OGovernance Bill (PIGB also referred to as the Bill), 2017 hived off from the Petroleum Industry Bill (PIB). INTRODUCTION

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1 INTRODUCTION n the 25th of May 2017, the Senate of the National Assembly (otherwise known as the Red Chambers) passed the Petroleum Industry OGovernance Bill (PIGB also referred to as the Bill), 2017 hived off from the Petroleum Industry Bill (PIB). The earlier controversy and delay surrounding the passing the PIB necessitated the disaggregation of the PIB into four main components namely: Petroleum Industry Governance Bill (PIGB), Petroleum Industry Fiscal Bill (PIFB), Upstream and Midstream Administration Bill (UMAB) and Petroleum Host Community Bill (PHRB), each of which deals with the different aspects of the reform agenda of the Nigerian petroleum industry. Although the other components of the PIB are at different stages of passage at the National Assembly, the passage of the PIGB by the Senate (Red Chambers) of the National Assembly heralds a new dawn in the petroleum industry as it signifies a commitment to would be investors and stakeholders in the oil and gas sector that the sector would operate in line with international best practices. However for the PIGB to effectively become law and constitute a part of the legal framework for the entire petroleum industry in Nigeria, the House of Representative (Green Chambers) of the National Assembly would have to pass the Bill following which the executive assent by the President of the Federal Republic of Nigeria would have to be obtained within thirty (30) days. It is hoped that the House of Representative (Green Chambers) of the National Assembly would expedite the passage of the Bill to unlock the other constitutional steps for it to effectively become law. The effect of the passage of the Bill into law will be that the Bill will override all existing laws pertaining to the Nigerian Petroleum Sector. It is worthy to note that existing licences and authorisations as issued by the Department of Petroleum Resources (DPR) will remain in effect over their valid life span following the commencement of operations of the PIGB. This report summarily reviews the PIGB, particularly its key objectives and the implications on the Nigerian investment climate. It also touches on the bottlenecks that may exist as we transition from the present regime to the anticipated regime following the passage of the PIGB. George Etomi & Partners (GEP) is available to ensure that your business

2 experiences a smooth transition from a legal and regulatory perspective, given our wealth and depth of experience in the legal and regulatory environment within the energy sector. SIGNIFICANCE OF THE PIGB The PIGB seeks the reform of the organizational structure of the petroleum industry in Nigeria. It provides the legal framework that seeks to underpin a restructured administrative and institutional model for running the petroleum sector in line with international best practices. The underlying accomplishment as anticipated by the Bill is to remove the multiplicity of roles and overlapping institutional functions that characterized the petroleum sector before the proposed reforms. By providing for a more transparent and accountable regime, the PIGB seeks to reposition the petroleum industry to enable the petroleum resources of the country to be administered more efficiently and effectively. The objectives of the Bill as articulated in the preamble are to: 1. Create efficient and effective governing institutions with clear and separate roles for the petroleum industry; 2. Establish a framework for the creation of commercially oriented and profit driven petroleum entities that enjoy value addition and internationalization of the petroleum industry; 3. Promote transparency and accountability in the administration of petroleum resources of Nigeria; and 4. Foster a conducive business environment for petroleum industry operations. In light of the above objectives, the Bill proposes to establish the following: 1. The Nigeria Petroleum Regulatory Commission (NPRC) to act as the single regulator for the petroleum industry; 2. The Petroleum Equalization Fund (PEF); and 3. Three incorporated commercial entities, viz: Nigeria Petroleum Asset Management Company (NPAMC), National Petroleum Company (NPC) and Nigeria Petroleum Liability Management Company (NPLMC) thus restructuring the current make-up of the Nigerian National Petroleum Corporation (NNPC). These objectives have far reaching implications as they seek to limit the role and influence of the Minister of Petroleum and ultimately position the sector as an investment hub. THE NIGERIA PETROLEUM REGULATORY COMMISSION (NPRC) The PIGB creates a regulatory commission known as the Nigeria Petroleum Regulatory Commission (referred to as the Commission ) that will be independent of the influence of the Petroleum Minister and whose commissioners will be appointed by the President of the Federal Republic of Nigeria with the Senate ratification under a transparent process. The Bill also makes provision for the Governing Board that will be responsible for overseeing the operations of the Commission amongst other responsibilities in enhancing the functions of the Commission. Unlike the previous structure of the industry, the Minister has no seat on the Board. This depicts the dilution of the influence of the Minister in the regulatory affairs of the industry. To buttress this, the Commission may only implement policy directions of the Minister in so far as they do not conflict with the provisions of the enabling law. This heightens the independence of the Commission as the strength of a regulated industry is hinged on the strength and independence of the regulator. The PIGB whittles down the role of the Petroleum Minister to

3 policy formulation and monitoring of the petroleum industry and vests the issuance, renewal or cancellation of licenses, leases or grants with the Commission. Thus, the discretionary powers of the Minister to grant, renew, extend or revoke licences and leases as contained in the Petroleum Act, P10, LFN (2014), have been fully transferred and vested with the Commission. The transfer provision also extends to the pre-existing power of the Minister to grant licences in relation to refineries and other downstream activities. In addition, the rule making functions previously assumed by the Minister under the Act have also been vested with the Commission under the PIGB. The current assets, funds, resources and other movables and immovable properties of the Petroleum Inspectorate (PI), the Petroleum Product Pricing Regulatory Agency (PPPRA) and Department of Petroleum Resources (DPR) will be assumed by the Commission upon its establishment. Thus when the PIGB becomes effective the roles of the PI, PPPRA and DPR will cease to exist. The legal significance of the above development is that the Bill removes the institutional overlaps and multiplicity of regulatory agencies that has been the bane of the petroleum sector, thus making the administration of the sector more transparent and efficient. THE PETROLEUM EQUALIZATION FUND (PEF) The Bill also makes provision for the continued existence of the Petroleum Equalization Fund (PEF) and the funding of PEF. All monies payable to the Equalisation Fund will be paid to this body. The fund for the PEF shall be five percent (5%) fuel levy in respect of all fuel sold and distributed within the federation subject to appropriation by the National Assembly, subventions, fees, charges for services of the fund and such other revenues that may accrue to the PEF. It is unclear as to whether this levy would be passed on to consumers. The objective of the PEF is to provide uniformity of petroleum products pricing throughout Nigeria. The goal is to ensure that oil marketers are reimbursed for any loss sustained by them solely and exclusively from the transportation of petroleum products. The PEF regime thus repeals the Petroleum Equalization Fund (Management Board, etc.) Act, CAP P11 Laws of the Federation of Nigeria, 2004 for a more transparent administration of the funds generated from petroleum products sold. RESTRUCTURING OF THE NIGERIAN NATIONAL PETROLEUM CORPORATION (NNPC) The PIGB creates three (3) new commercial entities for the promotion of self-sustainability and accountability. These entities are the Ministry of Petroleum Incorporates (MOPI), National Petroleum Company (NPC) and the National Petroleum Asset Management Company (NPAMC). It is anticipated that the MOPI following its corporate registration will hold the shares of the Government in successor entities (e.g. NPC, NPAMC). NIGERIA PETROLEUM ASSET MANAGEMENT COMPANY (NPAMC) The PIGB establishes an asset management company known as the Nigeria Petroleum Asset Management Company to assume and manage all the assets currently held by the Nigeria National Petroleum Corporation (NNPC) and act as the administrator of the Production Sharing

4 Agreements/Contracts (PSC) and Back-in Rights assets and such other risk based agreement entered into within the Nigeria petroleum industry under the petroleum Act 1969 as amended. The transfer as envisaged above shall not be deemed to constitute a breach of contract according the PIGB as the Bill preserves all existing contractual relationships and causes of actions relating to the assets that will be transferred from NNPC to NPAMC. Upon the establishment of the Asset Management Company, 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 NPAMC. To ensure sound governance which will in effect boost investment appetite, NPAMC has an obligation to comply with the Codes of Corporate Governance issued by the Securities and Exchange Commission and to also publish its annual reports and accounts on its website and public media. NATIONAL PETROLEUM COMPANY (NPC) The PIGB also establishes the National Petroleum Company (NPC) for the petroleum industry and confers it with the responsibility of managing all the assets held by NNPC except the Production Sharing Contracts and backin Rights assets which shall be assumed by the NPAMC. The PIGB clearly provides that the transfer envisaged shall not be deemed to constitute a breach of contract as the Bill preserves all existing contractual relationships and causes of actions relating to the assets that will be transferred from NNPC to NPC. 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 thus encouraging private sector investment in the sector. To address the previous funding challenges that plagued NNPC, the Bill allows NPC to retain the revenue from its operations to cater to its expenses which includes its cash call obligations and also payment obligations to lenders. However, the workability of this provision of the Bill is open to debate especially in light of the 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. NATIONAL PETROLEUM LIABILITY MANAGEMENT COMPANY (NPLMC) In order to address the liability issues saddled on NNPC 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

5 company will be wound up on conclusion of the settlement of liabilities. CONCLUDING REMARKS Although the passage of the PIGB heralds a major landmark in the petroleum sector, however, it appears that the passage of the more controversial aspects of the PIB which are at the heart of the petroleum sector may still be delayed given historical antecedents, thereby dwarfing the current achievement of the passage of the PIGB. Perhaps a more holistic approach should be adopted for the simultaneous passage of all aspects of the PIB to ensure a harmonized functioning of the petroleum industry. In order for the robust benefit of the reforms anticipated to unfold and materialize, there is need for the expeditious passage of the fiscal and host community aspects of the PIB. Although the International Oil Companies (IOCs) have reportedly critiqued the fiscal and host community terms of the PIB as being less favorable to them, it is hoped that more harmonious and balanced terms will be negotiated to accelerate the passage of those aspects of the PIB. Nevertheless, the PIGB may be viewed as a conduit to the light at the end of the tunnel given some of its reformative provisions. For example, the proposed establishment of a single regulator, independent of the influence of Ministerial powers and three successor companies by the PIGB, is hoped will reposition the petroleum industry as a transparent and self-sustaining industry opened for investment via the application of global best practices. There is however a need for strong institutional capacity and commitment by the government of Nigeria to translate the objectives of the PIGB to meet the aspirations of all stakeholders in the industry. In addition, it is worthy to state that the Gas sector which is an integrated part of the petroleum sector has suffered from historical negligence. In the current reform efforts, it is recommended that an accelerated policy and legislative blue print for the Gas sector be formulated; as an integrated part of the petroleum industry to unleash the full benefits of the sector. As a matter of urgency in the present situation, there is need for the House of Representatives to speed up the passage of the Bill once transmitted to the House after which the Bill becomes law with the executive assent of the President of the Federal Republic of Nigeria. Going forward, for a significant reform to unfold, the other components of the PIB that impact at the heart of the petroleum industry will need to be expeditiously harmonized and passed into law simultaneously with the government of the Federal Republic of Nigeria putting in place robust mechanisms for implementing the new petroleum regime. WE ARE HERE TO HELP YOU TRANSITION SMOOTHLY FROM THE CURRENT REGIME Once passed into law, the PIGB will have significant implications on your business operations given the transitory provisions which need to be well managed from a legal and regulatory perspective premised on existing commercial arrangements. GEP is available to ensure that your business experiences a smooth transition given our wealth and depth of experience in the legal and regulatory environment within the energy sector.