A Review Of The Presidential Directive On Reduction Of Petroleum Sector Contracting Costs And Timelines, 2024

1. INTRODUCTION

The petroleum and gas industry is one of the world's largest and revenue generating sectors.¹ Since petroleum is crucial to both national and global economies, there is a need to ensure that everything is in place to ensure a smooth and successful operation of the industry. One of the biggest issues facing the petroleum industry in Nigeria is the amount of time it takes to process a contract from beginning to end. The latter has a detrimental effect on the industry as it continues to dwindle investor interest and confidence, as well as competitiveness for oil and gas investors.

Nigeria has suffered severe setbacks on series of investment in the sector because the investment climate is not conducive and competitive enough to attract investors. Despite the size of the country's resources, it is still not attractive enough for the required capital and finances to be pumped into the industry.² After series of studies into the cause of the setback in the petroleum industry, it was discovered that the cost of doing business in the oil and gas industry was quite high which was also as a result of the lengthy contracting timelines. Thus, there was a need to reform the contracting process by increasing the length of time for third-party contracts awarded pursuant to a Joint Operating Agreement (JOA) and a Production Sharing Contract (PSC) and reducing the timeframe for obtaining approvals, and generally streamline the contract cycle.

Therefore, in order to guarantee a decrease in contracting costs and deadlines, the President issued the Presidential Directive on Reduction of Petroleum Sector Contracting Costs and Timelines, 2024 (hereafter referred to as "The Directive"). This Directive seeks to lessen administrative bottlenecks, shorten the time within which contracts may be approved and accelerate Nigeria's oil and gas investments.

In this piece, we will review the essential component of the Presidential Directives on Reduction of Petroleum Sector Contracting Costs and Timelines, 2024, and discuss its applicability and possible effects in Nigeria.

2. KEY COMPONENTS OF THE DIRECTIVE

1. Financial Approval Thresholds

The directive provides $10,000,000 (Ten Million United States Dollars [USD]) as the minimum financial requirement before the National Petroleum Company Limited (NNPCL) may approve any contract. When a Production Sharing Contract (PSC) or a Joint Operating Agreement (JOA) provides a minimum financial requirement, before the NNPCL gives consent, the Ministry of Finance Incorporated (MOFI) and Ministry of Petroleum Incorporated (MOPI) must ensure that it is the required minimum or make certain that the NNPCL amends such contract financial requirement to $10,000,000,000 (Ten Million USD) or its naira equivalent at any authorized platform³. When this requirement is satisfied, the MOFI and MOPI must review the amount and change it to correspond with the yearly statutory customer inflation rate⁴.

2. Consent Timelines

The Directive provides instructions on consent schedule for a fresh application and response to inadequate application. The failure of any Body to communicate its decision or response within the timeline specified, will amount to a deemed grant of consent and approval.⁵ This consent criteria promote cooperation among the bodies to facilitate quick contract process. The NNPCL, the Nigerian Upstream Investment Management Services Limited (NUIMS), NCDMB, and Industry stakeholders must develop a simple single contract approval process at each contract phase, including prequalification, technical, commercial, and final approval stages.⁶ Furthermore, the NNPCL and NUIMS must approve each contract and procurement and communicate their decision with the applicant within fifteen (15) days from the date of the submission⁷. However, when an approval application is considered inadequate during review, the NNPCL and NUIMS must request additional information for clarity. Which the applicant must provide within seven (7) days and to which they must respond with their decision within another seven (7) days.

All Nigerian Content Plans (NCPs) submitted to the Nigerian Content Development & Monitoring Board (NCDMB) following Section 7 of the Nigerian Oil and Gas Industry Content Development Act 2010 (the Act) must be reviewed and their decisions communicated within ten (10) days⁸. If a submitted application is insufficient, a request for additional information is made and expected from the applicant within seven (7) days, and the NCMD must respond within another seven (7) days. The NCMDB must send any expatriate quota received with all supporting materials to the Ministry of Interior or the appropriate ministry, department, or agency within ten (10) days. Whenever an application is made to the NCDMB for approval in which the Act did not specify any approval timeline, the decision of the NCDMB shall be communicated within fifteen (15) days of receiving such request, and failure to communicate is considered a deemed approval⁹ .

3. Third Party Contract Duration

Third-party contracts granted under a PSC or JOA are valid for five years, with a renewal option for an additional two years after expiration¹⁰

3. CONCLUSION

The Presidential Directive on Reduction of Petroleum Sector Contracting Costs and Timelines, 2024, is a significant stride towards streamlining the processes within Nigeria's oil and gas industry. This directive improves the ease of doing business and creates an environment that is more appealing to domestic and foreign investors by tackling the issues of protracted approval processes and expensive contracting fees. The key components of this directive underscore a commitment towards efficiency and transparency. The directive emphasizes collaboration among relevant stakeholders including the MOFI, MOPI, NNPCL, NUIMS, and NCDMB, guaranteeing a consistent approach to contract approval processes. Furthermore, the directive provides for third-party contract duration, offering clarity and stability. This contributes to a conducive environment for long-term investment planning and project execution. Overall, the implementation of this Directive is poised to catalyse positive outcomes, including improved operational efficiency, increased investor confidence, attractiveness of the industry and ultimately, sustainable growth within Nigeria's petroleum sector. This Initiatives is an essential tool for realising the sector's full potential and advancing the country's overall growth as it moves closer to economic diversification and development.

Footnotes

1 Rebecca McClay, "How the Oil and Gas Industry Works" https://www.investopedia.com/investing/oil-gas-industry-overview/ assessed April 29 2024.

2 Olu Verheijen, "Tinubu's Energy Reforms will Make Nigeria Great Again" This Day, April 28, 2024 https://www.thisdaylive.com/index.php/2024/04/28/olu-verheijen-tinubus-energy-reforms-will-make-nigeria-great-again assessed April 30 2024.

3 Paragraph 1(1), the Directive.

4 Paragraph 1(2), the Directive.

5 Paragraph 2(4 and 9), the Directive.

6 Paragraph 2(1), the Directive.

7 Paragraph 2(2), the Directive.

8 Paragraph 2(8), the Directive.

9 Paragraph 2(14), the Directive.

10 Paragraph 3, the Directive.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.