PIA: A Revolutionary Law and its Many Controversies

In a historic move last Monday, President Muhammadu Buhari signed into law the Petroleum Industry Bill, a piece of legislation that will serve as the framework for operations in the oil and gas industry. Having suffered several setbacks for close to 20 years, the bill passed the most tortuous journey in the history of law-making in the country. Emmanuel Addeh writes that the Petroleum Industry Act is a major feat for the current administration but many questions remain unanswered as government begins full implementation of the new law

Having faced many impediments in its long walk to consummation, mainly due to key stakeholders’ failure to build consensus, the new petroleum law, now tagged the Petroleum Industry Act (PIA) would go down in the annals of Nigeria’s history as one of the most controversial ever.

Even in its passage into law, the issues that have dogged it have refused to subside, but have become more pronounced since the president assented to it a few days ago.

For the whole period that players failed to forge a common front and build consensus, seemingly almost always sticking to their old rigid positions, the country’s oil and gas resources literally bled.

Indeed, so frustrating was the process at a point that the Senate President, Dr Ahmad Lawan, concluded that some “demons” were behind its non-passage.

A Brief History

On September 28, 2020, President Muhammadu Buhari sent the bill, an offshoot of the Oil and Gas Sector Reform Implementation Committee (OGIC), which was inaugurated on April 24, 2000 under the chairmanship of the late Dr. Rilwanu Lukman, who was the then the Presidential Adviser on Petroleum and Energy, to the national assembly for consideration.

Twelve years earlier, precisely in 2008, ever before the president made the move, discussions that ensued on ways to strengthen the OGIC had produced the Lukman report, which recommended a new regulatory and institutional framework to guarantee greater transparency and accountability in the oil sector.

Eventually, the report formed the basis of the first Petroleum Industry Bill (PIB) that was submitted in 2008 as an executive bill under the late President Umar Yar’adua. Since then, the bill had hit several roadblocks.

Thereafter, on the 18th of July 2012, 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.

Although it was subsequently split into Petroleum Industry Governance Bill (PIGB), Petroleum Industry Administration Bill (PIAB), Petroleum Industry Fiscal Bill (PIFB) and Petroleum Host Community Bill (PHCB), for easy passage, it still did not see the light of day.

To ensure at least some headway, the PIGB version was eventually approved by the national assembly at some point, but it couldn’t sail through presidential assent and was thereafter returned to the legislature for further work.

Like now, the percentage to be allocated to host communities in the Niger Delta has largely been a sore point in the passage of the bill.

Although the late Yar’Adua proposed 10 per cent, it was rejected by lawmakers predominantly from the north in the 7th National Assembly.

When Jonathan took over the reins of government, he retained the same 10 per cent , but it was again rejected by the national assembly. It was brought down to 5 per cent in the 8th Senate, it still wasn’t passed into law due to further divergence of opinions.

The recent passage of the bill by the National Assembly Assembly and Monday’s presidential assent has rekindled hope for the oil and gas industry.

At least, some part of the losses established by the Nigeria Extractive Industries Transparency Initiative (NEITI) at over $200 billion cumulatively, may be recouped before oil finally goes into extinction.

In a similar assessment of the industry, Financial Derivatives Company Limited (FDC), had in a note indicated that Nigeria’s oil and gas industry was losing as much as $15 billion in investments annually due to the delayed passage of the legislation.

Forty eight hours after signing the legislation into law, Buhari approved a steering committee to oversee the process of its implementation, stressing again that Nigeria lost an estimated $50 billion worth of investments in just 10 years, created by the uncertainty of non-passage of the PIB.

Part of the grouse against the bill is that a ‘paltry’ three per cent is allocated to the oil producing communities which bear the brunt of production and exploration, while 30 per cent was approved for finding oil in the frontier basins, which many literally interpret as the northern area.

This has further polarised an already divided nation.

Highlights of the New Law

Under the new law, its framers and indeed most Nigerians believe the oil and gas industry will have a new opportunity for growth.

A major highpoint of the newly-signed law is that it mandates the federal government to conclude the commercialisation of NNPC, which has been described as a behemoth, by February 2022.

Despite all the agitations, the Act retains three per cent for host communities and a whopping 30 per cent for frontier basins.

It creates two regulatory agencies for the oil industry, from which the upstream commission would collect rents, royalties and production share.

It mandates the midstream and downstream authority, the second leg of the two new bodies to collect gas flare from midstream.

The new law imposes one per cent levy on wholesale price of petroleum products, while oil companies will be sanctioned for understating profits and overstating losses.

In all, the new legislation repeals 10 existing laws, stipulates that the Board of Trustees (BoT) and executive members of host communities board may not be indigenes. It provides that oil producing areas must distribute funds for capital projects (75 per cent), reserve (20 per cent), admin (5 per cent), with the fund to be set up within 12 months.

In addition, the new law deems all employees of NNPC as new staff of NNPC limited, which is to be set up, while board appointments will thereafter be made by shareholders and not the president alone.

Further to that, host communities will henceforth forfeit their entitlements from the funds in the event of vandalism. This implies that if it takes N10 to fix the leak, it will be deducted from the monies available to the areas where the incident took place.

According to the legislation, the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) shall be responsible for the technical and commercial regulation of upstream petroleum operations.

It will ensure compliance with all applicable laws and regulations governing upstream petroleum operations in a manner to minimise waste and achieve optimal government revenues as well as promote healthy, safe, efficient and effective conduct of upstream petroleum operations.

Also, the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) is to be set up for the technical and commercial regulation of midstream and downstream petroleum operations in the petroleum industry.

Also to be floated is the Midstream and Downstream Gas Infrastructure Fund (MDGIF), which shall be funded from 0.5 per cent of the wholesale price of petroleum products and natural gas sold in Nigeria as well as well as grants accruing from multilateral agencies, bilateral institutions and related sources.

It will further see the scrapping of the Department of Petroleum Resources (DPR) as it currently exists as well as the Petroleum Products Pricing Regulatory Agency (PPPRA) and Petroleum Equalisation Fund (PEF).

On the NNPC, it shall cease to exist after its remaining assets, interests and liabilities other than its assets, interests and liabilities transferred to NNPC Limited or its subsidiaries under subsection (1) shall have been extinguished or transferred to the government.

The new law will generally see the deregulation of the sector and ensure strict environmental implementation of policies, laws and regulations for midstream and downstream petroleum operations.

Initial Industry Reactions

In his reaction to the promulgation of the new law, the former President, Nigerian Association of Petroleum Explorationists (NAPE) and current President, European Association of Geoscientists and Engineers (EAGE), Dr. Mayowa Afe, explained that aside the argument over the three per cent or five per cent for host communities, the bill is a foundation that can be built upon in the future.

“It’s good news that the president has come all the way from his holiday and on his first day of work assented to the bill. It is good news for all of us. It has been there for 20 years although it’s not perfect. No law is perfect, but we can begin to work on it from here, particularly the three per cent or five per cent for the communities.

“Now, we have a law regulating the oil and gas industry and the ones that are not up to what we want, we begin to work on it and there will be a lot of advocacy concerning this,” he said.

In his remarks, President of the Petroleum Products Retail Outlets Owners Association of Nigeria (PETROAN), Dr Billis Gillis-Harry, stated that although the bill was largely unfair to the Niger Delta, it wasn’t a bad place to lay a solid foundation for the sector.

He noted that the country’s scarce resources that were being used to fund the petrol subsidy regime will now be used for developmental purposes, saying that the organisation had always supported deregulation.

“As for the three per cent, it is unfair to the Niger Delta that bears the burden of oil production in the country to be so unfairly treated. When you compare this to 30 per cent of NNPC profits even as a private company, being reserved for the frontier exploration, it doesn’t add up.” he said.

Chairman, Petroleum Technology Associated of Nigeria (PETAN), Mr Nicholas Odinuwe, in his remarks expressed joy that the bill had been signed into law, adding that the views of the organisation were taken into consideration in the process of consultations.

To Remove Subsidy or Not?

If there’s any matter of public interest that has lingered for decades, it is the petrol subsidy issue. But even with the new law, the federal government has said that it is not immediately embarking on its removal.

Minister of State, Petroleum, Chief Timipre Sylva, noted that although desirable, operationalising the free market regime will require that a lot of economic shock absorbers will be put in place, advising that it would not be advisable to suddenly remove it.

“It (deregulation) is something that is desirable, which I have always said. I’ve never deviated from that. Deregulation is desirable because that is the sustainable way out of where we are. But also, the reality is that deregulation is going to come with some changes.

“And of course, when people have been used to certain behaviours, behavioural patterns which means you’ve been used to subsidy for this long, and you want to change that, you have to have some kind of change management process in place.

“You cannot just change the policy on everybody without looking at some of the problems that this might create. One of which is that we know that this is going to entail increase in price. How do we alleviate the problems that will come with this increase?

“This is not a mindless government. It is a government that really, really cares about the Nigerians. So, we have to really look at all these possibilities of how to at least alleviate the pains and the problems that this increase might occasion. And that’s why we are taking our time. And that’s why it will not happen overnight.

“But I’m just telling you that there is a provision in PIA that will make this happen, that we have to jointly ensure that we’re able to come up with a workable way of making this happen. And that process is already ongoing,” he stated.

The Frontier Basin Controversy

Not a few individuals have argued that the monies allocated to the frontier basins will basically be a slush fund for the areas that are meant to benefit from it.

But the minister who also took time to explain the frontier exploration fund, noted that the frontier territories are not only in one area of the country.

“There are frontier territories in Cross River, in the North-east and in the South-west. So, when people just locate frontier territories in one part of the country and settle on that, then there’s a problem,” he argued.

He maintained that Nigeria has had about 37 billion barrels reserve for the past 10 years and has not added to it since then and therefore needs to bring some vigour into this industry. “Nigeria is the ultimate beneficiary,” he noted.

What’s in it for Host Oil Communities?

As noted earlier , one area of divergence for the whole time the bill lasted in the coolers was the issue of what should fairly accrue to host oil communities who feel the direct impact of oil exploration and exploitation.

In trying to explain this, the Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), Mallam Mele Kyari, said the grumbling from a cross-section of oil producing communities in the Niger Delta was unnecessary.

According to him, the three per cent approved under the new petroleum act could even be bigger than what the Niger Delta Development Commission (NDDC) currently gets when computed.

Kyari noted that given about $16 billion total expenditure by the oil and gas sector last year, host oil communities would earn as much as $500 million yearly if the trend continues.

The GMD noted that whereas the oil-producing communities could not determine what projects will be located in their areas before now, from now on, the new legislation will ensure that they largely control their funds and projects in the communities.

“And three per cent of your operating expenditure is a huge number. Many people argue around whether it should be 10 per cent or five per cent or three per cent. But percentage of what? I think that’s what most people don’t understand today,” he stated.

Free Market with Restrictions

Aside the pending subsidy matter, an area that has also generated heated debate and is indeed seen as contradictory is the part that practically hands over products importation to a very tiny cabal.

In one breath, Section 205 (1) of the new PIA states that: “wholesale and retail prices of petroleum products shall be based on unrestricted free-market pricing conditions.”

Yet in another breath, Section 317 (8) of the same mandates that: “The Authority shall apply the Backward Integration Policy in the downstream petroleum sector to encourage investment in local refining.

“To support this, a licence to import any product shortfalls shall be assigned only to companies with active local refining licences,” it said.

But not a few believe that this part was literally lifted from a presentation by a top official of a major refinery owner in the country, who requested when some members of the National Assembly’s Joint Committee on the PIB made a working visit to the construction site of its ongoing refinery, asking that importation rights for petrol should be restricted to licenced and active refineries in the country.

The new policy will simply enrich a small group of importers, discourage new market entrants and hold Nigerians to ransom, according to the argument.

A Mixed Bag

Depending on who’s talking, the new legislation has met with stiff criticisms, cautious optimism and praises. While some persons and organisations like the Organisation of Petroleum Exporting Countries and the Nigeria Extractive Industries Transparency Initiative (NEITI) have spoken laudably about it, others have simply condemned it as another piece of law that cannot be implemented.

Describing it as a mere ruse, to do irretrievable violence to Nigeria’s progress, a Senior Advocate of Nigeria (SAN), Chief Mike Ozekhome, said the Act constitutes a direct assault on age-long cherished principles of federalism and the doctrine of separation of powers.

He argued that the Act seeks to attack the provisions of section 162 of the 1999 Constitution, which states that all revenues accruing to the Federation shall be paid into a Federation account from which sharing shall be made amongst the three tiers of government – the federal, government, the 36 states and the 774 local governments.

He maintained that the NNPC ought to be totally unbundled to make it more viable, but said that as it is, it has further strengthened NNPC’s hand of non-accountability.

Is the Upstream Regulator Delving into Commercial Operations?

Another contentious issue with the PIA was a remark on Wednesday night by Sylva that with the implementation of the new PIA, handling of the sale of crude oil that goes into the federation account, will now be done by the upstream regulatory commission.

He stated that because NNPC limited will be a company that will be operating commercially, it will no longer be dependent on government and the corporation would stop being the custodian of the crude oil as currently obtains.

“That will no longer happen because NNPC will be a commercial venture, completely decoupled from government and will be operating commercially. So, for the average Nigerian, he will be seeing a more serious NNPC and a more professional NNPC.

“Monies will still accrue to the federation account, but NNPC will now have to give the federation crude to the upstream regulatory commission, and NNPC will no longer be in charge of the federation crude, they will be in charge of their own crude.

“The commission will sell that crude and pay to the federation account, so the federation of course will still get their crude, but it will no longer be through the NNPC,” he said.

Some persons’ understanding of that statement was simply that the regulator was moving gradually into the commercial space, a phenomenon that has been criticised in the past.

But the minister clarified on Thursday that although the NNPC may still lift the federation crude, it will however, route the money to the joint account through the commission at a fee. Even at that , the issue still remains very controversial.

Governors Make Demands, List Pitfalls

The Nigerian Governors’ Forum (NGF,) has also had its take on the PIA, picking at least six holes in the new law they described as a recipe for disaster.

In a letter signed on their behalf by Chairman of the NGF, Ekiti State Governor Kayode Fayemi, the governors identified Sections 9(4) and (5); 33; 53(2), (3); (4); 54 (1) and (2); 55 (1); and 64(c) as some of the areas they are opposed to. But that was days before the bill was signed into law.

The state chief executives contended that the law will deny states their fair share of the federation account because it favours the federal government and the NNPC.

They said rather than reforming the sector, the Act has made the NNPC Limited a more powerful oil company and faulted the removal of the requirement to transfer payments into the federation account as unconstitutional.

“In a previous communication with the leadership of the national assembly, we had noted that Section 53 of the bill provided for the incorporation of the NNPC Limited under CAMA to carry out petroleum operations on a commercial basis.

“In our said letter, we observed that the wording of (3) suggested that only the federal government would have shares in this company and stated that ownership of all the shares in the company shall be vested in government and held by the ministry of finance on behalf of government.

“We observed that excluding states from this arrangement precluded them from having a voice in the running and administration of the company and excludes them from sharing in the distribution of dividends when they become due,” the governors maintained.

Generally, the governors raised fundamental issues bordering on the removal of the requirement to transfer fiscal payments to the federation account; 30 per cent profit oil and gas as frontier exploration funds; and on the issue of gas flare penalties.

“We do not believe that in passing this bill, the national assembly gave adequate consideration to every relevant facet of our federation, and this can be a recipe for disaster,” they said.

Ayade Cries Out

Although a strong supporter of the Buhari administration, even the Governor of Cross River state, Prof. Ben Ayade, could not hold his displeasure with the law, stressing that the law seeks to perpetuate injustices that the state has suffered over the years.

Ayade said the law failed to address the concerns of the state in spite of the presentation he made to the relevant senate committee of the National Assembly.

“Cross River State bears the brunt of production, but today the PIB is signed into law, insensitive to the oil impacted communities to which Cross River state belongs.

“In the same PIB, 30 per cent of revenue is set aside for frontier exploration, luckily the Calabar basin which they refused to recognise in that category which stretches from all the mountain basins, cutting across the whole of Bakassi, Biase Odukpani, Okuni, Ogoja, Yala is heavily impregnated with hydrocarbons,” he said.

After nearly two decades, Nigeria has finally taken a huge step to unleash the full potential of its hydrocarbons. Hopefully, implementation may not that long to commence.