By Badmus Sherifdeen Oluwagbenga,

Crude oil is Nigeria’s most important non-renewable energy source, contributing over 90 percent of the country’s foreign exchange earnings and about 80 percent of recurrent and capital expenditure[1]. The oil and gas industry is an essential building block in the nation’s economic growth. Nigeria holds about 2.2 percent of global oil reserves which have grown steadily from about 22 billion barrels in 1999 to 37.5 billion barrels in 2018[2].

The Nigerian oil industry has served both international and domestic elites with oil interests, this is highlighted by the paradoxical reality that Nigeria exports crude oil and imports refined petroleum products for domestic consumptions. The Nigerian government have been unable to muster the political will, to reform the nation’s oil and gas industry, and failed to legislate upon the proposed law reforms form the year 2000[3]. Plethora of bills have been proposed without been passed into law, PIGB not an exception.

The major thrust of the Petroleum Industry Governance Bill and agitations has been the pivot on which the Nigeria economy has depended for decades. Over the years, the oil sector has been challenged by poor governance, inadequate management of revenue, disjointed fiscal and regulatory provisions and gross inefficiencies in managing the downstream petroleum assets. Thus, this gave rise to the Petroleum industry Governance Bill which is designed to hinge on clear separation of roles, distinct accountability, focus, transparency and good governance, provide full coverage of the entire oil and gas industry value chain, and to repeal several laws regulating the oil and gas sector.

INTRODUCTION

The Bill is the first in a series of long-awaited petroleum industry laws designed to reform the Nigerian oil and gas industry. The Petroleum Industry Governance Bill (hereinafter refers to as PIGB), an omnibus law meant to regulate the entire sphere of the oil and gas industry and repeal all current existing legislation in the sector[4], had struggled to see the light of day despite its introduction to the National Assembly over 16 years ago. How well will it shape the Nigeria economy and the oil and gas industry? With the reduction of the so called alpha and omega and one of the powerful ministerial duties in the executives is to be duly checked by the newly created commission under the bill. The aim of the bill includes:

To repeal the laws in the oil and gas sector into a single document to regulate the industry
The creation of a conducive business environment,
Enhancement of the exploration and exploitation of petroleum resources
To optimize domestic gas supply particularly for power generation and industrial development,
A progressive fiscal framework that encourages further investment in the industry while optimizing revenue accruing to the government
To deregulate and liberalize the downstream sector of the industry
To promote transparency and openness in the administration of the sector[5]
KEY FEATURES OF THE BILL

Nigerian Petroleum Regulatory Commission (NPRC) is to serve as the supervisory body for Nigeria oil and gas industry. The NPRC will replace the petroleum inspectorate, the Department of Petroleum Resources (DPR) and the Petroleum Products Price Regulatory Agency (PPPRA), and carry out their functions[6]. The Petroleum Equalization Fund (hereinafter refers to as PEF) will continue to exist. However, the PEF Act will be repealed, and the PIGB will serve as the relevant legislation for the existence of the PEF[7]. Notably, the refusal of the President assent hinge on the issues bothering on the Petroleum Equalization Fund.
The Establishment of 3 commercial entities – The Nigeria Petroleum Liability Management Company, The Nigeria Petroleum Assets Management Company Limited and the National Petroleum Company. Notably, all these will replace the Nigerian National Petroleum Corporation (NNPC)[8].
The Management Company will hold and manage assets under production sharing contracts (PSCs) and back in right assets on behalf of the government of the federation, while the NPC will be responsible for all other assets currently held by the NNPC[9].
Notably among others, include the major documents and laws that will be repealed and affected by the time petroleum industry bill is passed includes

Petroleum Profit Tax Act (PPTA) LFN 2004
Petroleum Act (PA) 1969
Petroleum (Drilling & Production Regulations) 1969
Deep Offshore and Inland Basin Production Sharing Contract Decree 1999
Memorandum of Understanding (MOU) 1986, 1991, 2000
THE DEEP NATURE OF THE BILL TOWARDS A BETTER ECONOMY IN NIGERIA

The Nigerian economy is heavily dependent on the oil sector, which accounts for over 95% of export earnings and about 40% of government revenues[10]. The PIB has been fraught with unprecedented delays. As a result, the bill’s intended goals of tackling issues of overregulation and the dominant presence of the government in the industry have not been realized. Evidently, the review of the Bill seeks to ensure that the petroleum industry is run in an efficient and transparent manner for the benefit of the country and we can only hope that this is ultimately achieved.

NIGERIA PETROLEUM ASSET MANAGEMENT COMPANY
The Nigeria Petroleum Asset Management Company (hereinafter refers to a NPAMC) will act as an asset manager to the government; holding and managing the Production Sharing Contracts and Back-in Right assets currently held by NNPC[11]. The establishment of the Management Company will serves as a limited liability company to be wholly owned by government. The ratio flows from the Ministry of Petroleum to incorporate (40%), Ministry of Finance Incorporate (40%), and Bureau of Public Enterprises (20%)

foster transparency and accountability, the NPAMC is required to publish its annual reports and accounts on its website and at least three national newspapers. The company will be governed by the Code of Corporate Governance of the Securities and Exchange Commission. Succinctly, the transition of the shares among three Ministries on behalf of the Federal government will enhance the monopolistic of the sector.

NATIONAL PETROLEUM COMPANY
The National Petroleum Company (hereinafter refers to as NPC) will remain as the National Oil Corporation, which will hold and manage all petroleum assets of the Federal Government excluding those transferred to the NPAMC. It is to run as a private company registered under the Companies and Allied Matters Act and governed by its Articles of Association. Unlike the current practice where the government’s share of crude sale proceeds is paid into the federation account[12] and appropriated between the Federal and State Government without any reserves to meet the cash call obligations of the Federal Government under its Joint Venture (JVs), the NPC is, by the law, permitted to retain its revenue and utilize same to meet its operating costs and external liabilities such as cash calls.

The National Petroleum Company will only pay dividends to the government out of its profits. The economy of Nigeria is mainly dependent on the sales of crude oil; the reformation of the country oil company, through the management of its assets will duly shape the economy of the country. Thus, the management and governance of the company are all based on the provision of the Companies and Allied Matters Act (CAMA), Memorandum and Articles of the Association, and Corporate Governance of the Nigeria Stock Exchange. These guarantee the sustainability of the oil company.

NIGERIA PETROLEUM LIABILITY MANAGEMENT COMPANY
The Nigeria Petroleum Liability Management Company (hereinafter refers to as NPLMC) will serve as a holding vehicle which will assume the liabilities of the NNPC and the pension’s liabilities of the DPR (it is estimated that there exist $5-10 billion funding shortfall per annum, due to government’s inability to fully fund its JV investment cash calls[13]). Upon the discharge of these liabilities, the NPLMC is expected to be wound up. It appears from all indication that the NPLMC will be funded by its shareholders (NPRC, NPC and NPAMC) who will hold shares in NPLMC in proportion to their respective liabilities. The liability company after been formed after the effective date of the Act shall be owned by the NNPC successors in the ration of their debt or liabilities assumed by the new company.

The NPLMC will allow the commercial entities to achieve financial stability by ring-fencing them from the current liabilities of the NNPC. This gives guarantee against value erosion to potential investors in the NPC. The Federal Government overtime has always reached out to settlement to resolve protracted dispute with the five International Oil Companies (IOC),[14] due to the shortfall to pay outstanding cash call. Thus, the set up of the liability company is geared towards setting a clear plan layout and timeline for the settlement of such liabilities[15].

DIVESTMENT OF SHARES IN THE NIGERIAN PETROLEUM COMPANY TO THE PUBLIC
The formation of the Bill makes provisions for the nation to follow the precedents of other oil producing countries, such as Russia (which recently sold a 19.5% stake in its national oil company Rosneft[16]) and Saudi Arabia (which is considering divesting a minor stake in Saudi Aramco[17]), by mandating a phased divestment of 40% stake in the NPC to the public to enable private sector participation, and enhance institutional efficiency. The offer of 40% of the shares of the NPC to the public trumps similar divestment efforts of other National Oil Corporations by a huge margin (Saudi Arabia intends to divest only 5% stake in Saudi Aramco[18] was divested to the public).

To pave way for the NPC to run as a publicly-listed commercial entity devoid of bureaucracies and undue government interest, it has been exempted from complying with the provisions of the Fiscal Responsibility Act 2007 (FRA) and the Public Procurement Act 2007 (PPA). It will, however, be required to comply with the code of corporate governance of SEC and will become an entity regulated by SEC following the proposed divestments, which will be conducted by way of a public offering of its shares. Many companies use divestment to sell off peripheral assets that enable their management teams to regain sharper focus of the core business. Additionally, companies divest their assets to obtain funds, Nigeria, as a state in debt can’t avoid to further service the cost and debt of managing the National oil companies; it suffice to say that the divestment of shares to the public is in the right direction towards a good economy in accordance with other developed countries mechanism in the oil and gas industry.

INCREASED STAKEHOLDER PARTICIPATION IN PROMULGATION OF REGULATIONS
The Bill, in a bid to forestall the enforcement and implementation of unpopular regulations and to fetter the powers of the Commission, provides that Regulations promulgated by the Commission pursuant to this Bill shall be subject to public hearings. Any regulation made without the requisite public hearing will only be valid for six (6) months. This allows for more active engagement with stakeholders in the promulgation of regulations. It is expected that these broad engagements will foster cooperation between the regulators and industry participants, and also increase compliance.

The lack for proper public hearing of the regulations made in the oil and gas industry makes it so ineffective. Notably, the Nigeria Petroleum Regulatory Commission is compelled to hold public hearing, with the invitation of the stakeholder in the sector to the public hearing before the regulation is passed. This will create a good cordial relationship between parties and develop the economy.

IMPACT OF THE PIGB ON THE ECONOMY

Several experts in the Oil and Gas sector have indeed asserted that the enactment and assent of the Petroleum Industry Governance Bill (PIGB) will transform and shape the oil and gas sector, ultimately boosting the economy of Nigeria as it remains its largest source of revenue.

The restructuring process of NNPC, by dividing it into several assets and liabilities of the company, by which the power of the Ministry of petroleum is withheld to the minimal, this is reduced by the flexibility in granting license will improve the production of oil in Nigeria, thereby making our budget realizable and efficient.
As the Petroleum Industry Governance Bill seeks to divest 10 percent of the Shareholder in the Nigeria Petroleum Company in the very least transparent mode, this directly gives free access to Nigeria citizens to own a stake in the Nation’s Oil Company as against the former practice. Evidently, the shift in weight to the standard practice of several international state oil companies will stand a huge feat in ensuring the rapid growth of the Nigeria economy.
Among others, establishment of the NPRC (Nigerian Petroleum Regulatory Commission) solemnly involved with the full responsibilities of matters in the petroleum industry; from strict implementation of environmental policies, laws, regulations, standards as it pertains to the Oil and Gas industry. This creates a good remote, efficient, safe, and healthy area for the conduct of business operations in the oil and gas industry.
CONCLUSION

The proper review of the existing laws that create a lots of conflicts within the oil and gas sector is been set on the right path, thus the need for a single document to harmonize laws and regulations. The delay in passing the bill into law will see several investments in the country’s oil sector stall due to the non-passage. There is no gainsaying that the PIGB will not only shape the oil and gas industry, but will also foster improvements in the economy of Nigeria. Evidently, the promulgation of this bill into law requires the assent of the President as this is a pre-requisite to pass any law in the country and as such is perceived as a good signal to the market that the Government is very much concentrated about the oil reform agenda in the Country as in other sectors of the economy.

RECOMMENDATION

The uncertainty of the assent withheld by the President, which includes among others, the issue of NPRC funding, PEF issues, and the proper drafting consideration. All eyes are turned to the present 9th Assembly[19], to look into the concern of the president and proposal of the key stakeholders in the industry for the reality of the Petroleum Industry Governance Bill. In good motive, we hope the President will find the bill worth enough to be signed into law. Upon further delay of the presidential assent[20] will send a bad signal and will be assumed that the present led administration lacks the political motive to set a good pace in the Oil and Gas industry. Alternatively, the provision of the 1999 constitution is clear and unambiguous regarding the overriding of the clause of the Presidential assent. The requirement of the Presidential assent to validate and give the force of law to any bill passed by the National Assembly is beyond any shaow of doubt. Notably, where a bill is presented to the President for assent, he shall within thirty days therof signify that he assents of withholds his assent[21]. It will be recommended that on the decline of the presidential assent, after much consideration, the National assembly should summon two-third majority to pass the bill into law as required under the constitution[22], to make the proposal of the Petroleum Industry Governance Bill a reality. Thus, for the growth and development of the oil and gas industry and the Nigeria economy at large.

Qualifications

This article is written by Badmus Sherifdeen Oluwagbenga, a 500 level Student of Lagos State University, Faculty of Law.

The contents herein are meant for the general information and do not amount to legal advice. Further enquiries be made to [email protected].

[1] Tax policy reform in Nigeria (United Nations Development Programme – Ayodele Odusola)

[2] Former NNPC Boss Dr, Maikanti Kacalla Baru during his keynote address while opening the 2019 edition of the Nigeria Oil and Gas Strategic Conference and International Exhibition in Abuja

[3] Petroleum Industry Bill in Nigeria – Hyginus Chika Onuegbu

[4] KPMG: The Petroleum Industry Governance Bill (June 2017)

[5] Ibid

[6] Section 4 – 35 of PIGB 2019

[7] Section 36 – 75 of PIGB 2019

[8] Section 76 of PIGB 2019

[9] Section 77 – 100 of PIGB 2019

[10] The Impact of Oil and Gas Production om the Nigeria Economy: International Business and Economy journal

[11] (Section 77(2)(a) PIGB 2019)

[12] Section 105(3) PIGB 2019

[13] Detail Solicitor: Review of the Petroleum Industry Governance Bill 2018

[14] Shell, Exxon Mobil, Eni, Chevron, and Total

[15] Section 126(7) PIGB 2019

[16] www.independent.co.uk/news/business/news/ (accessed on 21st of May 2020)

[17] www.theprint.im/economy/ (Reliance and Saudi Aramco accelerate their talks for sale of minority stake in RIL Feb 2020) accessed on 21st of May 2020

[18] Ibid

[19] National Assembly (National Legislative arm of Government)

[20] Section 58(4) of the 1999 constitution as altered

[21] Ibid

[22] Section 58(5) of the 1999 constitution as altered