Nigeria: Petroleum Industry Bill History, Objectives, Institutions, and Controversies

Transcription

1 POLICYBRIEF Nigeria: Petroleum Industry Bill History, Objectives, Institutions, and Controversies January15,2012 byaweleokigbo ThePetroleumIndustryBillisanattempttobringunderonelawthevariouslegislative, regulatory, and fiscal policies, instruments and institutions that govern the Nigerian petroleum industry. The Bill is expected to establish and clarify the rules, procedures andinstitutionsthatwillentrenchgoodgovernance,transparencyandaccountabilityin theoilandgassector.itaimstointroducenewoperationalandfiscaltermsforrevenue management to enable the Nigerian government to retain a higher proportion of the revenuesderivedfromoperationsinthepetroleumindustry. The purpose of this document is to articulate in one place the history, objectives, institutions,andcontroversiesshroudingeffortstopassthebillintolaw.thisdocument is intended for members of the Nigerian National Assembly, industry stakeholders, decisionmakers,andpolicyanalystsasapartofnextier sefforttosupportthepassage ofthepetroleumindustrybill. HISTORY OF THE BILL Oil and gas production commenced in Nigeria in 1958 after the discovery of oil in Oloibiri(Bayelsa State) two years earlier. Since then, no comprehensive law has been putintheplacefortheadministrationoftheindustry.thepibseekstoreplacesixteen (16)petroleumindustryActs. By the 1990 s Nigeria engaged in a number of unincorporated joint ventures with international oil companies to develop the industry. However, the country had challenges funding its commitments to the joint ventures. As a result, Production SharingContracts(PSC)wereintroducedasalternativefundingmechanisms. However,PSCslacktransparency,goodgovernancepractices,andarenotinlinewith internationalbestpractices.forinstance,nigeriadoesnotcaptureanypartofwindfall profits from increases in crude oil prices. Additionally, cost controls, accounting procedures,andacreagemanagementareinadequate. ThevariousActsgoverning Nigeria soilandgassector havemanyinadequacies. ThePIBintendstoresolve theseshortcomingsand improvemanagementof Nigeria soilresources. PIBprovidesfor8institutions. Thenewfiscalprovisionswill earnahighershareofrevenue fornigeria. Differentstakeholdershave conflictingviewsofthebill. Forprogressintheindustry, Nigeriamustresolvethe controversiesandpassthebill. Page1of info@nextierlimited.com

2 In response to these challenges, the Obasanjo government in 2000 constituted the first Oil and Gas Reform Implementation Committee (OGIC) to recommend a policy for reforming the sector. The recommendations defined the need to separate the commercial institutions in the sector from the regulatoryandpolicy makinginstitutions. In 2007, the Yar Adua government reconstituted OGICunderthechairmanshipofDr.RilwanLukmanto usetheprovisionsofthenationaloilandgaspolicyto setuplegal,regulatory,andinstitutionalstructuresfor managingtheoilandgassector. The Lukman Report, submitted in 2008, recommended regulatory and institutional frameworks that when implemented will guarantee greater transparency and accountability. This report formed the basis for the first Petroleum Industry Bill (HB 159) that was submitted in 2008 as an Executive Bill. OBJECTIVES OF THE PIB The controversy raised by the Bill prompted the constitutionofafederalinter agencyteamheadedby Dr.TimOkon(formerNNPC sgroupgeneralmanager on Strategy) to review the Bill. The team s report submitted in 2010 (IAT 2010) is at the crux of the controversies around the PIB because it introduced more stringent fiscal provisions that guarantee a highershareofoilrevenuestonigeria. In2011,theSenatesubmitteditsversionoftheBill (SB236)thatisseenasamuch weakenedversion. Subsequently, the House of Representatives submitteditsversionofthebill(hb.54)in2011.the BillwassponsoredbysixHonourableMembers:» Hon.EmmanuelJime(PDP,Benue)» Hon.AliyuMadaki(PDP,Kano)» Hon.UsmanBelloKumo(PDP,Gombe)» Hon.DakukuPeterside(PDP,Rivers)» Hon.FataiAkinderu(ACN,Lagos)» Hon.IronaGerald(PDP,Imo) Thisdocumentisbasedonthe2011HouseBill54. ThePIBseekstorepealthe16petroleumindustryacts and replace them with an omnibus Act that provides forbetterfiscalandregulatorymanagementoftheoil andgassector.thekeyobjectivesofthepibinclude: 1. Enhance exploration, exploitation, and production: The PIB will eliminate funding bottlenecks, increase investments in the sector, and increaseacreageavailableforinvestment. FUNDING: Restructuring of NNPC will remove theconstraintsofgovernmentfundingandbarriersto theentryofnewplayersunderanewsetofrulesthat aretransparenttoallparties. INVESTMENT: Comprehensive deregulation of the downstream sector will make it attractive for investments.removalofthefuelsubsidyshouldfree upfundsforinvestmentincriticalinfrastructure. ACREAGE:Oneofthechallengeswithincreased investment in Nigeria s oil industry is the lack of new acreage.thepibwillreclaimacreagethatisnotbeing developedbythecurrentowners.thisprovisionmay freeupabout30%ofprospectivepetroleumacresfor newinvestors. 2. Increasedomesticgassupplies:TheBillprovides that all existing and future petroleum mining lessees shall meet their domestic gas supply obligations for thespecifiedperiodsasthegaswillbeusedforpower generation and industrial development. Failure to meetthisobligationattractsastiffpenalty.according tothislatestversionofthebill(hb.54),gasflaringor ventingwillceasefromdecember31, Createapeacefulbusinessenvironment:TheBill seekstoaligntheinterestofthehostcommunitiesto thoseoftheoilcompaniesandthegovernment.the Petroleum Host Communities Fund, which will be fundedwith10%ofthenetprofitoftheoilcompanies operating in the communities, shall be used to developtheeconomicandsocialinfrastructureofthe host communities. Communities will forfeit contributions in the Fund when vandalism or unrest causesdamagetoupstreamfacilities. 4. FiscalFrameworkforincreasedrevenue:ThePIB establishes a progressive fiscal framework that encourages further investment in the industry whilst increasingaccruablerevenuestogovernment.thebill simplifiescollectionofgovernmentrevenuesfromthe oil assets, increases the share of royalties in the case of high oil prices, etc. The tax computation has been simplifiedandnocompanyistax exempt. 5. Create a commercially viable National Oil Company: The Bill provides for the full commercialisation of NNPC and the creation of other institutions that will ensure a restructuring of the sector for improved efficiency. The table below provides the objectives, powers, and functions of the differentinstitutions. Page2of info@nextierlimited.com

3 6. Deregulate petroleum product prices: The Bill proposes the full deregulation of the downstream oil sector. A number of the institutions will be responsible for developing the infrastructure to support the sector, funding concessionaires and facility management operators. The Petroleum Equalisation Fund will be phased out in line with the developmentofthesupportinfrastructure. 7. Create efficient regulatory entities: The Bill providesforthecreationofeightinstitutionstodrive greatertransparencyandaccountability. 8. Create transparency: The Bill makes public the termsofthelicenses,leases,contractsandpayments inthepetroleumsector.whenpassed,thelegislature will transform Nigeria from being one of the most opaqueoilindustriesintheworldtoonethatsetsthe standardsoftransparency. INSTITUTIONS UNDER THE PIB 9. PromoteNigeriacontent:ThePIBhasfar reaching local content components. No project will be approved without a comprehensive Nigeria Content Plan including obligations of the investor to purchase local goods and services, engage local companies, employ Nigerians, ensure knowledge transfer and encourage Research and Development. The Nigeria Content Monitoring Board will regularly verify compliance. Through the local content provisions in the Bill and the opportunity to develop small indigenousoilandgascompanies,nigerianswillbegin to participate more actively in the industry and jobs willbecreated. 10. Protect health, safety and environment: Every company requiring a license, lease or permit in the upstream and downstream petroleum industry in Nigeria shall conduct their operations in accordance withinternationallyacceptedprinciplesofsustainable development which includes the necessity to ensure that the constitutional rights of present and future generationstoahealthyenvironmentisprotected. Name/Objective Powers Functions NationalPetroleumCommission shallfunctionastheminister s Secretariatandshalltakeoverthe responsibilitiesoftheministryof PetroleumResources.Itsmain objectiveisformulatingpoliciesfor theindustry. Accesstoinspecttheoperations andenforceprovisionsofthisact withallindustryoperatives (licensees,leases) Grantorrevokelicencesorleases onrecommendationofthe Inspectorate Provideoversightonregulations FormulateandimplementFederal Governmentpetroleumpolicies Coordinatebudgetsofallinstitutionsunder theact Ensureopenandcompetitivepracticesand thatgovernmentderivesmaximumbenefits fromalloperationsfornigerians Increaseinvestmentsandlocalcontent NigerianPetroleumInspectorate shallbethesuccessortothe PetroleumInstituteofNNPCand DPR.Itscoreobjectiveisto developindustryinfrastructure, organiseandregulatetechnical aspects,andmaintainstandards andspecificationsoftheindustry. PetroleumProductsRegulatory Authorityshalldeveloppolicies andregulatecommercialaspects ofdownstreamsector(petroleum productsandnaturalgas), promotedevelopmentoftransport anddistributionnetwork. Enforcetechnicalandcost regulationsformerlyadministered bynapims,dpr,andpetroleum Inspectorate Sealpremisesofanycompany thatcontravenesthisact Issueguidelinesonhandlingof radioactivematerials Promotetheuseofnew technologies Modify,extend,renew,suspend andrevokeanylicenceissuedby thisact Recommendissuance, amendmentorrevocationofany regulationstotheact Requestandobtaininformation fromanylicenseenotwithstanding businesssecrets Administerunallocatedpetroleumacreages EnsurecompliancetotermsofE&Plicenses Stimulateinterestinexplorationonfrontier basinsbyprovidingdatatoinvestors Issuelicencesfortechnicalactivitiesin sector;monitoractivitiesoflicensees/leases Setenvironmentalstandardsforthe industry Collateallavailableindustryknowledge Coordinatecommercialactivitiesofthe downstreamactivitiesofdownstreamsector Grantorrevokedownstreamlicenses Developframeworkfor3 rd partyaccessto infrastructure Establishcustomerprotectionmeasures Setrulesforthecommoncarriersystems Monitornationaloperatingandstrategic stockofpetroleumproducts Page3of info@nextierlimited.com

4 NationalOilCompany(NOC) SuccessortoNNPCandshallbe incorporatedasaprivatelimited liabilitycompanywithownership vestedsolelyinfgn.fgncan divestupto40%ofnoc2years afteritsincorporation.nocshall notbesubjecttothefiscal ResponsibilityActorPublic ProcurementAct. NationalFrontierExploration Serviceshallpromoteexploration ofnigeria sfrontierbasins, evaluateunassignedconcessions, andstimulateexplorationinterest ofcompaniestowardsincreasing Nigeria'soilandgasreserves. PetroleumTechnology DevelopmentFund(existing institution)shalltrainnigeriansin engineering,geology,science, managementandotherrelated fieldsinthepetroleumindustryin Nigeriaorabroad. PetroleumInfrastructure DevelopmentFund successorto thepetroleumequalisationfund shalldevelopdownstream infrastructure,andfund concessionairesandfacility managerstodevelopcritical infrastructure PetroleumHostCommunitiesFund shalldeveloptheeconomicand socialinfrastructureofthe communitiesenclosedfullyor partlywithintherespective petroleum mininglease. Hold,manageandalienate movableandimmovableproperty Takeoverassets,contracts,rights ofanycompanyorpersonto furtherthebusinessofthenoc Engagewithanyperson/company todischargetheaffairsofnoc Trainmanagerial,technicaland suchotherstafffornocoperations andtheindustryingeneral Enterintocontractswhichwill facilitatethedischargeorexercise ofitsdutiesorpowers Chargefeesatcommercialrates foritsservicestoanyparties Collectdataandsamplesfrom anypartoftheindustryinpursuant ofitsfrontierservicefunctions Dosuchotherthingsasrequired todischargeitsfunctions. Sameasthepowersofthe existingpetroleumtechnology DevelopmentFund Allassets,liabilities,rights, obligationsofthepetroleum EqualisationFund Obtaindetailsofproduction, supplies,loadinganddispatches fromrefiningcompanies,import terminalsandstoragefacilities owner,anygovernmentagency, thirdpartiesthatmonitoror inspectpetroleumproducts Allacreages,andE&Plicenceor leasesnotpreviouslygrantedare heldbytheinspectorateonbehalf ofthefederalgovernmentof Nigeria Explore,prospect,acquire,possess,and disposeofpetroleum Refine,treat,process,andmanufacture petroleumproductsandderivatives Purchaseandmarketpetroleum,products andby products Construct,equip,maintaintankfarmsand facilitiesforproducthandlingandtreatment Conductdivestmentsandacquisitions;fund FGNparticipationinpetroleumoperations Regulatepetroleumexplorationinall unassignedfrontieracreages Identifyopportunities/increaseinformation onpetroleumresourceinfrontieracreage Developexplorationstrategiesandportfolio managementforexploration Promoteandstimulatetheinterestof petroleume&pcompaniesinunassigned frontieracreages Provideexplorationservicestogovernment Providescholarshipforstudiesinpetroleum MakeendowmentstoNigerianuniversities, colleges,orinstitutions Supportresearchandcapacitydevelopment forthepetroleumindustry CoordinatewithR&Dcentrestoadapt technologyappropriatefornigeria UseexistingHRfacilitiesforanexpanded manpowerdevelopmentprogrammes Developinfrastructure,books,equipmentin tertiaryinstitutionswithcoursesinpetroleum Developmentofdownstreaminfrastructure Drivethederegulationregime Managetheequalisationbenchmark subjecttoanannualnationalinfrastructure audit Closeouttheequalisationfunding ProvidePPPfinancing/concessionmodels togrowcapacityofthedownstreamsector Drivemarketpricemechanismsthrough competitivenessindownstreamoperators Eachcorporateentityshallremitona monthlybasis10%ofthenetprofit Communitieswillforfeitcontributions whereanactofvandalismorunrestcauses damagetotheupstreamfacilities Page4of

5 CONTROVERSIES Different stakeholders have raised concerns about certain provisions of the Bill. Below is a list of the mostcontroversialissues. 1. Fiscal provisions increase cost of doing business: The Bill provides for multiple taxes (Nigeria HydrocarbonTax,CompanyIncomeTax),higherrents and royalties, and levies (Niger Delta Commission Levy, Petroleum Host Community Fund, Education Tax). This is most noticeable in the deep offshore operations. 2. Retroactive reversal of contracts: The PIB advocates reversal of provisions of prior agreements andcontracts,andintroducesnewfiscalregimeseven foroldpetroleumsharingcontracts. 3. Relinquish acreage: The PIB provides for the revocation of acreage that is yet to be developed by the allocated owners. Opponents of this provision claimthatitisaninfringementonearlieragreements whileitsproponentsarguethatitisrequiredtobring innewinvestmenttotheindustry. 4. Calculating payments: The Bill advocates that oil companieswillpayforquantitiesproducedinsteadof quantities exported. The oil companies have argued thatsolvingthesecuritychallengeandfixingsabotage of logistics infrastructure is the core responsibility of government. CONCLUSION: WHY THE PIB MUST BE PASSED NOW 5. Duplication of roles: There are overlaps of roles and responsibilities with a number of the institutions created under this Bill. For instance, the Nigerian Petroleum Inspectorate, Petroleum Products Regulatory Agency, and Petroleum Infrastructure Development Fund have conflicting responsibility for funding the development of infrastructure especially forthedownstreamsectorofthepetroleumindustry. 6. Deadline for Gas flaring: According to the PIB (HB.54), December 31 st 2012 is the deadline for gas flaring. The integrity of this date is questioned given thatthebillisyettobepassed. 7. Toomuchpower:TheBillprovidestheMinisterof Petroleum too much power to grant, revoke and reallocatelicenses. 8. Regulatory Independence: Regulators need to be fullyindependentandnotunderthesupervisionofthe MinisterofPetroleum. 9. Potential delays in passing the Bill: Can the 7 th National Assembly continue debates from where the last Assembly stopped? This is possible according to Rule 111 of the Senate but there are voices in the Senatethatdissenttothisinterpretationandwantthe Bill to be reintroduced and for the process to be started all over again. There is also the challenge of harmonizing the different versions of the Bill (Executive,Senate,andHouse). ThePetroleumIndustryBillisalandmarkopportunitytoheraldaneweraofreforminthe oilandgasindustrythatwillmaximisenigeria svastpotential,restoretransparencyand facilitateathrivingindustryandoveralleconomy.failuretopassthepibhasandwilllead toareductionofinvestmentsinthenigeriapetroleumindustry.todate,mostoftheoil companies have ceased investments in the sector until there is clarity as to what provisionswillbecontainedinthefinalbillandhowitwillaffecttheindustry.withthe rise of other attractive petroleum industries in Africa(Angola, Ghana, etc), Nigeria must understandthatinvestmentsarefungibleandwilleventuallyflowtoalternativecountries that are more receptive. Lastly, the recent 2012 efforts to deregulate the downstream sectorcreatesanopportunityforlawmakersandotherstakeholderstopushfortheswift passageofthisbill. AweleOkigboisa SeniorPolicyLeadat NextierAdvisory. Nextier Limited is a multi competency public sector advisory firm with expertise in policy analysis, policy design and implementation, strategic planning,processre engineering,andhumancapitaldevelopment.weworkwithpublicsectorclientstodeliversustainedimpact. SuiteF 03,KenujO 2 Offices, BehindGamesVillage,Durumi, Abuja Plot161aSinariDaranijoStreet, OffAjoseAdeogunStreet,VictoriaIsland, Lagos No.6aAguluzoigboClose, OffNzaStreet,IndependenceLayout, Enugu 17742PhelpsHillLane, Derwood,MD20885, UnitedStates i n f n e x t i e r l i m i t e d. c o m w w w. n e x t i e r l i m i t e d. c o m NextierAdvisory SustainedImpact