On 16th August 2021, President Muhammadu Buhari signed the much awaited Petroleum Industry Bill (PIB or "the Bill") 2021 into law. This was confirmed in a statement issued by the Special Adviser to the President on Media and Publicity, Femi Adesina.
The signing of the Bill into law by the President is in furtherance to the passage of the Bill by both the Senate and the House of Representatives earlier in July 2021. Thus, the now Petroleum Industry Act, 2021 (PIA) will expectedly grow investors' confidence in Nigeria's Petroleum Industry and create more employment opportunities for the populace in the host communities.
The PIA introduces pertinent changes to the governance, administrative, regulatory and fiscal framework of the Nigerian Petroleum Industry, in order to ensure transparency, strengthen the governing institutions and attract investment capital, among other objectives. The Act contains 5 chapters which includes governance and institutions, administration, host communities development, petroleum industry fiscal framework and miscellaneous provisions.
Based on the existing regulations and laws, an entity can operate in more than one sector (i.e. Upstream, Midstream and Downstream sectors) of the Nigerian Oil and Gas Industry. For instance, a company engaged in upstream petroleum operations e.g., the production of crude oil, may also invest in the processing of the associated gas (downstream/midstream operation). However, this would become an old practice as a company shall not be involved in more than one stream of petroleum operation with the introduction of the PIA. Thus, companies impacted by this new provision would have to register a separate company for each stream of petroleum operations, subject to certain exemptions.
Interestingly, certain changes were made to the operations of upstream companies through the amendment of various oil industry laws. However the passage of an omnibus Act demonstrates a resolve to position the Nigerian Petroleum Industry for relevance, provided immediate implementation actions are taken and monitored for overall industry performance.
The signing of the Bill is a welcome and timely intervention as it is expected to provide certainty to potential and existing investors on the applicable fiscal regime in Nigeria's Petroleum Industry.
The new fiscal regime contained in the PIA will apply to new licenses and also become applicable to existing licences upon renewal of same. Thus, the erstwhile Petroleum Profits Tax Act will continue to apply to existing Oil Mining Licences (OMLs) or Oil Prospecting Licences (OPLs) obtained prior to the signing of the Bill until they are renewed, except the operators opt for the application of the PIA. Where companies intend to adopt the fiscal framework of the PIA prior to the expiration, renewal or termination of their subsisting OPLs and OMLs, they will be required to enter into conversion contracts.
Given the numerous changes to the fiscal framework of the industry, it is important for companies and stakeholders in the petroleum industry to conduct an impact assessment to decide whether or not to adopt the fiscal regime of the PIA prior to the due date of mandatory adoption. We will issue our detailed publication on the full changes introduced by the PIA and how they would impact operations of industry players in due course.
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