Despite the many years of rejections, suspensions and approvals, President Muhammadu Buhari presented the Petroleum Industry Bill (PIB) 2020 (the Bill) to the 9th National Assembly for consideration and passage in September 2020. Although most onlookers were not certain about the possibility of it sailing, owing to the many years of disappointment, the Bill was eventually passed by both the Senate and the House of Representatives earlier in July 2021. And more strikingly, the President signed the Bill into Law (now Petroleum Industry Act, 2021 or PIA) on 16 August 2021.
The Act is a single omnibus law that provides legal, governance, administrative, regulatory and fiscal framework for the Nigerian Petroleum Industry and development of Host Communities. It repeal existing petroleum-related laws (but for some savings provisions), with the bid to comprehensively reform the Nigerian Petroleum Industry. The Act contains five different chapters namely: Governance and Institutions; Administration; Host Communities Development; Petroleum Industry Fiscal Framework; and Miscellaneous Provisions with seven schedules.
In this publication, we have highlighted key provisions contained in these chapters, with commentaries to guide industry participants.
A. Governance and Institutions
This chapter introduces changes to the governance and institutional framework of the Nigerian oil and gas industry, with the key objectives of creating effective governing institutions, promoting transparency and accountability in the administration of petroleum resources; and to establish the framework for the creation of a commercially oriented national petroleum company.
Some of the key changes introduced under the governance and institutions include the following:
- Establishment of Nigerian Upstream Regulatory Commission (NURC or the Commission):
The PIA provides for the establishment of the Commission to oversee the regulation of upstream petroleum operations in the country. A Chief Executive, who will be supported by six (6) Executive Commissioners, will handle the day-to- day administration of the Commission.
The Commission will take over the current functions of the Department for Petroleum Resources (DPR), with respect to the regulation of technical, operational, commercial and environmental activities associated with upstream petroleum operations.
- Establishment of Frontier Exploration Fund (FEF):
In furtherance of the role of the Commission in the exploration and development of frontier basins in the country, the PIA provides for the set-up of a FEF. The Fund will be managed by the Commission and it is to be used for promoting the exploration of frontier basins, while also developing exploration strategies and portfolio management for unassigned frontier basins in the country.
Thirty percent (30%) of Nigerian National Petroleum Company Limited's profit from production sharing, profit sharing and risk service contracts will be set aside for funding the FEF.
- Establishment of Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA or the Authority):
The PIA provides for the establishment of the Authority to oversee the regulation of the midstream and downstream petroleum operations in the country. A Chief Executive, who will be supported by seven (7) Executive Directors, will handle the day-to-day administration of the Authority. The Authority will take over the current functions of the DPR, with respect to the regulation of technical and commercial activities in the downstream and midstream petroleum operations. Furthermore, the Authority will be saddled with the responsibilities of providing pricing and tariff frameworks for natural gas in midstream and downstream gas operation, and petroleum products based on fair market basis, thus, absorbing the current responsibilities and functions of the Petroleum Products Pricing Regulatory Agency (PPPRA).
- Establishment of Midstream and Downstream Gas Infrastructure Fund (MDGIF):
The PIA provides for the establishment of the MDGIF that will be managed by a Governing Council, with the objective of financing government's participating or shareholders' interests in infrastructure related to midstream operations to unlock private investments and to enhance domestic consumption of natural gas in Nigeria. The MDGIF will be mainly funded by the imposition of a 0.5% levy on wholesale price of petroleum products and natural gas sold in Nigeria. The MDGIF levy shall become due within 21 days of the sale of petroleum products and natural gas in Nigeria, while necessary administrative procedures and penalties for non- compliance will be specified in a regulation to be made by the Authority.
- Establishment of Nigerian National Petroleum Company Limited (NNPC Limited):
The PIA provides for the establishment and incorporation of a new National Oil Company to be known as NNPC Limited within six months of the commencement of the Act. NNPC Limited will be fully owned by the Government of Nigeria and all shares in the company will be held in equal proportions by the Ministry of Finance Incorporated and Ministry of Petroleum Incorporated.
Upon incorporation of NNPC Limited, the Ministers of Petroleum Resources and Finance within an 18-month timeline, will determine the assets and interests of the current Nigerian National Petroleum Corporation (NNPC or Corporation) to be transferred to NNPC Limited or its subsidiaries, while also appointing NNPC Limited to act as the agent of NNPC for the purpose of managing the process of winding down the assets, interests and liabilities of the Corporation.
The PIA further requires NNPC Limited and its subsidiaries to conduct their affairs in a commercial nature without recourse to government funds; and the expectation is for the Company to be operated as a full-fledge limited liability company with the goal of delivering value, profits and dividends on an ongoing basis to its shareholders.
Key roles of NNPC Limited include:
- Carrying out petroleum operations on commercial basis comparable to private companies in Nigeria engaged in similar activities
- Assuming the role of concessionaire of all production sharing contracts (PSCs), profit sharing and risk sharing contracts on behalf of the Federation
- Lifting and selling royalty oil and tax oil on behalf of the Commission and FIRS at commercial rates and payment of the corresponding revenue to the relevant government accounts
- Carrying out test marketing to ascertain the value of crude oil and report to the Commission
- Holding the rights to natural gas under PSCs entered prior and after the effective date of the Act
- Acting as agent of the Commission for the management of PSCs for a fee, in a contract between the Commission and the NNPC Limited
- Assuming the working interest of NNPC in joint operating agreements (JOAs) executed before the effective date of the PIA
- Engaging in the business of renewables and other energy investments
- Promoting the domestic use of natural gas through development and operation of large- scale gas utilization industries.
- Acting as the supplier of last resort national security reasons.
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