House of Reps Passes Petroleum Industry Bill

Channels Television reports that the House of Reps’ Ad-Hoc Committee report on the PIB has been considered and that the Bill has been passed by the lower house.

This comes after a flurry of Bills (46 in total) were passed by the Senate yesterday, June 3, after same were transmitted by the House of Reps.

The House of Reps’ passage of the PIB comes to little or no avail as the 7th Assembly wrapped up today. The Bill would have also required passage by the Senate.

Indeed, Senate president, David Mark, in his End-of-Assembly speech, admitted the lawmakers failure to pass the Bill.

The PIB has been before the House of Assembly since July 2012.

The Petroleum Industry Bill: 5 Things the Incoming Government Must Do

The Petroleum Industry Bill (PIB), which has been with us in one form or the other since 2008, proposes to completely overhaul Nigeria’s petroleum industry. The current draft of the Bill, sent to the National Assembly in 2012, seeks to, amongst others, restruc ture the regulatory and commercial institutions in the petroleum industry, change the fiscal dynamics and reform the operational mechanisms of the upstream, downstream and natural gas industries.

The below article by Dr. Adeoye Adefulu and Dr. Ekpen Omonbude highlights 5 actions the incoming government may take to get oil industry reform back on track.


1.   Delay the passage of the PIB

Given the potential impact of the Bill, its passage, at this late stage, will significantly hamstring the incoming government which has not had a chance to give its input. Indeed the current oil price crisis has changed the dynamics of the fiscal bargain and calls for a reconsideration and the introduction of flexible mechanisms to deal with any future crisis (see our point 4 below). Further, the current draft of the Bill remains controversial and it is necessary that the new government is able to take a position on its contents and implementation.


2.   Set a timetable and stick to it!

One of the hallmarks of this process has been the failure of the government to keep its promises regarding the passage of the Bill. This failure has kept the industry in limbo, with several companies delaying investment decisions due to the uncertainties surrounding the post PIB fiscal and regulatory regimes. Whilst we have indicated above that it is necessary for the new government to review the Bill, it must do so with a clear and achievable timetable. In our view, it should take no longer than twelve months to undertake the necessary research and pass the Bill or Bills (see next point). Whatever time is agreed, it is important that the government achieves its objective within that framework. This will help to bolster its credibility and reduce investment uncertainties. Our suggested timetable is as follows:


3.   Break up the Bill

With 363 sections in over 223 pages the current draft of the Petroleum Industry Bill is unwieldy. The Bill seeks to deal with a wide variety of issues, the majority of which are only peripherally related. This has made it difficult from a political and operational perspective to manage the diverse interests impacted by the Bill. Further, a thorough analysis of the Bill will show that a number of areas, such as the proposed reforms in the downstream petroleum and natural gas sectors, have been inadequately addressed. The new government should break the Bill up into its natural segments. We suggest the industry reforms be taken under the following bills:

  • A fiscal reform bill – which deals with the tax and royalty issues surrounding the industry.
  • Institutional reform bill – this bill will be focused on creating new or reforming existing institutions. This will include the regulatory bodies as well as provisions for the commercial entities to be established and the process for transferring assets, liabilities and staff to these institutions;
  • An Upstream Petroleum Bill – focused on the upstream  oil and gas industry
  • A Petroleum Products Bill – focused on midstream and downstream matters; and
  • A Natural Gas Bill – dealing with the operations of a domestic gas market. This bill should not address gas productions matters.

We believe that this approach is more consistent with the various parts of the oil and gas value chain which require varying degrees of regulatory oversight and fiscal arrangements.  It would also encourage a more thorough coverage of the relevant issues, a robust debate from the impacted stakeholders and quicker timelines in passing the reforms.

4. Reflect further on the fiscal provisions

The provisions concerning the obligation and features of the royalty regime require clearer expression within the Bill. There are 21 references to the word “royalty” or “royalties” in the Bill but nothing is stated in terms of tangible values for any meaningful interpretation or analysis. This implies that the existing royalty regime will continue to hold, subject to amendments or pronouncements in subsequent regulations.

The level of fiscal burden on new investments based on the terms proposed in the Bill amounts to about 82% in effective tax. This compares favourably with other proven jurisdictions such as Norway, Iran, Kuwait and Egypt (at an average of about 85%). However, the fiscal regime offered by the Bill is regressive and should be addressed. The combined fiscal instruments of royalty, Nigerian Hydrocarbon Tax, Companies Income Tax and other fiscal impositions do not flexibly respond to changes in project profitability. The implication is that in the event of an oil or gas price increase or a significant reduction in costs, the State will not get an incremental share of the increased revenues resulting from such positive changes to profitability. Also, there are potentially significant negative implications on investors in the event of an oil or gas price decrease as is currently the case. Therefore the fiscal system requires the inclusion of more progressive mechanisms such as rate of return trackers in order to enable automatic adjustment to changes in economic circumstances of specific projects.


5. Fix the cash call challenge

One of the major drivers for energy reform in the first place was the need to address under investment in the joint ventures due to cash call deficiencies. Since one of the proposals to resolve that problem, the incorporated joint venture, was shot down after the first versions of the PIB, no concrete proposals have been put forward. Resolving this challenge should be one of the immediate priorities of the new government. Whilst this is an issue on which the authors do not agree, one of us believes that there is merit in reconsidering the motive behind the IJV structure and the specific risks it seeks to mitigate. Such an exercise will also provide an opportunity to objectively address the concerns within the originally proposed IJV structure in previous versions of the Bill such as the Board and Management compositions. We do however agree that if the IJV is to be reintoduced, it cannot be by compulsion and counterparts must negotiate the terms under which such a structure would be acceptable. In addition to this, consideration should also be given to the rationalisation of the Government stake in the joint venture arrangements through divestment of interests preferably to indigenous players.

Dr. Adeoye Adefulu is an Energy Partner in the law firm of Odujinrin & Adefulu and the Managing Editor of; Dr Ekpen Omonbude is an Economic Adviser (Natural Resources) at the Commonwealth Secretariat and a regular contributor to

House of Representatives Move to Minimise Executive Discretion under the PIB

ThisDay and Leadership report that the House of Representatives’ Ad-hoc Committee on the PIB has recommended that the President’s discretionary powers to award licenses or leases, as well as the Minister of Petroleum Resources’ control over relevant regulatory agencies, be removed.

The recommendations, which are contained in the executive summary of the Committee’s report on the Bill, also seek to extend the coverage of the Petroleum Host Community Fund to communities where oil and gas installations are located.

The Committee will present its report on the PIB when the House reconvenes on March 31, 2015.

PIB to pass before current N. Assembly’s tenure ends – Mark, Ogor

ThisDay reports that Senate President, David Mark, and Deputy Leader of the House of Representatives, Leo Oguweh Ogor, have reassured the public of the National Assembly’s commitment to pass the Petroleum Industry Bill (“PIB”) before the tenure of the current assembly ends in June 2015.

The relevant committees of both houses are yet to present their reports on the Bill subsequent to the public hearings conducted in 2013.

Splitting up PIB not in Nigeria’s Interest says PENGASSAN

Reacting to the Minister of Petroleum’s suggestion that the Petroleum Industry Bill be split up to ensure prompt passage, the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN) has retorted that such suggestion would not be in the interest of the country. The association maintained that the provisions, as contained in the current Bill, are capable of transforming the industry and in particular, grow the upstream sector.


While addressing panellists at the just concluded World Economic Forum in Abuja, it was reported that the Honourable Minister of Petroleum Resources, Diezani Alison-Madueke, suggested that the draft Petroleum Industry Bill (“PIB”), currently before the National Assembly, be split up to ensure speedy passage into law. By June, the current draft PIB would have spent two years at the National Assembly.

David Mark orders Senate Joint Committee on PIB to conclude deliberations

Following a Point of Order raised by the Senator representing the Ekiti-North senatorial zone, Senator Olubunmi A. Adetunbi, the Senate President, David Mark, gave orders that the Senate’s Joint Committee on the Petroleum Industry Bill (“PIB”) conclude work on the Bill and return same to the Senate for prompt passage.

It was reported that Senator Adetunbi’s plea was prompted after he was put on the spot at a function he attended. At the occasion, the Senate was accused of toying with critical issues affecting the economy especially the PIB.

It will be recalled that the PIB was committed to the Senate’s Joint Committee for deliberations on Thursday, March 7, 2013.

CBN urges the National Assembly to fast-track the passage of the PIB

It has been reported that the Central Bank of Nigeria (“CBN”), through its spokesperson, Ugochukwu Okoroafor, has called on the National Assembly to fast-track the passage of the Petroleum Industry Bill.

The CBN’s appeal comes in light of recent allegations that the Nigerian National Petroleum Corporation failed to remit close to US$50 billion dollars in crude oil export revenue. The CBN anticipates that the Bill will put a stop to revenue leakages by reviewing the fiscal terms in sharing of oil revenues between Nigeria and its foreign oil partners, as well as improving governance and transparency in the oil sector.

Update on the 2013 Marginal Field Award Exercise

The DPR’s Nationwide Road Show for the 2013 Marginal Field Award Exercise drew to a close at the NICON Luxury Hotel, Abuja. The Road Show which was staged in four cities around the country revealed some interesting insights which are highlighted below:

  • The deadline for pre-qualification applications may be in mid-January;
  • Applications are to be made online – payments may also be made online if accepted by the Treasury. Discussions are ongoing for confirmation of mode of payment;
  • Application forms may be available as early as next week;
  • Prequalification structuring considerations – bidders will need to pay very close attention to the bidding vehicles to be utilized for the process. In particular, close attention needs to be paid to ensuring that Nigerian beneficial interest is not less than 51%. DPR will also give consideration to the number of individual promoters (minimum of 4) and in the case of consortia made up of companies, the shareholders in the individual promoter companies may not be less than 4;
  • Each bidding vehicle must have a promoter with upstream exploration and production experience;
  • Promoters may participate in not more than 2 companies;
  • Technical partners may enter into a relationship with not more than 4 companies;
  • All bidding vehicles must lease data; and
  • Post-qualification financial considerations- in selecting the final winners DPR will be concerned to examine whether a bidding vehicle has shown a “line of sight” to finance. Bank support letters on their own will be insufficient. Bidding vehicles must show access to 20% of the expected cost of development for the marginal field estimated by DPR to be between US$ 80 million – US$ 100 million.

We shall keep you apprised on further developments in this regard.

2013 Marginal Field Licensing Rounds

The Federal Ministry of Petroleum, via the Department of Petroleum Resources (DPR), recently announced the commencement of the second Marginal Field licensing round. To this end, the DPR has recently issued guidelines outlining the steps interested participants are to follow from pre-qualification to selection. Please see our guide to the process – Marginal Fields 2013 – A brief guide.

The exercise which is aimed at encouraging participation of indigenous exploration and production companies in the Nigerian upstream sector kicks off with  a series of Town hall sessions billed to take place on the following dates and at the following venues:

Lagos: December 3, 2013, 10 a.m. at Eko Hotel and suites, Victoria Island, Lagos;

Port Harcourt: December 5, 2013, 10 a.m. at Hotel Presidential, Port Harcourt;

Kaduna: December 10, 2013 10 a.m. at Crystal Garden Hotel; and

Abuja: December 12, 2013 10 a.m. at Nicon Luxury Hotel, Abuja.

We shall keep you updated on further developments.