The Petroleum Industry Governance Bill 2016 (“the Bill”), by its Section 4, establishes a body to be known as the Nigeria Petroleum Regulatory Commission as the sole regulatory institution for the Nigeria oil and gas industry across the various value chain.
Currently, this role is performed by the Department of Petroleum Resources (“DPR”) with Nigerian National Petroleum Corporation (“NNPC”) influence. This is in addition to a plethora of other agencies regulating certain aspects of the industry. DPR was carved out of the Petroleum Inspectorate Department of NNPC. Some of the issues bedeviling this arrangement has always been the lack of clear and transparent regulatory framework and strong, independent institutions, not to mention interference from NNPC which doubles as a quasi-regulator rather than operating solely as a commercial entity, as well as overlapping of roles by various agencies.
Previous versions of the PIB have sought to deal with these issues through the creation of agencies with mandate to regulate both the technical and commercial aspects of the petroleum sector value chain: upstream, midstream and downstream. This was laudable in itself although certain questions were raised in respect of overlapping roles leading to possible multiplicity of administrative oversight along the value chain.
The Bill seeks to go a different route by creating instead, one strong regulatory body which would be responsible for both the technical and commercial aspects of industry regulation. The Commission is expected to assume all the rights, interests, obligations and liabilities of the Petroleum Inspectorate, the DPR, and the Petroleum Products Pricing Regulatory Agency “PPPRA”), and would be run by a governing Board drawn from industry experts constituted of a non-executive Chairman, one non-executive Commissioner, a Chief Commissioner, three executive Commissioners (all to be appointed by the President subject to senate confirmation); and one representative each who shall not be below the rank of a director from the Ministry of Petroleum Resources, Ministry responsible for Budgets and Ministry of Environment. The Minister is not required to chair this Board and indeed has limited control over its operations.
- THE ROLE OF THE COMMISSION
As earlier noted, a major departure from current legislation is the removal of the power to make regulations from the Minister and the vesting of same in the Commission. The Commission is also entrusted with the role of advising the Minister on fiscal and other issues pertaining to the petroleum industry, a role sought to be vested in the Petroleum Technical Bureau under the PIB. We expect that in order to carry out its many roles across the value chain, the Commission will be structured into departments each dealing with upstream, midstream and downstream regulation amongst others as permitted by Section 4(5) of the Bill. Indeed, in line with this, section 20(2) of the Bill provides that the three Executive Commissioners shall be specifically assigned with the responsibility for leading the regulation of upstream, midstream and downstream activities in the sector.
The scope of the commercial and technical regulatory role to be performed by the Commission in the upstream, midstream and downstream sectors will encompass amongst others, issues such as
- licenses, leases and permit terms compliance monitoring;
- administration and enforcement of policies, laws and regulations, environmental and technical standards;
- determination of tariff and pricing methodology for third party access to petroleum facilities;
- downstream operations licensing;
- control of the exploration of the frontier basins of Nigeria;
- conduct of bid rounds and other processes for the award of petroleum exploration and production licenses and leases (this in our view seems to remove the unsavory discretionary power granted to the president under the PIB to grant licenses and leases);
- compute, determine, assess and ensure payment of royalties, rentals, fees, and other charges for upstream petroleum operations;
- ensuring accurate calibration and certification of equipment used for fiscal measures for the upstream petroleum operations and similarly for downstream operations;
- supervising and ensuring accurate calibration and certification of equipment used for fiscal measures.
The weight and measures functions to be solely vested in the Commission is noteworthy as it seeks to address the issue of overlapping of roles between DPR and the Weight and Measures department of the Federal Ministry of Commerce and Industry by categorically stating in Section 6(2)(b) that the Commission shall notwithstanding the provisions of any other law or regulations, exclusively supervise and ensure accurate calibration and certification of equipment used for fiscal measures in the industry. Section 6(4)(b) further states that Notwithstanding the provisions of any other law or regulation, no Government agency shall exercise any powers and functions in relation to the petroleum industry in conflict with the powers and functions of the Commission.
In addition, all Government agencies exercising any lawful powers and functions in relation to the petroleum industry are now required to consult with the Commission in the issuance of any regulations, guidelines and in the issuance of enforcement orders or directives which may impact the petroleum industry. This provision would in no small measure ensure regulatory sanity in the industry and would be a welcome development for industry players who have to deal with various regulatory agencies in the course of their operations.
It is worth noting also that the Commission would be responsible for all aspects of health, safety and environmental matters in the industry and is empowered to make regulations in consultation with the Federal Ministry of Environment and issue directives thereon.
- DECISION MAKING BY THE COMMISSION
In the exercise of the powers conferred on the Commission, certain checks and balances have been put in place to prevent abuse and ensure accountability. Thus, any decision or order made by the Commission shall be properly recorded in writing and contain the basis for the decision or order which shall be accessible to the public. The Commission is expected to issue written reasons for its decisions or orders affecting the existing rights of any person, if the affected person requests such written reasons. Furthermore, if any question of law arises from an order or decision of the Commission, the Commission may, on its own initiative or at the request of any person directly affected by such order, reserve that question for the decision of the Federal High Court.
It is interesting to note that the Bill provides that in carrying out its functions, all members of the Board are obligated to exercise independent judgment. This provision was not in the previous version of the Bill. In certain jurisdictions such as the United Kingdom, company directors have a statutory duty to exercise independent judgment in the performance of their duties. Decisions taken must be bona fide for the benefit of the company. Under Nigerian law, this duty as couched, is at best a corporate governance directive although section 279 (1) of CAMA provides that a director of a company stands in a fiduciary relationship towards the company and shall observe the utmost good faith towards the company in any transaction with it or on its behalf. This provision has been interpreted to mean that directors owe the company a fiduciary duty to exercise independent judgment in decision making. Exercising independent judgment, basically means that a director shall not subordinate its power to the will of others. Directors may seek advice, but they must exercise their own judgement on whether or not to follow such advice. The express requirement of this duty by members of the Board of the Commission means that each member is held to a higher standard of care in the exercise of its decision making powers.
The Commission is expected to establish and maintain a Fund from which all its expenditures shall be defrayed comprising monies derived from National Assembly appropriation, fees charged for services rendered, penalties and fines, grants, loans and other sources of income as specified. The Commission is however required to pay into the Federation Account, all monies accruing from upstream leases, bonuses, lease renewal fees, assignment fees and concession rentals. Likewise, all other monies accruing from its activities such as fines and penalties shall be paid into the Consolidated Revenue Fund. We note that under the previous version of the Bill, these moneys are regarded as revenue generated by the Commission for the Government of the Federation, a percentage of which is then appropriated to the Commission as determined by the National Assembly. The issue is, if monies generated from the Commission’s activities such as fines and penalties are to be paid into the Consolidated Revenue Fund, it would need to go through National Assembly allocation before reaching the Commission’s coffers and rightly so. This is also in line with the directive given by the President in 2015, requiring all revenue generating agencies to pay all their revenues into the Consolidated Revenue Fund. Agencies are now required to submit budgets for appropriation to meet their expenditure needs annually after their revenue had been remitted. It would therefore no longer be possible for any agency to first withdraw money for its funding needs from its generated revenue prior to remitting same to government coffers as was the case with NNPC. In light of the above, the drafters of the Bill in our view, may need to revise the provisions of section 26(2) in a manner which does not suggest, as it currently does, that monies generated from the Commission’s activities may go directly to the Fund.
Surpluses in the Fund at the end of each financial year which was not utilized for the activities of the Commission shall be paid into the Consolidated Revenue Fund.
- THE SPECIAL INVESTIGATIVE UNIT
The Commission is empowered to establish a Special Investigation Unit (the “Unit”) with powers to investigate acts which may constitute offences and collaborate with other government agencies in relation to detection or prosecution of offences under the PIGIFB, keep surveillance on oil and gas installations, vessels and premises, etc., in general, be the industry watchdog.
To be continued …
 See Sections 4-8 of the Bill
 Previous versions of the PIB have also sought to exclusive vest this role in the industry regulator and have been met with resistance from the Federal Ministry of Commerce and Industry
 See Sections 9 and 12 of the Bill
 See Section 14(2) of the Bill
 See Sections 26- 29 of the Bill