What Should A Good Petroleum Industry Bill Look Like for Nigeria?

Adeoye Adefulu of the NBA’s Section on Business Law

Timipre Sylva, Nigeria’s Minister of State for Petroleum recently announced that the National Assembly will pass the Petroleum Industry Bill (PIB) by the middle of 2020.

He is the 7^th Minister/Minister of State for Petroleum, since the first version of the Bill was placed before the National Assembly in December 2007, who has announced the imminent passage of the PIB.

Given the close working relationship between the Executive and the National Assembly in this dispensation, the omens look good for a speedy passage of the Bill.

That is why it is important at this point to consider what kind of PIB needs to be passed. In this brief paper, we contemplate this question using the framework of the Nigeria Natural Resources Charter (NNRC).

 A-The NNRC Precepts & Regulatory Reform

The NNRC implements the Natural Resource Charter (“NRC”). The NRC “is a set of principles intended for use by governments, societies, and the international community to determine how best to manage natural resource wealth for the benefit of current and future generations of citizens.” The Charter has 12 precepts which address different policy issues and areas to govern the petroleum industry of a country successfully.

1. Strategy, Legal Framework& Institutions
2. Transparency & Accountability
3. Exploration, Licensing, and Monitoring Operations
4. Taxation and other Company Payments
5. Local Impacts
6. State-owned Enterprises
7. Investing for Growth
8. Expenditure Volatility
9. Public Spending
10. Private Sector Development
11. Role of Extractive Companies
12. Role of International Community

Five of the twelve precepts lend themselves to the exercise of considering the elements of a good PIB:

Precept 1 – Strategy, Legal Framework & Institutions;

Precept 3 – Exploration, Licensing and Monitoring Operations;

Precept 4 – Taxation and Other Company Payments;

Precept 5 – Local Impacts &

Precept 6 – State-owned Enterprises.

1. What Should A Good PIB Look Like, Using the NNRC Framework as A Guide to Reform?
2. Clear Legal Framework, Strong Regulator (Precept 1)

The institutional framework of Nigeria’s oil and gas industry is a central plank of the proposed PIB reforms. NNRC’s Precept 1 seeks to link Nigeria’s overall national strategy for the oil and gas industry to the legal and institutional frameworks which underpin them. The Precept states that “resource management should secure the greatest benefit for citizens through an inclusive and comprehensive national strategy, clear legal framework and competent institutions. A good PIB must ensure that:

• The rights and obligations of the stakeholders in the oil and gas industry are clear and fair;
• It clarifies the mandate of the regulator;
• Provides for qualifications for staff and members of the regulatory commission;
• Designs proper governance mechanisms;
• Provides the regulator with the tools required to achieve its objectives; and
• Mandates mechanisms to enhance transparency in the operations of the regulator.

2. Transparent Licensing System (Precept 3)

One of the important elements of the anticipated PIB is the licensing system for the oil and gas industry. The NNRC presents a useful framework to assess a good licensing system. The new licensing system must address the process for awarding oil and gas licences in the first place. A good PIB would:

• Clarify who is responsible for awarding licences.
• Provide a framework for the transparent award of licences.
• Limit discretionary powers in the award of licences.
• Outline the process for screening license applicants; and
• Provide legal backing for periodic license rounds.

Beyond the award of licenses, a good PIB also needs to address how the licences awarded are monitored. In this regard, the PIB should:

• Provide for clear legal rights and obligations for the licensee.
• Empower the regulator to monitor the licensee’s performance under its licence through, amongst others-

– Appropriate funding.

– Capable personnel.

Finally, the PIB must also ensure that the rigours applicable to the award of licensees are also extended in its regulation of the transfer of licences to fresh licensees.

3. Commercial NOC With Clear Objectives (Precept 6) 

The National Oil Company plays an important role in the development of the oil and gas industry. Historically, the Nigerian National Petroleum Corporation (NNPC) has statutorily exercised both regulatory and commercial functions in the Nigerian oil and gas industry.

Over time, its formal regulatory roles have receded. The Corporation however remains very influential in the regulatory and policy space but has faced challenges in its commercial role in relation to governance, funding, transparency and accountability. The PIB offers an opportunity to reform the NOC and ensure that it provides more value for Nigerians. A good PIB will:

• Streamline and clarify the objectives of the NOC;
• Put in place a robust governance framework;
• Ensure the NOC is able to appropriately fund its activities;
• Subject the NOC to independent financial audits which are published; and
• Allow for private sector investment in the Corporation.

4. Fiscal Framework Which Provides an Appropriate Balance for Development (Precept 4)

Precept 4 of the NNRC focuses on how to secure government revenue in a sustainable manner. It states that “Tax regimes and contractual terms should enable the government to realise the full value of its resources consistent with attracting necessary investment and should be robust to changing circumstances”. Under this framework, critical issues for PIB reform considerations include;

• The mix between royalty and tax in the fiscal framework;
• Whether royalties should apply to gas;
• What are the most effective incentives to ensure sustainable investment;
• Sunset provisions for incentive programmes;

5. Sustainable Development… for The Environment & The People (Precept 5) 

The NNRC recognises that the development of natural resources may have both positive and negative effects on the country and its people. It promotes the explicit recognition of the potential adverse effects of oil and gas development and their mitigation. A good PIB will:

• Provide for social impact assessments before the commencement of oil and gas projects;
• Strengthen the capacity of regulators to monitor environmental aspects of the oil and gas industry; and
• Provide a framework for sustainable local community benefits.

6. Concluding Remarks

The passage of the PIB offers the opportunity for a fresh lease of life for Nigeria’s oil and gas industry. It is not however enough to pass a PIB, the National Assembly must pass a good PIB. The points highlighted above offer some ideas from the NNRC, which should be incorporated into the Bill. There are several other issues which must be addressed.

Text of an address by Adeoye Adefulu (Ph.D), on behalf of the Section on Business Law(SBL), Nigerian Bar Association, at the launch of the 2019 Benchmarking Exercise Report (BER) of the Nigerian Natural Resource Charter.