Nigeria: The End Of The NNPC - Innovations Under The Petroleum Industry (Governance) Bill

Last Updated: 11 August 2017
Article by Ngozi Medani and Victor Onyegbado

The End Of The NNPC - Innovations Under The Petroleum Industry (Governance) Bill

INTRODUCTION

In the June edition of our newsletter, we did promise to conduct a review of the recently passed Petroleum Industry (Governance & Institutional Framework) Bill also known as the PIGIF Bill. The passage of the Bill by the Nigerian senate indeed does mark a huge step forward in revamping the status quo in the country's hydrocarbon sector. Although the Bill is yet to be passed by Nigeria's House of Representatives and get the Presidential assent, it is still essential that a comprehensive review of what could become the Petroleum Industry (Governance) Act is conducted.

The hydrocarbon sector is one of utmost importance to Nigeria's growing economy. Ranked among the top 10 producers and with one of the largest gas reserves in the world, the country's hydrocarbon sector has remained the country's primary source of revenue, leading to calls for a review of the workings of the sector. The Bill is the first of many bills targeted at causing reform to Nigeria's Petroleum industry.

A NEW REGULATORY BODY

The Nigerian Petroleum Regulatory Commission (NPRC)

Section 1 of the Bill spells out its objectives to include:

  1. create efficient and effective governing institutions with clear and separate roles for the petroleum industry;
  2. establish a framework for the creation on commercially oriented and profit driven petroleum entities that ensure 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.

As is clear, among the many objectives of the bill is the introduction of new regulatory bodies to Nigeria's Petroleum Industry. Currently, the regulation of the industry is primarily conducted by the Department of Petroleum Resources (DPR), an arm of Nigeria's Ministry of Petroleum Resources. Under the current regime, the DPR monitors the operation of oil companies, issues licenses and permits, collects royalties and rent amongst other things. The PIGB replaces the DPR with the Nigerian Petroleum Regulatory Commission (NPRC) established under Section 4 of the Bill.

Section 4(3) further goes to vest all of the assets, funds, resources, movable and immovable properties which were previously held by the soon to be extinct Petroleum Inspectorate, Petroleum Products Pricing Regulatory Agency (PPPRA) and the DPR to the NPRC. A further read of Section 4 of the Bill sees the draftsman transfer all of the rights, obligations as well as liabilities of the DPR to the soon to be created NPRC.

The functions of the NPRC are rather extensive, spanning over 15 subsections and include:

  1. the administration and enforcement of policies, laws and regulations relating to all aspects of petroleum operations which are assigned to it
  2. monitoring and enforcement of compliance with the terms and conditions of leases, licenses, permits and authorisations as issued by the Commission concerning petroleum operations;
  3. working hand in hand with the Ministry of Environment and any other agency in charge of environmental matters in ensuring compliance with national and international technical standards for all persons involved in petroleum operations;
  4. regulating bulk storage, transportation and transmission of crude oil and gas and set rules for the common carrier systems for crude oil and gas;
  5. modification, amendment, extension, suspension, review, cancellation and reissuance, revocation and / or termination of licences, permits and authorisations
  6. the regulation of and ensuring the supply, distribution, marketing and retail of petroleum products; amongst very many other functions as contained in the Bill.

Section 5(a) mandates the NPRC to deal with all environmental matters in the petroleum industry although and quite laudably, the NPRC is mandated to consult with the Ministry of Environment in prescribing regulations and directives on matters relating to the environment in the Petroleum Industry. No doubt, this will lead to the NPRC working closely with the Ministry of Environment in curbing the incessant pollution challenges that plague Nigeria's environment.

The Petroleum Equalization Fund (PEF)

The Bill also retains the current Petroleum Equalization Fund although it does repeal the Petroleum Equalization Fund (Management Board) Act Cap P11 LFN 2004 thereby making the proposed law, the primary instrument for the governance of the PEF. Section 36 of the Bill is extensive as it is specific in its provisions as to the financing of the fund unlike the PEF Act which is vague as to the fund's financing. Section 1 of the PEF (Management Board) Act states that:

There is hereby established a Fund to be known as the Petroleum Equalization Fund (in this Act referred to as "the Fund") into which shall be paid-

  1. any net surplus revenue recovered from oil marketing companies pursuant to this Act; and
  2. such sums as may be provided for that purpose by the Federal Government.

Section 36(1) of the Bill is a lot more specific in its provisions relating to the financing of the fund in providing that:

  1. There shall be established the Petroleum Equalisation Fund ("the Equalisation Fund") into which shall be paid all monies payable to the Equalisation Fund:

    1. by way of a 5% fuel levy in respect of all fuel sold and distributed within the Federation which shall be charged subject to the approval of the Minister;
    2. all subventions, fees and charges for services rendered or publications made by the Fund; and
    3. all other funding which may, from time to time, accrue to the Fund.
    4. any net surplus revenue recovered from petroleum products marketing companies pursuant to this Act; and
    5. such sums as may be provided for purpose of the Equalisation Fund by the Federal Government

It is also specific in relation to the objectives of the PEF under the Bill. Section 37 notes that the PEF is aimed at:

  1. enhancing the development of all regions of the federation by ensuring economic balance in the price of petroleum products;
  2. collecting and providing funding for infrastructural development throughout the federation; and
  3. ensuring the efficient distribution of petroleum products throughout the federation.

Section 56(1) of the bill goes further to provide for the Fund's utilization. It provides that the PEF is to utilize the funds generated in accordance with Section 36-

  1. for reimbursement of oil marketing companies for any loss sustained by them solely and exclusively as a result of the sale by them of petroleum products at uniform prices throughout Nigeria as may be fixed by the Minister pursuant.
  2. for the provision of financing for infrastructural development throughout the federation;
  3. for the provision of financial and other financial support as may from time to time be determined by the Minister;

This is unlike its predecessor, the PEF (Management Board) Act which in Section 2 on the utilization of the Fund simply provides that-

"The Fund shall be utilised for the reimbursement of oil marketing companies for any loss sustained by them solely and exclusively as a result of the sale by them of petroleum products at uniform prices throughout Nigeria being prices fixed by the Minister pursuant to section 6 (1) of the Petroleum Act."

As relates to the PEF, the PIG Bill is relatively laudable in that unlike its soon to be predecessor, the Bill is specific in providing for where the funds for the PEF are to be sourced from and most importantly, it is specific as to the disbursement of the Fund.

NEW COMMERCIAL ENTITIES

Three new commercial entities are established under the Bill namely:

  1. The Ministry of Petroleum Incorporated (MOPI)
  2. Nigerian Petroleum Assets Management Company (NPAMC); and
  3. National Petroleum Company (NPC).

Ministry of Petroleum Incorporated (MOPI): The Bill provides that this Ministry is to hold on behalf of the government, all government shares in the successor commercial entities .i.e. the NPAMC and the NPC. In essence, it will be the Federal Government's investment vehicle, used to invest in the commercial entities as established by the Act and perhaps, independent commercial entities which may in the future, be established by the Bill (Act), subject to amendment of course.

Nigerian Petroleum Assets Management Company (NPAMC): As is contained in Section 37(2) (a), the NPAMC is primarily tasked with the management of assets held by the Nigerian National Petroleum Corporation (NNPC) under the Production Sharing Contracts and Back-in Right Provisions under the Petroleum Act 1969.

The shares of the NPAMC are to be held into the ratio of 20% to the Bureau of Public Enterprises (BPE), 40% to the Ministry of Finance Incorporated, and 40% held by the Ministry of Petroleum Incorporated (MOPI) on behalf of the Federal Government. The wording of the sections relevant to the NPAMC imply the metamorphosis of the NNPC to the NPAMC in that the Bill does mandate the Minister of Petroleum to transfer within twelve months of the NPAMC's incorporation, some employees, assets, liabilities, rights and obligations of the NNPC perhaps, in a manner as similar as the transformation of the DPR to the NPRC. It is important to note that in accordance with Section 44 of the Bill, the transfer by the Minister will discharge the NNPC of any liability or obligations and will not constitute a breach of obligations in contract of the NNPC under any contract it may have entered into prior to the transfer (See section 45).

National Petroleum Company (NPC): The Bill further establishes the National Petroleum Company (NPC) which at the point of incorporation, has its shares held in the exact same ratio as the NPAMC although after a period of five years have passed after its incorporation, not less than 10% and after a period of another ten years, a further 30% of its shares should be divested to the public in a most transparent manner. Of all of the commercial entities established by the Bill, this is the first which the Bill implies, will invite investment from the general public. The NPC mirrors the NPAMC in that the Bill does provide for the transfer of employees, assets and liabilities from the NNPC in a manner similar to that of the NPAMC.

MISCELLANY

1.0. Absorption of Liability

The Nigerian Petroleum Liability Management Company

The metamorphosis of the NNPC into the NPAMC and the NPC under the PIG Bill does raise the question of liability .i.e. who manages the liabilities of the NNPC? The Bill answers this question by establishing the Nigerian Petroleum Liability Management Company (NPLMC) which shall assume Corporation ("NNPC") and the pension liabilities of the Department of Petroleum Resources transferred to it" (see Section 86 of the Bill).

2.0. The NPRC Special Investigation Unit

Section 34 of the PIG Bill makes reference to a Special Investigation Unit which from the Bill's wordings, operates as a form of enforcement unit of the NPRC. According to the Bill, the Unit is tasked with surveillance of oil and gas installations as well as vessels where it has sufficient reason to believe that these structures have illegal petroleum operations going on.

The Unit is also tasked with working with other government agencies in detecting and prosecuting offences under the PIG Bill as well as working with the Nigerian Police and other relevant law enforcement agencies in arresting persons who commit offences under the PIG Bill.

CONCLUSION

Although it is yet to be signed into law, the PIG Bill is arguably extensive in its provisions concerning the governance of the Petroleum Industry. Although the Minister still remains powerful under the Bill, the recommendations for collaboration with other relevant government agencies is a laudable development as it ensures that the Petroleum Industry operates with little or no chances of other laws being violated.

Furthermore, the Bill should be lauded on its clarity on certain stances such as the disbursement of the PEF. While we await the passage of subsequent bills concerning the fiscal regime of the petroleum industry, the PIG Bill offers clarity on the financing and disbursement of the Petroleum Equalization Fund.

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