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Is Nigeria Finally Within Reach of a New Oil Law?

By NJ Ayuk, Executive Chairman, African Energy Chamber  

This week, the African Energy Chamber will publish a report outlining its short-term predictions for the continent. That report, Africa Energy Outlook 2021, identifies Nigeria as the country with the most potential for increasing hydrocarbon production. But it also points out that Nigeria faced certain challenges with respect to realizing this potential.

Of course, some of the challenges have their roots in the events of 2020 — the coronavirus (COVID-19) pandemic, the dramatic fall in global energy demand, and the oil price war between Russia and Saudi Arabia that briefly sent crude prices into negative territory. However, the country is also facing a number of ongoing challenges.

One of these is the need for a new oil and gas regulatory regime.

‘Africa Energy Outlook 2021’ notes that Nigeria’s government has been working for years to meet this need. So far, all of its attempts have failed. In 2018, for example, members of the Senate voted to approve legislation known as the Petroleum Industry Governance Bill (PIGB), only to have President Muhammadu Buhari veto its version of the bill and send it back to the floor.

Buhari’s administration has not given up, though. Earlier this year, the president declared that his administration was determined to draft a new version of the oil and gas law and secure its passage through both houses of the National Assembly before the end of 2020.

Signs of Progress … But How Much?

The AEC’s report expresses some doubt about Buhari’s ability to get that far with the new Petroleum Industry Bill (PIB). I see this skepticism as understandable, given that Nigeria has been trying — and failing — for nearly two decades to effect change on this front. But I also want to point out that Abuja has made some genuine progress this year.

First, the government completed the draft version of the PIB and submitted it to the National Assembly in August.

Second, the government secured pledges from both houses of the legislature to expedite discussions on the PIB so that it can be passed before the end of the year.

Third, the bill passed its first reading in the House of Representatives and the Senate on Sept. 30.

Fourth, the bill passed its second reading in the House of Representatives and the Senate on Oct. 20.

Fifth … well, is it reasonable to list a fifth sign of progress? Perhaps not. Almost immediately after the PIB passed its second reading, Nigeria’s Senate suspended plenary sessions until Nov. 24 so that it could focus exclusively on drawing up the federal budget for next year. Additionally, it gave the relevant Senate committees eight weeks to make the required legislative inputs into the bill.

Short on Time

Because of these developments, the timeline for securing passage for the bill has shifted.

As I mentioned previously, President Buhari has said he wants to sign the PIB into law before the end of this year. But if the Senate continues to focus exclusively on the budget until Nov. 24, it will have just over a month to meet that deadline — or even less, if the committees take the full eight weeks allotted to them for making legislative inputs. Either way, it will have a great deal to do in a short time. It will have to wrap up committee discussions, pass the new oil and gas law in its third reading, secure the assent of both the House of Representatives and the Senate to the final version of the legislation, and then send it to the president for signature within just a few weeks.

In theory, the PIB could lose momentum during any of these stages. If the committee discussions run for the full eight weeks, they will end on Dec. 15, leaving very little time before the end of the year. If legislators propose amendments during the third reading, they may need extra time to debate and vote on their proposals. If the House of Representatives and the Senate turn out different versions of the PIB and are unable to come to terms quickly, the initiative could stall. If President Buhari takes exception to any changes made during earlier steps in the legislative process, he could veto the bill.

If any of these things happen, the government may find itself ending 2020 without a new oil and gas law in place.

But would that really be such a bad thing?

More than Money

Yes, I think it would.

For years now, uncertainty about the legal regime has been discouraging companies from making commitments to the West African state’s oil and gas industry. According to Nigeria’s Department of Petroleum Resources (DPR), the repeated failure of attempts to adopt a new oil and gas law costs the country about $15Billion each year in lost investments. It’s therefore reasonable for Buhari and his government to seek passage for the PIB as soon as possible. After all, Nigeria can ill afford to keep losing so much money — especially at a time when its oil and gas industry is under extra strain because of the extraordinary events of 2020.

But it’s not just about the money. I believe there is an objective need for reform — and that the PIB can meet that need.

Nigeria’s oil and gas sector has earned the reputation of being corrupt, non-transparent, and inefficient. This reputation drives potential investors away, thereby depriving the country of money — and, what’s more, depriving it of jobs (in both the industry itself and in related sectors such as construction and transportation) and also of opportunities for partnerships, training, technology transfer, and other things that help support and amplify economic growth.

In other words, without the PIB, Nigeria can’t use its vast oil and gas reserves to optimal effect!

Needed Reforms

The PIB does try to address the deficiencies of the current system.

For example, it calls for dismantling state-run Nigerian National Petroleum Corp. (NNPC) and dividing its functions up among three separate entities. It provides for NNPC’s regulatory and administrative functions to be transferred to two new government agencies: one to supervise upstream operations and another to supervise midstream and downstream operations, including domestic gasification programs. At the same time, it assigns the company’s commercial functions to a new entity that will be known as NNPC Corp.

This one change has the potential to make a big difference. With respect to transparency and efficiency, the bill draws a clear line between Nigeria’s need to monitor and regulate the companies that work in the oil and gas sector and its need to have the capacity to develop its own resources. It also calls for NNPC Corp. to be audited annually by an independent company — rather unlike the current version of NNPC, which has come under fire in the past for its less-than-transparent accounting practices. And with respect to corruption, it establishes NNPC Corp. as a purely commercial entity with no access to the federal budget — and, therefore, fewer opportunities to function either as an instrument of state policy or as a shady space in which government officials can move money around for their own purposes.

Of course, these aren’t the only good things the PIB could do. For example, the bill also contains provisions that might settle investors’ questions about the Deep Offshore and Inland Basin Production Sharing Contract Act, a controversial piece of legislation that some energy companies have described as little more than a revenue grab. Additionally, it eliminates two state bodies that haven’t been doing the best job at monitoring the downstream fuel sector: the Petroleum Products Pricing Regulatory Agency (PPPRA), which oversees fuel pricing, supplies, and distribution, and the Petroleum Equalisation Fund (PEF), which distributes cash with the aim of making motor fuel prices uniform throughout the country. Moreover, it puts a single agency — the new midstream and downstream agency mentioned above — in charge of domestic gasification initiatives. This makes sense, given that gasification depends on the construction and expansion of transportation and distribution networks. It could also help coordinate the process by putting all activities under a single umbrella.

Don’t Stop Pushing

There are other attractive features to the PIB, but I don’t have the time or space to list them all here.

I do want to emphasize, though, that I think Nigeria needs this new law, both in general and with the particular details included in the government’s draft version. Buhari is therefore right to push the National Assembly to pass it as quickly as possible — and he should keep pushing, even if legislators miss his Dec. 31 deadline.

In other words, the president should hold members of the National Assembly to the commitment they made earlier this year to accelerate this process! If he does, he should see the PIB pass soon — and once it takes effect, it can lay the foundation for a more efficient, less corrupt, and more transparent oil and gas sector in Nigeria. And, equally important, Nigeria can start capitalizing fully on its oil and gas resources.

(https://EnergyChamber.org)

 


Nigeria’s Regulator to Take over Frontier Exploration, in the New Law

Exploration of frontier basins shall fall under the purview of the Upstream Regulatory Commission, if the Petroleum Industry Bill, under consideration at the National Assembly, becomes law in its current form.

In the wordings of the law, the Commission is now empowered to carry out the functions that the state hydrocarbon company, NNPC, currently performs through its subsidiary: Frontier Exploration Services. One passage in the PIB  that expressly indicates this is Section 9, part of which says:Where data acquired and interpreted under a Petroleum Exploration Licence is, in the judgment of the Commission, requires testing and drilling of identifiable prospects and leads, and no commercial entity has publicly expressed an intention of testing or drilling such prospects, the Commission may engage the services of a competent person to drill or test such prospect and leads on a service fee basis”.

The NNPC is performing this exact function in the ongoing drilling of Kolmani River 3, the second appraisal of the gas discovery made by Shell in 1999.

NNPC reported last year that the first appraisal, Kolmani River 2, in the Gongola Basin, encountered both oil and condensate apart from gas and that they were significant finds. The corporation did not disclose specific petrophysical details of the find, a situation that has aggravated the uncertainty in the conversation around likely economic sizes of hydrocarbon reservoirs in Nigeria’s inland basins.

NNPC is also carrying out exploration activity in the Chad Basin further northwards and has had to stop its seismic operations after insurgents attacked and killed technical workers and some of the security forces.

The PIB says that the function of the Upstream Regulatory Commission, with respect to Frontier Basins shall be to – (a) promote the exploration of the frontier basins of Nigeria; (b) develop exploration strategies and portfolio management for the exploration of unassigned frontier basins in Nigeria; (c) identify opportunities and increase information about the petroleum resources base within frontier basins in Nigeria; (d) undertake studies, analyse and evaluate unassigned frontier basins in Nigeria. The law also says that there shall be maintained, a Frontier Exploration Fund, which shall be 10% of rents on petroleum prospecting licences and petroleum mining leases.The Commission shall manage the Frontier Exploration Fund in accordance with regulations made under this Act”.

 


Without a Host Community Trust, You Lose Your Nigerian Oil Licence, PIB Says

By Fred Akanni, Editor in Chief

Failure by any holder of a licence or lease to incorporate a trust for the benefit of the host communities in the licence area may be grounds for revocation of the licence or lease, according to the Petroleum Industry Bill (PIB), currently tabled for discussion at the Nigerian National Assembly.

“Each settlor, where applicable through the operator, shall make an annual contribution to the applicable host community development trust fund of an amount equal to 2.5% of its actual operating expenditure in the immediately preceding calendar year in respect of all petroleum operations affecting the host communities for which the applicable host community development trust was established”, says the 252 page draft legislation.

Host community issues are some of the most intractable items in the development of Nigeria’s oil and gas industry. Some companies have robust Host Community plans while several do not.

The Nigerian state has earned 83 Trillion Naira (or $216Billion) in hydrocarbon revenues in the last thirty seven years, according to the Nigerian Natural Resource Charter (NNRC), but many of the communities in which the fossil fuel is extracted are derelict.

In the PIB’s definition, a “settlor” is a holder of an interest in a petroleum prospecting licence or petroleum mining lease or a holder of an interest in a licence for midstream petroleum operations, whose area of operations is located in or appurtenant to any community or communities.

“Where there is a collectivity of settlors operating under a joint operating agreement with respect to upstream petroleum operations, the operator appointed under the agreement shall be responsible for compliance with the law on behalf of the Settlors”.

The constitution of the host communities development trust shall contain provisions requiring the Board of Trustees to be set up by the settlor, who shall determine its membership and the criteria for their appointment. The Board of Trustees shall in each year  allocate from the host communities development trust fund, a sum equivalent -(a) 75% to the capital fund out of    which the Board of Trustees shall make disbursements for projects in each of the host community as may be determined by the management committee, provided that any sums not utilised in a given financial year shall be rolled over and utilized in subsequent year; (b) 20% to the reserve fund, which sums shall be invested for the utilisation of the host community development trust whenever there is a cessation in the contribution payable by the settlor; and (c) to an amount not exceeding 5% to be utilised solely for administrative cost of running the trust and special projects, which shall be entrusted by the Board of Trustee to the settlor. The law also says that host community development plan shall -(a) specify the community development initiatives required to respond to the findings and strategy identified in the host community needs assessment; (b) determine and specify the projects to implement the specified initiatives; (c) provide a detailed timeline for projects; (d) determine and prepare the budget of the host community development plan; (e) set out the reasons and objectives of each project as supported by the host community needs assessment; (f) conform with the Nigerian content requirements provided in the Nigerian Oil and Gas Industry Content Development Act; and (g) provide for ongoing review and reporting to the Commission.

The PIB does not relate this trust fund to the Niger Delta Development Commission (NDDC) which has the legal backing to receive 3% of the total yearly budget of any oil producing company operating onshore and offshore in the Niger Delta area.

But the new law says that “each host community development trust may receive donations, gifts, grants or honoraria that are provided to such host community development trust for the attainment of its objectives”.

 

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