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AN ANALYSIS OF THE PETROLEUM INDUSTRY GOVERNANCE BILL (PIGB) 2017

AN ANALYSIS OF THE PETROLEUM INDUSTRY GOVERNANCE BILL (PIGB) 2017

Seventeen years after the proposal of the original Petroleum Industry Bill (PIB), the Nigerian Senate passed the Petroleum Industry Governance Bill (PIGB) on Thursday, the 25th of May, 2017 to take care of the Governance aspect of the PIB. The bill passed is said to be the first piece of the four component parts of the PIB which, according to the Chairman of the Committee, Senator Tayo Alasoadura, who presented the report at the plenary, is broken down into component parts to foster expeditious consideration and passage. The other parts which shall arrive the Senate subsequently include Bills on ‘Upstream Petroleum License and Lease Administration’; ‘Downstream Oil and Gas Administration’; ‘Petroleum Fiscal’ and ‘Petroleum Revenue Management including Petroleum Host Community Fund (PHCF).” The passage of the Bill is also a milestone achieved as envisaged in the ‘7 Big Wins’ initiative by the Minister of State for Petroleum Resources, Dr. Ibe Kachickwu, as revealed in 2016, in a bid reform and revamp the Nigerian oil and gas industry.

The PIGB which replaces Nigeria’s main legislation in the Oil and Gas Industry seeks to promote transparency and accountability, establish framework for the creation of commercially viable petroleum entities, create the governing institutions with clear and separate roles and foster a conducive business environment for petroleum industry operations.

Salient Changes:

Here are some fundamental changes introduced to the PIGB:

  • Establishment of the Nigerian Petroleum Liabilities Company
  • The inclusion of Petroleum Equalization Fund (PEF)
  • Enhanced penalty for violation of the orders of the Minister in the case of emergency under Rights of Pre-emption
  • Increase in the number of the members of the Governing Boards/Directors of Institutions created by the PIGB
  • Increase in the experience required for Managing Director of the National Petroleum Company
  • Change in the initial shareholding of the Commercial entities
  • Reduction in the amount of Government share that should be divested to the public from 30% to 10% before the provisions on Appointment of the Board members of National Petroleum Company will cease to have effect.
  • Inclusion of Section 55(a) which makes the Minister of Petroleum the non-executive chairman of the Board of the Nigeria Petroleum Assets Management etc.
  • Deletion of the Fourth schedule which originally listed the assets to be transferred to the Nigeria Petroleum Assets Management Company as the Listing of assets in the schedule is no longer necessary as assets distribution has been taken care of in the Bill
  • Vesting full responsibility of environmental matters in the Petroleum industry on the Nigeria Petroleum Regulatory Commission
  • Requirement of senate approval in the appointment and dismissal of the Board members of the Nigeria Petroleum Regulatory Commission

Major Highlights

The Minister

Albeit reduced, the Minister still wields significant powers under the PIGB. Under the Petroleum Act, Cap P10, Laws of the Federation of Nigeria (LFN) 2004, the federal Minister has an absolute discretion to grant, amend, revoke and extend oil prospecting licenses and oil mining leases to applicants that satisfy statutorily prescribed conditions. But the PIGB in its current form seeks to curb this discretion of the Minister by subjecting the exercise of the powers to grant, amend, renew, extend or revoke petroleum exploration and production licenses and leases to the recommendation of the Commission. This presupposes that there would be a new method for application for amendment, renewal, extension and revocation of a license or lease which will involve application through the Commission rather than directly to the Minister. The PIGB is, however, silent on the procedure for application for amendment, renewal, extension and revocation of licenses and leases.

The power of the Minister to exercise a right of pre-emption on all petroleum and petroleum products marketed or otherwise dealt with under any license or lease granted under the Act in the event of a state of national emergency or war is retained in the PIGB. Furthermore, The PIGB also clarifies the role of the Minister of Petroleum Resources, which will to be streamlined towards policy supervision.

As regards the position of Minister of Petroleum, the PIGB is silent on whether the President may still hold conflicting roles as Minister of Petroleum and leader of the country.

In case of national emergency, the Minister has the right to all petroleum and petroleum products obtained. The Minister, in the interest of the nation, has the first right to buy petroleum products, specifically products refined locally. Failure to comply with directives pertaining to such matters as issued by the Minister shall render the defaulter liable on conviction to forfeiture of the petroleum product and facilities that are the subject of the offence. The number of years in the proposed bill was raised from six months to 10 years to properly cite this act as economic sabotage. The option for fine was expunged.

The Minister is further empowered to oversee the activities of the Nigeria Petroleum Regulatory Commission and issue general policy directions to the Commission provided such policies do not conflict with the PIGB.

The Nigeria Petroleum Regulatory Commission (NPRC)

The Commission is the most powerful entity created under the PIGB with a role to take up the assets, resources, funds properties, liabilities, interests and obligations of the Department of Petroleum Resources (DPR), the Petroleum Inspectorate and the Petroleum Products Pricing Regulatory Agency (PPPRA). It also regulates the petroleum industry. It is also to keep records of awards and a register of oil blocks, monitor them, conduct regular audit of activities, conduct bid rounds for oil blocks and administer un-allotted crude oil acreages.

Furthermore, the Commission has the prerogative to release the information provided by a petroleum operator to the public, if the Governing Board decides that such action is in the public interest.

The Bill allows the Commission to make new rules subject to public hearing. Any rule made without public hearing shall not last more than six months.  In cases of conflict, the commission may seek technical advice or direct anyone affected by its order to seek judgment from the Federal High Court.

Restructured Nigerian Petroleum Corporation (NNPC) and the Commercial Entities:

Three (3) novel commercial entities were created by the PIGB for the promotion of accountability and self-sustainability. They are:

  1. Ministry of Petroleum Incorporates (MOPI)
  2. National Petroleum Company (NPC) and
  3. National Petroleum Asset Management Company (NPAMC).

Ministry of Petroleum Incorporated (MOPI)

Ministry of Petroleum Incorporated (“MOPI”) has the role to hold, on behalf of the Government, shares in the successor commercial entities incorporated pursuant to the provisions of the PIGB e.g. the Nigeria Petroleum Assets Management Company (‘‘NPAMC’’) and the National Petroleum Company (‘‘NPC’’).

National Petroleum Company (NPC)

The NPC has the role of managing all the assets held by NNPC except the Production Sharing Contracts and back-in Rights assets which shall be assumed by the NPAMC.

Upon the establishment of the NPC, the Bureau of Public Enterprise (BPE) shall hold 20% of the shares, the Ministry of Petroleum Incorporated (MOPI) 40% while the Ministry of Finance Incorporated (MOFI) will hold 40% of the shares of the NPC.

It is anticipated in the Bill that 10% of the shares of the NPC will be divested to the public within five (5) years of the passage of the Bill, while within ten (10) years of the establishment of the NPC, not less than 40% of the shares shall be divested to the private sector, encouraging private sector investment in the sector.

In a bid to curb funding challenges as experienced by NNPC, the PIGB permits NPC to retain revenue from its operations to address its expenses. The question being asked at this point remains the fesibility of this provision considering that there is a requirement that revenues of the Nigerian Federation must on a priority basis be paid into the Federation Account.

The Bill anticipates following its passage that the NPC and also the NPAMC will initially be capitalized through appropriation. However, following incorporation, there is a 6 month window for a budget request to be made which may imply that the financing operations of both companies will be the responsibility of the JV partners.

The PIGB clearly preserves all existing contractual relationships and causes of action of NNPC, thus, the transfer of assets from NNPC to NPC cannot be said to constitute a breach of contract.

Nigerian Petroleum Assets Management Company (“NPAMC”)

The PIGB provides that, the initial shares of the NPAMC at incorporation shall be held by the Federal Ministry of Finance Incorporated (“MOFI”) and the Bureau for Public Enterprises (“BPE”) in a ratio of 99% to 1% respectively. It further provides that within 3 months of incorporation, the Minister shall make an order that the assets, rights, obligations, employees and liabilities of the NNPC shall be transferred to the NPAMC.

The Bill does not specify which assets, rights, obligations, employees and liabilities will be transferred but we presume that these will be specified in the said Order. Additionally, the PIGB provides that the company shall be entitled to charge the Federal Government of Nigeria (“FGN”) fees for the management of its oil and gas investments/ interests and such fees shall be a percentage of the revenue generated by the NPAMC for the Federal Government, as determined and appropriated by the National Assembly. All income of the NPAMC (other than its operating funds provided by its shareholders, fees earned from the FGN, gifts, and donations it receives) shall be paid into the Federation Account.

National Petroleum Liability Management Company (NPLMC)

In a bid to manage NNPC’s liability issues and to prevent a transfer of such liabilities to NPAMC and NPC thus preventing an encumbrance, the PIGB proposes to establish a liability management company to assume and manage some of the liabilities of the NNPC after which the company will be wound up on conclusion of the settlement of liabilities.

REPEALS

It is noteworthy that the PIGB repeals some extant petroleum legislations namely the Petroleum Products Pricing Regulatory Agency (Establishment) Act, CAP P43, Laws of the Federation of Nigeria, 2004; and Petroleum Equalisation Fund (Management Board, ETC.) Act, Cap P11 Laws of the Federation of Nigeria, 2004. In addition, the Nigerian National Petroleum Corporation Act CAP N123, Laws of the Federation of Nigeria, 2004, Nigerian National Petroleum Corporation (Projects) Act CAP N124 Laws of the Federation of Nigeria, 2004 and Nigerian National Petroleum Corporation Amendment Act N123 shall be deemed to be repealed on the date that the Minister signifies by legal notice in the Gazette that the assets and liabilities of the NNPC are fully vested in successor entities. Furthermore, in situations of conflict and inconsistencies between the provisions of the PIGB and other extant petroleum legislations, the PIGB takes precedence to the degree of such inconsistencies. All validly existing licenses, leases and permits, certificates or authorizations issued by the Department of Petroleum Resources or under any of the above laws shall continue to have effect for the remainder of the period of their validity.

Conclusively, the bill seeks to open up the sector to greater business opportunities while also promoting accountability and transparency. In addition, some likely benefits of the PIGB includes the creation of a conducive business environment for petroleum operations, the enhancement of exploitation and exploration of petroleum resources in Nigeria for the benefit of Nigerians, the encouragement of investment in the Nigerian petroleum industry and the optimization of government revenue.

Sources: PIGB 2017, Proshare, BudgIT, SweetCrude, NewsDiary, Ivie Ehanmo, Vanguard

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