The road to the enactment of the Petroleum Industry Governance Bill (“PIGB”) has been a long and arduous one. The journey began in 2007, when the Federal Government of Nigeria created the Oil and Gas Sector Reform Implementation Committee (“OGIC”), whose aim was to develop functional institutional structures for the effective management of the oil and gas sector in Nigeria. OGIC’s final report formed the basis of the original Petroleum Industry Bill (the “PIB”). However, the PIB failed to be passed by the two houses of the Nigerian parliament, between 2008 and 2015, partly because the broad scope of the bill made it problematic.
In its submission to the House of Representatives, Addax Petroleum Development (Nigeria) Limited (“Addax”) had suggested that the bill be split into separate parts such that it may be more auspicious to pass in piecemeal with the less contentious parts passed more quickly. In buttressing its view, Addax pointed out that the bill covered aspects that were usually handled by various arms of government. Furthermore, various stakeholders raised concerns regarding the level of ministerial discretion, the differentiation of gas rights, hidden motives behind certain provisions, the level of government take, among other issues. The decision was taken during the 8th National Assembly that, for expediency, the bill be split into 5 smaller bills, of which the PIGB is one.
This article provides an analysis of some of the changes the PIGB (as passed by the Nigerian Senate) proposes:
1. “Separation of Regulatory Roles” Structure
Nigeria appears to be on the verge of joining the list of countries adopting the "separation of roles" regulatory structure if the PIGB is passed in its current form. The “separation of roles” regulatory structure is one where there is a ministry of petroleum resources primarily setting petroleum policy, a regulator (the Nigeria Petroleum Regulatory Commission (“NPRC”) as an example) which awards contracts and regulates activities in the petroleum industry, and the state oil company or companies, conducting commercial exploration and production like any other exploration and production company; without being a quasi-regulator of some sort which is a role the current state oil company, the Nigerian National Petroleum Corporation, plays.
2. Role of the Minister
In the Nigerian context, the limitation of the role of the minister of petroleum resources (the “Minister”) is arguably the most dramatic change that the PIGB proposes. The Minister currently has reasonably wide discretion in the award and renewal of licences and leases, as well as other discretionary powers provided under Petroleum Act, in particular. However, under the PIGB, the Minister’s role is primarily limited to the policy supervision of the various entities to be created upon the enactment of the PIGB into law, with the Minister’s regulatory powers transferred to the NPRC. However, the Minister is still given powers over the Ministry of Petroleum Resources Incorporated (“MOPI”), a new entity created by the PIGB to hold on behalf of the Government, shares in the successor commercial entities to be incorporated.
The scope of ministerial powers has been too wide under the current system, and has sometimes led to alleged misuse and abuse of such powers. These alleged abuses have sometimes been cited as the reason why each of Presidents Obasanjo and Buhari was, during their tenures, the Minister (Ibe Kachikwu is Minister of State for Petroleum, which is a subordinate role). Corruption cases involving previous ministers seem to give credibility to such allegations. Albeit, there is an argument that the status quo post would lead to a lack of democratic accountability in the issue of licences and the regulation of the oil and gas sector. Further, there is also the argument that the Minister’s power to transfer assets of the MOPI has been drafted too widely.
3. Creation of a Nigerian Petroleum Regulatory Commission
The PIGB, as stated early, creates the NPRC, a new regulator to be conferred with the licencing powers currently vested in the Minister, as well as the regulatory responsibilities of the Petroleum Inspectorate of the Nigerian National Petroleum Corporation (“NPPC”), the Department of Petroleum Resources (“DPR”), and the Petroleum Products Pricing Regulatory Agency (“PPPRA”), as well as their assets, rights and powers.
It is charged, among other functions, with the issue of licences. In effect, NPRC is to be the sole independent regulator of the petroleum industry in Nigeria. Its functions and powers are delineated in sections 6 and 7 of the PIGB. Appeals against questions of law arising from its decisions will go to the Federal High Court. It shall be administered by a board appointed by the President, subject to confirmation by the Senate.
The centralisation of decision-making powers will likely introduce economies of scale, and should reduce duplication of functions. As such, it should make decision-making quicker. However, there are still some challenges that may arise. The size of the NPRC may make it too big to carry out each of its regulatory functions effectively. Furthermore, there is little detail as to how the NPRC will integrate its separate functions. Furthermore, by vesting it with full oversight powers for environmental regulation of the sector, there is an opportunity for diverging standards from those of the Ministry of Environment (“MOE”), although the PIGB does provide that it may form a joint committee with the MOE.
There are also challenges which may arise from the unintended consequences of some of the relevant provisions. One of such, is the likelihood of regulatory capture and the creation of a revolving door between the NPRC and the industry. This is so, when one considers the 15-years post-qualification experience requirement for Commissioners (meaning Commissioners will likely be long-standing market participants) and the lack of any rule preventing their return to commercial participation after their stint at the NPRC. This is particularly worrying in light of the reduced powers of the Minister.
Additionally, the requirement for senatorial confirmation may delay their appointment, as witnessed recently in the power sector in relation to the Nigerian Electricity Regulatory Commission (“NERC”) Commissioners. Also, the insistence on appointments to reflect “federal character” has the potential to exclude the hiring of qualified individuals in the name of preserving the national character of the board.
Furthermore, the PIGB precludes the NPRC from being discriminatory in the award of licences, but the pertinent question is, how such a provision works with objectives of state policy, such as local content, federal character and rights of the indigenous communities, that are by definition discriminatory in nature? That will probably be settled by the courts.
4. NNPC Successor Companies
The PIGB seeks to dissolve the NNPC, and replace it with two new companies to be incorporated under the Companies and Allied Matters Act (the “CAMA”):
- The Nigeria Petroleum Assets Management Company (“NPAMC”); and
- The National Petroleum Company (“NPC”).
The NPAMC is to be vested with assets of the federal government, held under the production sharing contracts and back-in right provisions under the Petroleum Act 1969 (as amended).
Similar to the situation with the Electric Power Sector Reform Act, enacted for the reforms in the electric power sector, all bonds, loans, financing agreements, alternative financing agreements, production sharing contracts, hypothecations, securities, deeds, contracts, instruments, documents and such other working arrangements relating to such assets shall be transferred to the new entity. The NPC is, therefore, to be vested with all other assets and contracts not vested in the NPAMC, particularly the joint operating agreements and the participation agreements. Both companies will be held by the MOPI (40%), the Ministry of Finance Incorporated (40%) and the Bureau of Public Enterprises (20%).
The rationale for the creation of separate companies is unclear, and may not be in tandem with the practice of other national oil companies like Petronas, Petrobras and Aramco (although, this may flow from the tacit NAPIMS/NNPC dichotomy). With respect to the trade in crude oil and gas in the international markets, this is likely to put both entities in competition with each other. Furthermore, it is unclear why the basis of the division is production sharing contracts versus joint ventures as opposed to, for example, gas activities versus crude activities, or upstream versus downstream companies.
The current structure further suggests that the intention is to, at least partially, privatise the NNPC, and there are no indications that the government has put in safeguards to protect against some of the challenges experienced with the electricity sector privatisation process. It is furthermore unclear how entities such as the Nigerian Gas Company and the Nigerian Petroleum Development Company, which have interests under production sharing contracts as well as joint ventures, will be dealt with. A much better approach would have been an express list, as was provided in previous drafts of the PIB, of what assets would be transferred to the NPAMC and the NPC.
5. Transparency Provisions
The PIGB has certain provisions that aim to increase the transparency of the system. Now, the Minister’s policy guidelines to the NPRC must be gazetted. Also, the NPRC, the Equalisation Fund, the NPAMC and the NPC are required to publish their annual reports and annual accounts on their website, the increase public accountability of these institutions. Furthermore, both the NPAMC and the NPC are required to fulfil the provisions of the provisions of CAMA, and should it be listed, must follow the applicable rules of that stock exchange, including its disclosure rules and insider trade provisions.
This is not the first attempt at increased transparency; the Nigeria Extractive Industries
Transparency Initiative Act (“NEITI Act”). The NEITI Act has worked well in exposing some of the excesses, but there is an argument that the area where more work needs to be done is in enforcement.
6. Creation of the Nigerian Petroleum Liability Company
The PIGB further incorporates the Nigeria Petroleum Liability Management Company (“NPLMC”), as a company which shall be vested with certain liabilities of the NNPC and the pension liabilities of the DPR. The initial shares or other ownership interests of the NPLMC shall be held by the NPC, the NAMC and the NPRC in the ratio of their respective liabilities.
This is going to be a concern to parties to which the liabilities accrue. When one examines the efforts of the Nigerian Electricity Liability Management Company in the power sector, the concern becomes real, as same is yet to completely settle or agree to settle entirely, the existing liabilities of PHCN and the successor companies.
7. Fiscal Provisions
While the PIGB makes little reference to fiscal provisions, it introduces a new 5% levy on all petrol sold and distributed in Nigeria. The proceeds of the levy forms part of the funding of the Petroleum Equalisation Fund. This is understandable, although slightly outside the expected scope of the PIGB as a key reason for the division of the initial Petroleum Industry Bill into five smaller laws was to isolate fiscal issues from other aspects of regulations.
Whilst the Senate has to be applauded for passing the PIGB, the excitement of the press and commentators would seem slightly excessive when the provisions of the PIGB are examined. There still remain some problems with the current structure and there is likely to be some unintended consequences from some of its provisions. That it had taken so long for the PIGB to be passed by only the upper house does not augur well for the reform process as these may be seen as the low hanging fruit. With the subsequent statute, it is likely that there will be much more delay in their passing.