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Implementing the Petroleum Industry Act 2021: One Year After (Warning – Long Post)

by Dr. Adeoye Adefulu & Lateef Bamidele

The apparently unending task of reforming Nigeria’s oil and gas industry which began in 2000 was finally laid to rest a year ago, when the President assented to the Petroleum Industry Act 2021 (“Act” or “PIA”) on August 16, 2021. The industry welcomed the new law with mixed feelings, many believed the Act should have been finalized twenty years earlier to protect the industry from decline.

Despite this mixed reaction, it was clear that the Act had come to stay, and it brought with it sweeping changes and reforms across the institutional, regulatory, environmental, and fiscal frameworks of the Nigerian oil and gas sector. As one would have expected the implementation of these reforms commenced almost immediately, albeit slowly.

On the first anniversary of the PIA, it is useful to take a examine some of the noteworthy events and reforms undertaken and what they mean for the industry.

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Senate confirms the Board of the Midstream and Downstream Regulatory Authority

The Nigerian Senate today, 7th of October 2021 confirmed the appointment of Idaere Gogo Ogan (Chairman); Farouk A. Ahmed (Chief Executive Officer); Abiodun Adeniji (Executive Director, Finance and Accounts); and Ogbugo Ukoha ( Executive Director, Distributions System, Storage and Retail Infrastructure) as members of the board of the Midstream and Downstream Regulatory Authority.

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Senate Confirms the Board of the Upstream Petroleum Regulatory Commission

The Senate on Wednesday 6th October 2021, confirmed the appointment of Isa Ibrahim Modibbo – Chairman; Engr. Gbenga Komolafe – Chief Executive; Hassan Gambo – Executive Commissioner, Finance and Accounts; and Ms Rose Ndong – Executive Commissioner, Exploration and Acreage Management. The President is expected to appoint other non-executive members to the Board of the Commission, once the proposed amendment to the PIA is passed.

There are a number of tasks immediately before the Commission including – staffing the Commission appropriately; instituting change management; publishing draft regulations and guidelines; publishing the domestic base price for natural gas.

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Nigeria begins implementation of the Petroleum Industry Act 2021

Since the passage of the Petroleum Industry Act (“PIA”) on August 16, 2021, several noteworthy developments have taken place, which we highlight below.

  • The Federal Government sets up PIA Implementation Committee
  • NNPC becomes a limited liability company
  • The President and Minister of Petroleum Resources constitutes board of the Regulatory Institutions
  • The President seeks to amend the PIA

The Federal Government sets up PIA Implementation Committee

On Thursday, 19th of August 2021, the Federal Government inaugurated the steering committee for the implementation of the PIA, headed by the Minister of State for Petroleum Resources, Chief Timipre Sylva. The implementation structure is made up of the Steering Committee to be supported by an Implementation Working Group/Coordinating Secretariat (“IWGCS”) for effective and timely implementation of the PIA during the transition to the new petroleum industry regime.

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Senate Report on the PIB

The Senate Report on the PIB may be found here. A notable difference from the report of the House of Representatives is the insertion of a new section 317(8), which seeks to implement the backward integration policy, previously utilised in the sugar and cement industries, in the petroleum industry. Section 317(8) provides as follows:

(1) The Authority shall apply the Backward
Integration Policy in the downstream
petroleum sector to encourage investment in
local refining.
(2) Pursuant to subsection (1) of this section,
licence to import any product shortfalls may be
assigned only to companies with active local
refining licences and proven track records of
international crude oil and petroleum products
trading.
(3) Import volume to be allocated between
participants shall be based on criteria to be set
by the Authority taking into account the
respective refining output in the preceding
quarter, share of active wholesale customers
competitive pricing and prudent supply and
distribution track records.
(4) To safeguard the health of Nigerians,
imported petroleum products shall conform to
the Afri-5 specification (50 ppm sulphur) as per
the ECOWAS declaration of February, 2020 on
adoption of the Afri-Fuels Roadmap.

The effect of the provisions of section 317(8)(1-3) will be to stifle competition in the supply of petroleum products and will ultimately have an impact on the price of all petroleum products.