Reform of Nigeria's oil and gas sector has been at the top of President Muhammadu Buhari's agenda since assuming office in May 2015.
Despite being drafted in 2007, the 223-page Petroleum Industry Bill (PIB) has failed to become law, consequently creating uncertainty in the sector. Since its inception, the PIB has been dogged by lack of political consensus and disagreements between the government and global oil majors over its key terms. The new head of the Nigerian National Petroleum Corporation (NNPC), Emmanuel Kachikwu, has been quoted as saying: "the average source of volumes in investments that we are losing on an annual basis because of the lack of PIB is in excess of $15 billion".
The PIB has now been split into a series of bills that unbundle the controversial fiscal provisions from the non-fiscal components, which the government hope will ease its passage through parliament. The first of which is the 45-page Petroleum Industry Governance and Institutional Framework Bill (PINGIF).
If the PINGIF is passed, Buhari, the former military ruler who served as Chairman of the state oil giant NNPC in the 1970's, will oversee the break-up of the NNPC and transfer of its responsibilities to successor entities. Under the PINGIF, the NNPC will be replaced by two new entities (as opposed to the numerous companies previously proposed in the PIB):
- a National Petroleum Company (NOC) will be created to operate as a fully commercial entity which will be partly privatised, with at least 30% share capital to be divested to the public in a 'transparent manner' within six years of its incorporation; and
- a Nigerian Petroleum Assets Management Company (NPAM) will be created to own and manage petroleum assets on behalf of the government.
The PINGIF also legislates for the creation of a new industry regulatory body called the Nigeria Petroleum Regulatory Commission (NPRC). The NPRC would oversee oil licencing rounds as well as the renewal and cancellation of licences. The powers of the NPRC are wide and include the power to require licensees and permit holders to publish particular information relating to petroleum operations where it considers it to be in the public interest and, through the NPRC Special Investigation Unit, the power to arrest without warrant any person who is found committing an offence under the PINGIF. However, any decisions made by the NPRC must be in writing, contain the basis for the decision and be accessible to the public; which will assist with accountability. Compared with previous PIB drafts, the PINGIF removes ministerial powers on board appointments which will now be made by the Nigerian president and confirmed by the senate.
Moody's is optimistic about the future of Nigeria's economy, stating in the 2015 Annual Report on Nigeria that: "...the successful presidential elections have caused a structural shift that opens up the possibility of gradual improvement concerning institutional strength over the medium term especially concerning rule of law, control of corruption and government effectiveness".
The PINGIF is the first step on a long road to reforming, and restoring investor confidence in, the Nigerian oil and gas sector. The slump in oil prices, weakening of the Naira and the depletion of Nigeria's foreign reserves, caused by Nigeria's continued dependence on oil for more than 90 per cent of government revenues, has increased the pressure on the government to remove the uncertainties caused by the delays in passing the PIB. Uncertainty remains around taxation and fiscal reform which has not been addressed in the current draft of the PINGIF. However, this is expected to be addressed in the next piece of draft legislation.
While there are concerns that the draft legislation does not go far enough, the hope is that the PINGIF is a step in the right direction towards greater certainty, transparency and accountability and will unlock much needed further investment into the sector. Time will tell how industry stakeholders will react to its contents and how quickly it will be adopted into law.
If you would like to discuss any of the issues raised above, please do not hesitate to get in touch with the authors or any of your other regular contacts in the Dentons oil and gas team.
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