ENABLING AN APPROPRIATE LEGAL AND REGULATORY FRAMEWORK FOR PETROLEUM INDUSTRY - THE PETROLEUM INDUSTRY BILL (PIB)

Transcription

1 ENABLING AN APPROPRIATE LEGAL AND REGULATORY FRAMEWORK FOR PETROLEUM INDUSTRY - THE PETROLEUM INDUSTRY BILL (PIB) PRESENTED BY COMRADE PETER ESELE, FORMER PRESIDENT, TRADE UNION CONGRESS AT THE BREAKOUT SESSION OF THE ANNUAL GENERAL CONFERENCE OF THE NIGERIA BAR ASSOCIATION, Basically there are two main models for the Legal Framework for the Petroleum Industry: Multi statute framework. Here there are many laws that guide the operations and activities in the industry. In practice however, and you can see that in some multi statute petroleum regime like Nigeria, there is usually a principal petroleum law (e.g. Nigeria s Petroleum Act of 1969, which has only 16 sections.)which will provide for administrative, economic and fiscal guidelines to guide investment in the industry such as the Petroleum Act Single comprehensive Statute Framework. The PIB 2012 is an example of a comprehensive petroleum Bill. So also is the Norwegian Petroleum Activities Act of Also there are basically 3 models for the National Oil company depending on the role of the government in the petroleum industry: Countries without National Oil Company: Some countries like the USA, Canada, United Kingdom and Australia, manage their petroleum industries without establishing national oil companies (NOCs). Please note that in 1975 however, the UK had actually established British National Oil Corporation (BNOC) under the Petroleum and Submarine Pipelines Act of 1975 to function as the UK s NOC. The BNOC however did not enjoy the support of the Conservative government of Margaret Thatcher, which came into power in 1979, and by it ceased operations when it s exploratory and production responsibilities were transferred to its subsidiary. Under this model, the role of the state is to grant licences for exploration and production to, usually after a competitive and transparent bidding process. Thus the state limits itself to industry regulation, the management of the industry, and the collection of taxes. Countries that adopt this model open their industries to IOCs and indigenous PEPCs, subject to government oversight and regulation. Other features of this model include deregulation of the price of petroleum products, and a heavy dependence on royalties and taxes. The competitive NOC model: Under this model, the country ensure that the NOC is competitive by establishing separate independent and capable regulatory and policy making agencies. Countries that adopt this model also subject their NOCs to competition with private firms, and ensure they operate with a strong commercial orientation. And although some privileges may still be reserved for them, NOCs in this

2 model are encouraged to rely rather on their competitiveness for the award of petroleum concessions. This model is best epitomised in Norway, where the Norwegian Petroleum Directorate (NPD) and the Ministry of Energy are responsible for industry regulation and policy formulation, while Statoil operates as the commercial arm of the government. It can also be seen in Brazil post 1997, where a competitive Petroleo Brasileiro SA (Petrobras) works side by side with the industry regulator: National Petroleum Agency (ANP) and the National Council for Energy Policy (CNPE), which is the industry policy maker. Countries with Traditional NOC Model: Here NOCs take the centre stage as policy makers, industry regulators (either totally or partially), and as petroleum companies.malaysia s Petroliam Nasional Berhad, (Petronas), Iran s NIOC, Angola s Sonagol, etc. Traditional NOCs in most cases collaborate with E &P companies through arrangements like joint ventures (JVs), production sharing contracts (PSCs) and Risk Service Contracts (RSCs). Although some countries with traditional NOCs attempt to separate industry regulation from their NOCs, in practice, a thin line exists between the two as most NOCs in this model have been known to overshadow and side-line industry regulators. This was the case with Brazil before 1990, and remains the case in Nigeria. Models of Regulatory Framework: There are basically two models namely: Single industry regulator and multiple industry regulators. The key question here is which model Nigeria should adopt for the effective and efficient management of her Petroleum industry. The truth is that to answer the question it is important we review the current structure of the Nigeria s petroleum sector, the current challenges confronting the sector and the attempts at reforming the sectors through the 2009 and 2012 PIB. The Current Structure of the Nigerian Oil and Gas Industry The key General Challenges confronting the Nigerian Oil and Gas industry are: The laws regulating the petroleum industry in Nigeria are scattered here and there. Too many regulators( DPR,NCDMB,NNPC,NIMASA,etc) Weak Institutions and overbearing political control Lack of accountability and transparency Public Institutions in the sector are not governed with commercial mindset. Corruption Crude oil theft,pipeline and facilities vandalism Environmental issues Insecurity Insufficient funding of the JV operations and Cash Call Arears Unending reforms which is essentially due to lack of political will. Refineries,subsidies and general downstream issues Local content issues Domestic gas challenges and inadequate power generation

3 Objectives of the 2012 PIB: Create a conducive business environment for petroleum operations; Enhance exploration and exploitation of petroleum resources in Nigeria for the benefit of the Nigerian people Optimize domestic gas supplies, particularly for power generation and industrial development Establish a progressive fiscal framework that encourages further investment in the petroleum industry while optimizing revenues accruing to the Government Establish commercially oriented and profit driven oil and gas entities; Deregulate and liberalize the downstream petroleum sector; Create efficient and effective regulatory agencies; Promote transparency and openness in the administration of the petroleum resources of Nigeria Promote the development of Nigerian content in the petroleum industry Protect health, safety and the environment in the course of petroleum operations; and Attain such other objectives to promote a viable and sustainable petroleum industry in Nigeria Proposal: Come up with a legal and regulatory framework for the Nigerian petroleum Industry that will achieve the following: Unification of all the laws in the petroleum industry into one law as was proposed by the 2012 PIB. That is adopt the Single comprehensive Statute Framework Adoption of the competitive NOC model: Adopt the single regulator model Reduce government and political interference in the running of the NOC and other institutions in the oil and gas industry Ensure that transactions in the industry are carried out in a transparent, orderly and accountable manner. Namely- Competitive, nondiscretionary licensing and tender processes for all contracts and licenses; Provide for total transparency with regards to award of ALL contracts and Licenses, and other accompanying processes. This includes but not limited to basis for the award, contract costs and itemization of activities. This should closely follow the guidelines of both the EITI and NEITI; and Make specific provisions for the mandatory publication of all licenses, tenders and contracts. The publications must be easily accessible to all stakeholders (by the creation of database systems to be accessed online as is the case with the database system managed by the National Petroleum Agency, ANP of Brazil);Make specific provisions for Voiding ALL confidentiality clauses for oil revenue and payment information as these are key barriers to transparency efforts. Allow for the optimization of returns to Nigeria from its oil and gas resources without stifling investments and growth of the industry. The government will therefore have to strike a balance between taking a significantly

4 higher stake from industry operations and ensuring the sustainable growth of the industry Severely punish corruption and other forms of inappropriate behaviours in the oil and gas sector Drastically reduce and if possible remove all the discretionary powers of the Minister or the president as they encourage corruption and inefficiency Address host community and environmental challenges Address issues and concerns around frontier explorations. Unbundle the NNPC and make the successor corporations more efficient and effective. Embed commercial mindset, discipline and transparency. Ensure that the government owned refineries to work and encourage private investors to invest in refineries so that petroleum products will be refined locally and the regime of importation effectively brought to an end. Ensure that adequate incentives and regulations exist to encourage investment in domestic gas and that this is aligned with the power sector development initiative of the government. Clearly defined mandate and powers of the regulator. Assuming powers to make and enforce regulations. Limiting the role of Government, its agencies and officials to issuing only broad /general policy guidelines to the regulator as opposed to specific directives which amounts to day to day interference with the powers of the regulator. The tenure of the executive management is guaranteed and fixed and its abridgement made stringent upon cogent and verifiable reasons. The funding regime is structured to ensure its independence with budgetary appropriations subjected to legislative oversight and not attached to ministerial budgetary provisions with no provisions for grants from governments and/or stakeholders they will be regulating. The enabling law spells out the administrative and enforcing instruments and also makes provisions for rule making, regulation formulation and enforcement. The staffing specifications, requirements and recruitments are specifically left in the hands of the regulator. Nigerian Oil and Gas Policy Recommendations for NOC: A strict commercial orientation and focus. Financial authority and accountability, with effective internal controls. Independent and Professional Governance structures, with commercially driven decision making processes. Vertically integrated structures with well defined growth path Highly talented and well motivated human resources Technology driven competitive edge and strong R&D capabilities Simple, lean and flexible structure Differentiation between core functions and support services THANK YOU ALL.

5