Petroleum Industry Governance Bill

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Odujinrin & Adefulu

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Odujinrin & Adefulu
We review some of these reports here.
Nigeria Energy and Natural Resources

Last week we reported that the President withheld his assent to the Petroleum Industry Governance Bill (PIGB). At the time of our report, the news coverage had focused on the President rejecting the Bill because it "whittled down his powers." Since then, there have been various reports on the refusal of the President to assent to the first of four bills seeking to reform the Nigerian oil and gas industry. We review some of these reports here.

The Presidency Speaks

Shortly after the initial reports, the Presidency, through Senator Ita Enang, the Senior Special Assistant to the President on National Assembly Matters issued a press release citing three reasons for the President's refusal to assent to the PIGB:

  1. The funding of the Nigerian Petroleum Regulatory Commission (NPRC) through its proposed retention of 10% of the funds it collects on behalf of the Federal Government was regarded as inordinately high and would deprive the Federal, State and Local Governments of a significant proportion of available revenue;
  2. The PIGB was also said to extend the scope of activities of the Petroleum Equalization Fund (PEF)  in contradiction to the policies of the Federal Government; and
  3. Drafting inconsistencies.

The Presidency's position enunciated above suggests that the PIGB is not dead and may be revived by addressing some of the concerns raised. This article by Victoria Ohaeri & Samuel Diminas analyses the reasons given by the Presidency for refusing assent to the PIGB.  In our view, addressing the funding of the NPRC is critical. An independent regulator needs independent means of funding so that it is not subject to capture by the private sector that it is regulating or the government on whose behalf it is regulating.

Interesting Comments from some Niger Delta Leaders

In general, most of the comments in the public space have been toward ensuring that the PIGB is ultimately passed. The Guardian however published an article on Sunday titled "PIGB Inimical to Niger Delta's Interest, Stakeholders Insist".  In the article, the Guardian cited comments from Professor Tam David West, former Minister of Petroleum, Ledum Mittee, Former Chairman of the Nigerian Extractive Industry Transparency Initiative and Dr. Joseph Ellah, a former senior official of the NNPC. The objections of the trio were based on the proposed partial privatisation of the NNPC under the PIGB. According to David West; "Oil generates over 80 percent of Nigeria's foreign exchange and our national budget. It is the country's livewire and they want to go to the stock market to sell it to a few moneybags that will control the country forever." Ellah also argues that the "PIGB's primary objective is government's divestment from the oil and gas industry, (he) implored Buhari never to sign the bill, insisting that it is inimical to interest (sic) of the Niger Delta and the country. He explained that it would be unjust to take oil and gas from the Niger Delta people, through the Petroleum Act and make it a national asset, and thereafter turn around under the PIGB to hand it over to a few private entities."

With respect, the arguments above are based on an erroneous equation of Nigeria and NNPC's interests. Nigeria derives its right to the oil in the ground from the provisions of the Constitution and the Petroleum Act.  Based on this constitutional right, the Minister is empowered by the Petroleum Act to license the right to explore and produce petroleum to other entities. NNPC is merely a licensee of the government like Total, Shell, Sapetro & Oando. Therefore the (partial) privatisation of NNPC cannot equate to the sale of the Federal Government's rights to oil. Furthermore, a large proportion of the income generated by the government from the oil and gas industry is through tax and royalty. Indeed as the figure below shows even in a US$ 100/bbl world, NNPC's proportion of total government revenue is less than 7%.

Thus, the (partial) privatisation of NNPC or its successor companies will not have the consequences on government revenue or control as predicted by the respected analysts above. Indeed, we argue that without partial privatisation, the successes of any reforms to the national oil company will be extremely limited. A major cause of the problems which have plagued NNPC over the years has been the inordinate control exercised by political figures. If the state continues to exercise full ownership, these controls will not abate and the inefficiencies and waste associated with them will continue.

What's Next?

The passage of and the assent by Mr. President to the PIGB is important to send a signal to the market that this government is serious about the oil reform agenda. The uncertainty created by the lack of passage of the reforms have significantly affected investments in the Nigerian oil and gas sector.  We believe that the issues raised by the Presidency may be addressed fairly quickly and our recommendation are as follows:

  1. NPRC funding – either reduce the percentage of revenue that may be used in funding the NPRC to a figure more acceptable to the government or find another means of providing independent funding to the regulator. One method used in other countries is to levy the industry being regulated.
  2. PEF issues – this may be resolved by removing the provisions on PEF from the  Bill. We do not consider those provisions fundamental to the objectives of the Bill. Alternatively, the Executive may propose the amendments it considers necessary to ensure that the provisions are aligned with its policies.
  3. Drafting considerations – the Executive should propose its changes for the consideration of the National Assembly.

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.

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