EXCLUSIVE-Stalled Nigerian oil law broken up, new draft splits state giant

It was recently reported by Reuters Africa that the government is breaking up the Petroleum Industry Bill and replacing it first with a law to overhaul the state sector. This new Bill, entitled “Petroleum Industry Governance and Institutional Framework Bill 2015” aims to create “commercially oriented and profit driven petroleum entities” and close loopholes that bred corruption.

Some of the changes reportedly made to the new Bill include amongst others, curtailment of Ministerial powers, the splitting of NNPC  into  two separate entities: the Nigeria Petroleum Assets Management Co (NPAM) and a National Oil Company (NOC). The NOC will be an “integrated oil and gas company operating as a fully commercial entity” and will run like a private company. It will keep its revenues, deduct costs directly and pay dividends to the government thus putting an end to the era of waiting for Federal allocation for funding and always failing to meet cash call obligations.

You will recall that in the recent past we had reported that the former Minister of Petroleum Resources, Diezani Alison-Madueke, suggested that the PIB be split up to ensure speedy passage into law. This sentiment is one that is shared by many industry stakeholders although there are others who believe that splitting the Bill is not in Nigeria’s best interest.

This is an interesting development and one we intend to watch closely to see how the pendulum swings. Should this Petroleum Industry Governance and Institutional Framework Bill 2015 be passed as reported, we do hope it addresses not just a few, but all the lacunae and institutional issues which the previous PIB was not able to effectively tackle. We are at least certain of one fact, it will be a welcomed  development for NNPC JV partners.

 

 

Six Reforms the Nigerian Government can Undertake Immediately without Passing the PIB (Part II)

In the first part of this article, we highlighted two reforms which the government and NNPC may undertake prior to the passage of the Petroleum Industry Bill – internal reforms of NNPC & resolution of JV cash call issues. This paper examines two more reform initiatives available to the government pending the passage of the PIB. These are Downstream Sector Deregulation and the institution of Domestic Gas Market Reforms.

 

1.  Downstream Sector Deregulation

Nigeria provides subsidies for the consumption of petroleum products like premium motor spirit (“PMS”)and kerosene. The current PMS pricing template (September 2015) of the Petroleum Products Pricing Regulatory Authority (“PPPRA”) indicates that the government is currently subsidising PMS consumption by N 20.56 per litre. The subsidy regime has come under scrutiny in recent years, with allegations of fraud and mismanagement. Beyond those allegations, however, there lies the questions whether, given the economic climate, the government should be in the business of subsidising consumption of petroleum products and whether such subsidies efficiently target the less privileged in society who need them the most. Various studies, including this one by the International Monetary Fund, suggest that petroleum products subsidies are costly and inequitable, with the subsidies more likely to benefit the rich and the middle class in real terms than the less advantaged. For a more detailed analysis of the subsidy regime in Nigeria and why it should be removed, see our infographic which may be found here and these two reports by Nextier Advisory which may be found here and here.

 

The recent fall in crude oil prices actually provides Nigeria with an opportunity to remove its fuel subsidies. Oil producing countries such as the United Arab Emirates (“UAE”) and Indonesia have already taken advantage of the crude oil price climate and removed their fuel subsidies recently. Indeed, the NNPC GMD, Dr. Kachikwu has argued that Nigeria’s fuel subsidy regime is unsustainable.

 

The Petroleum Act empowers the Minister to fix petroleum product prices, which power is expressed in discretionary terms. The Minister may, therefore, choose not to fix petroleum products prices. The Price Control Act (“PCA”), which has fallen into disuse, provides for the establishment of a Price Control Board to fix the prices of certain commodities including petroleum products. The price control mechanism under the PCA requires the recognition of cost and profit in fixing prices. As far as we are aware, a Price Control Board has not been inaugurated in several years and has certainly not been involved in petroleum products pricing. More recently, the Petroleum Products Pricing Regulatory Authority Act established the PPPRA to “determine the pricing policy of petroleum products” and “…periodically approve benchmark prices for all petroleum products…”.

 

Whilst the legislations discussed above seek to grant powers to different authorities to regulate petroleum product prices, none of them imposes an obligation on the government to subsidise petroleum products pricing. It is therefore within the remit of this government to act to remove petroleum subsidies without requiring legislative amendments.

Responsibility: President Buhari, Minister of Petroleum, PPPRA

2.  Domestic Gas Market Reforms

The development of Nigeria’s natural gas resources is critical to the nation’s economic growth. A functional domestic gas market would provide fuel for gas-powered plants and feedstock for job-creating industries. The domestic gas market has historically suffered from neglect. Existing legislations have treated gas utilisation as an afterthought, leading to a haphazard development of the industry. There is no clearly defined commercial and regulatory framework, no recognition of the constituent elements of the gas sector value chain and gas price controls. All of which have not incentivised the development of natural gas projects.

 

It is only fairly recently that a number of initiatives have been introduced to develop the sector including the National Gas Policy – which provides the policy framework for the development of the industry; the Natural Gas Supply Pricing Regulations – which provides the framework for determining gas pricing across various sectors; the establishment of the Gas Aggregator – the entity responsible for matching domestic gas suppliers with buyers; and the formulation of the Nigerian Gas Masterplan – which sets out the plan for developing the domestic gas market.

 

These well-meaning initiatives are yet to achieve the aims of fostering the domestic gas market, extending gas penetration in the domestic market and encouraging private sector investment. This is in part due to the failure to pass legislation which creates the appropriate market structures. A central piece of the reform initiatives had been the passage of the Downstream Gas Bill. The Downstream Gas Bill provided for the establishment of a regulatory agency responsible for regulating the domestic gas sector. The Gas Regulatory Commission (“GRC”) had the power to license the various participants in the gas sector value chain, which the Bill recognises as Supply; Transportation Network Operation; Transportation Pipeline Ownership; and Distribution.

 

The bill also provided for the principles of commercial regulation of the gas network including for gas transportation tariff, third-party access rules, competition and market power and the gas network code. It further sought to unbundle NNPC’s Nigerian Gas Company by separating it into two companies – a transportation (transmission) focused entity and a marketing company focused on distribution and sales of natural gas. The Bill, however, became a victim of the Petroleum Industry Bill when it was consolidated into that document. Uncontroversial by itself, it suffered from the disputes surrounding other elements of the PIB, which delayed its passage as well as from an inelegant consolidation which led to a loss of coherence.

 

A critical examination of the Bill, however, suggests that most of its elements may be implemented without the passage of the PIB or any other legislation. The Minister may, by virtue of the powers given to him under the Petroleum Act, immediately issue regulations “providing for such other matters as in his opinion may be necessary or desirable in order to give proper effect to this Act”. The wide ambit given to the Minister would entitle him to create regulations, which:

  • Recognises and requires licenses for different elements of the gas sector value chain;
  • Provides competition rules;
  • Mandates the Network Code;
  • Defines the elements of gas transportation tariffs; and
  • Assigns the responsibility for carrying out these activities to a department (such as the DPR) under his Ministry.

The NNPC Board and management may also restructure NGC through its internal governance regimes in the way it is proposing for the Petroleum Pipelines and Marketing Company Limited.

 

The Minister may however not have the power to create the GRC as an independent regulatory agency as intended under the Bill. Given the ten year delay to the passage of the Bill, on its own and as consolidated into the PIB, this is a small price to pay to commence the establishment of the domestic gas sector framework.

 

Responsibility: President Buhari; Minister of Petroleum, NNPC Board & Management

 

The final part of the paper will examine Institutional Reforms and Reforms to the Ministerial Consent process.

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.

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.

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.

SENATE’S JOINT COMMITTEE ON PIB HOLDS PUBLIC HEARINGS (DAY 1)

The Senate’s Joint Committee on the Petroleum Industry Bill (PIB), yesterday, July 18, 2013, held the first of its two-day public hearing on the Bill.

As reported in ThisDay and the Guardian, stakeholders in the petroleum industry (including the Minister of Petroleum Resources, State Governors and representatives of both government parastatals and oil companies) made their presentations on the Bill before the Senate’s Joint Committee.

International and local oil companies under the auspices of Oil Producers Trade Section (OPTS) opposed the passage of the PIB in its current state. In a presentation made by the Managing Director, Mobil Producing Nigeria, Mr. Mark Ward, the OPTS said the PIB fell short of addressing the challenges in the oil industry.

He observed that the Bill sought to significantly increase royalties and taxes making Nigeria one of the harshest fiscal regimes in the world, a situation that will culminate in the country, as an oil and gas producing region, becoming uncompetitive as projects will now become uneconomical.

Given the enormous expenditure required to develop gas infrastructure, he also opined that an incentive-based approach to domestic gas supply obligations will be required to jump start Nigeria’s much needed gas revolution.

According to him, while OPTS supports the objectives of the Bill and the reforms it seeks, the Bill as drafted will fail in delivering such objectives and will reduce the oil and gas industry contributions to the Nigerian economy.

The Nigeria Extractive Industry Transparency International (NEITI), in its submissions, explained that for effective regulation of the industry, it was necessary to reduce the powers of the Minister and ensure the creation of autonomous institutions that would promote effective governance and control in the management of Nigeria’s petroleum resources.

NEITI also noted that the Bill did little to protect the Nigerian environment. They insisted that the Bill should provide minimum environmental standards in the relationship between Operators in the sector and the environment.

The Revenue Mobilization Allocation and Fiscal Commission (RMAFC), in its presentation, opposed the Bill’s provision mandating a ten per cent (10%)  contribution of Operator profits to the Petroleum Host Community Fund (PHCF). The Commission instead advocated exploring the open-ended opportunity available under the Constitution vis-a-vis the provision stipulating that a minimum of thirteen per cent (13%) of the revenue accruing from the Federation Account be paid to oil producing States. They also recommended that the Bill provide for the remittance of revenue by petroleum regulatory agencies into the Commission’s account.

RMAFC’s position on the PHCF was supported by the Governors of Niger and Kaduna State who described its conception as the most controversial of the entire Bill’s provision.

The Honorable Minister of Petroleum Resources, Mrs. Diezani Alison-Madueke, in her presentation, said it would take about five years before the provisions of the Bill could be fully implemented. She urged stakeholders not to personalise or politicise the Bill adding that the PIB was put together in the interest of the nation.

She downplayed beliefs that the Bill accorded enormous powers to the Minister, stressing that the current Petroleum Act actually vested more powers in the office.

She further added that “Whilst we take best practices from other developed regions, we should also work within the understanding of our own socio-economic and social-cultural norms, and create entities and policies that will work and are not destined to fail from the word-go.”

The Minister also noted that the PHCF was proposed to mitigate the human and environmental conditions in oil producing regions and to assuage the feelings of the host communities towards oil and gas companies.

Declaring the hearing open, the Senate President, David Mark, promised that the National Assembly would facilitate the passage of the bill, noting that the pursuit of the Bill must be a win-win situation.

He however urged that: “Oil companies should not take undue advantage of Nigeria. What I do not want is when people begin to threaten that if you do not do this, we will park out of Nigeria. That is not the correct thing. We are conscious of the fact that there is frustration in the oil industry”.

 

 

SENATE SHIFTS PIB HEARING / EXCERPTS FROM HOUSE OF REPS HEARING ON JULY 11, 2013

The Senate’s two-day Petroleum Industry Bill (“PIB”) public hearing session, initially slated for July 16 and July 17, 2013, has been moved to Thursday, July 18 and Friday, July 19, 2013.

The hearings were moved as a result of the Senate’s planned vote on Constitutional amendment and  a valedictory session in honor of the late Senator Pius Ewherido both taking place on the 16th and 17th of July respectively.

The Senate’s hearing will now come up exactly one week after the House of Representatives’ final public hearing on the Bill.

Although hearings failed to hold on Wednesday, July 10 as initial stated, the House of Representatives, on the second day of hearings, played host to a cross-section of stakeholders in the oil and gas industry made up of the National Union of Petroleum and Gas Workers Association (NUPENG), Petroleum and Natural Gas Senior Staff Association (PENGASSAN) and other interested stakeholders as reported.

Both NUPENG and PENGASSAN, in a joint presentation, submitted that the Bill conferred excessive powers on the Minister and as such encroached on the powers of the Regulators. The Unions’ position was also shared by Malam Nasir Ahmed El-Rufai.

Speaking in his capacity as Director of the Centre for Africa’s Progress and Prosperity (“CAPP”), El-Rufai suggested that Joint Ventures be incorporated and quoted on the stock exchange to encourage Nigerian’s participation in the petroleum industry. He also panned the President’s indiscriminate powers to allocate acreages.

The General Manager (Commercial), Shell Exploration and Production Africa, Marc den Hartog, said the company “fully supports the aspirations of government as contained in the PIB.” He however suggested that the PIB clearly define the roles and responsibilities of entities, especially those of the Regulators so as to avoid overlaps and conflicts.

NEITI’s Executive Secretary, Hajiya Zainab Ahmed, suggested that the PIB provide for a public register of corporate entities that bid for, operate or invest in petroleum upstream assets, including the identities of their beneficial owners and their levels of ownership. She also urged for provisions that would allow for cash-call payments for Joint Ventures as a first line charge on the Federation Account. “This means that the federal government’s share of the expenses for JV operation would be paid based on agreed work-plan and budgets directly from the Federation Account, prior to other disbursements from the said account,” she said.

HOUSE OF REPRESENTATIVES AND SENATE HOLD FINAL PUBLIC HEARING ON PIB

The House of Representatives’ Ad-hoc Committee on the Petroleum Industry Bill (“PIB”) in a communiqué issued on Monday, July 8, 2013, has notified the general public of its final public hearing on the Bill.

Members of the public, especially industry stakeholders, professional / interest groups, host communities, state and local governments, have been invited to make representations to the Ad-hoc Committee on the PIB on Wednesday, 9th and Thursday, 10th July 2013 at the New Wing of the House of Representatives National Assembly Complex, Abuja. All memoranda on the Bill are required to be typed, hardcover bound and produced in twenty (20) copies.

The House of Representatives’ hearing is to be followed by a two-day public hearing by the Senate’s Joint Committee on the PIB.

The Senate’s public hearing, taking place on Tuesday, 16th and Wednesday, 17th July, 2013 at Conference Room 022, New Senate Wing National Assembly Complex, is to host the Minister of Petroleum Resources, the 36 State Governors as well as heads of government Ministries, Departments and Agencies on the first day, and on the second day, Managing Directors of International and National Oil Companies, the Nigerian Labour Congress, Petroleum Marketers, industry stake holders and members of the public.

Stakeholders and interested members of the public willing to make representations on the Bill to the Senate’s Joint Committee are required to submit their memoranda in fifty (50) hard copies and one (1) soft copy to the Committee’s Secretariat in Room SB 10 (Red Carpet), (White House), the Senate National Assembly Complex, Abuja on or before Thursday 11th July, 2013.

REPORT ON THE FEDERAL HOUSE OF ASSEMBLY’S PETROLEUM INDUSTRY BILL SOUTH-WEST PUBLIC HEARING

The House of Representative’s Committee on the Petroleum Industry Bill (“PIB”) headed by the Chief Whip of the House, Hon. Ishaaka Bawa, held its South-West public hearing on Monday, 22 and Tuesday, 23 April, 2013 at Lagos Airport Hotel.

In attendance were various stakeholders in the petroleum extractive industry, petroleum industry consultants and experts as well as representatives from various government departments.

Although the Committee received a handful of remarks on the first day of hearing (particularly from the Lagos State Government), most representations were left till the hearing’s second day.

A representative from Shell expressed concern that PIB’s fiscal framework did not encourage new investments and if passed as drafted, the country stood the chance of experiencing a decline in deep water explorations.

Also contributing, Engr. Dada Thomas of Frontier Oil Ltd. and Mrs. Catherine Uju Ifejika of Britannia-U Nigeria Ltd. spoke on the Bill being unfavourable to Marginal Field Operators and dis-incentivising gas production. They advocated for better incentives for indigenous operators, a less stringent fiscal framework and an attractive pricing regime for operators involved in gas operations.

Speaking primarily on the Petroleum Host Community Fund, Environmental Rights Action’s Executive Director, Mr. Godwin Ojo, called for a redefinition of Petroleum Host Communities. He suggested the need to expand the category of communities classified as Host Communities. He suggested that Host Communities include all States affected by every aspect of petroleum operations and not just the Niger-Delta states.

Rounding up presentations, the Petroleum Technology Association of Nigeria (PETAN)’s PIB committee chairperson reiterated the general sentiments the Bill had received since its draft was released in July 2012.

Amongst other things, he expressed the need for the Bill to take more local content initiative, restrict the powers of the President as regards discretionary award of licences and leases, merge the regulatory agencies, allow greater transparency in NOC divestment and provide more tax incentives.