbajabiamila Assure Nigerians

But despite all the grandstanding and setbacks, Senate President, Lawan and his counterpart at the House of Representatives, Speaker Femi Gbajabiamila, have assured Nigerians of the passage of the bill in the second quarter of this year.

Lawan stated that the passage of the bill will ensure that Nigerians benefit optimally from crude oil production and sale of fossil fuel reserves.

He pointed out that the National Assembly in its consideration of the piece of legislation would ensure that the bill when passed into law, guarantees improved revenue earnings for the country.

‘’Let me say this, we will pass this bill not without ensuring that it is a bill that satisfies certain conditions. Nigeria is blessed with these resources, we want Nigeria to benefit optimally from them. In fact, we are in a hurry because we have lost so many years of benefits that we could have had,’’ he said.

He noted that the non-passage of the PIB had been a major drag on the industry over the years, significantly limiting its ability to attract both local and foreign capital at a time when many other countries are scrambling to exploit their oil and gas resources.

‘’The mere knowledge that the nation’s oil industry is still being governed by laws enacted more than 50 years ago is ludicrous and extremely disappointing,” he stated.

Also, Gbajabiamila expressed disappointment with the inability of successive administrations in the country to ensure the passage of the PIB into law. He said it was difficult to explain why the bill did not pass despite collective interest by all for the passage of the bill, stating that the oil sector is underperforming due to lack of a legislative framework to guide the sector.

“It is disappointing and frankly difficult to explain how successive governments have failed to deliver on the promise of reform despite this broad agreement.

“For a long time, we have known that this critical national industry underperforms its potential and our national expectations. For the most part, we all agree on the need for legislative action to make improvements through statutory and regulatory reform.

“We are not oblivious to the fact of many contending interests in this sector. These contentions do not need to result in conflict, especially when we know the objective of national prosperity benefits us all.

“Therefore, the process of engaging with stakeholders will continue beyond this public hearing to accommodate the diversity of interests and ensure all critical views form part of the deliberations that inform the final legislation,” he stated.

Will the lawmakers deliver this time? Will the president give his assent? Can the stakeholders arrive at a common ground on the contentious issues? The next few months will tell.