INTRODUCTION
The Petroleum Industry Act (PIA) 2021 was enacted as a landmark reform to regulate Nigeria's oil and gas sector. It aims to address long-standing issues such as outdated legislation, weak governance, lack of transparency, and insufficient investment. Today, the PIA stands as the principal legal, regulatory, and fiscal framework governing the Nigerian Petroleum Industry. This article critically examines the legal and regulatory impact of the PIA on Nigeria's Oil and Gas sector more than three years since its enactment, highlighting progress made, persisting legal gaps, and emerging implementation challenges.
PROGRESS MADE UNDER THE PETROLEUM INDUSTRY ACT
Since its enactment, the PIA has ushered in a number of structural and institutional reforms aimed at strengthening Nigeria's oil and gas governance. Below is a highlight of the major strides recorded:
- Dual Regulatory Framework and Commercialisation of NNPC:1 The PIA established two regulators—Nigerian Upstream Petroleum Regulatory Commission (NUPRC) and Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) to improve oversight and efficiency in the industry. Both have been operational since 2021. It also commercialised the Nigerian National Petroleum Corporation (NNPC) into Nigerian National Petroleum Company Limited (NNPCL), incorporated under CAMA in July 2022, with government shares held by the Ministry of Finance Incorporated and the Ministry of Petroleum Incorporated.
- Host Community Development Trust (HCDT):2 To foster peace and sustainable development, the PIA mandates settlors to allocate 3% of their prior year's actual operating expenditure to fund a Host Community Development Trust. Several international oil companies (IOCs) and indigenous producers have since established such Trusts, and in some cases, funds have been disbursed to support tangible community development projects.
- Fiscal Reforms: Hydrocarbon Tax and Incentives:3 The PIA introduced a dual tax structure comprising the Hydrocarbon Tax (HT) and Companies Income Tax (CIT). HT applies at 15% for Petroleum Prospecting Licences (PPLs) and 30% for Petroleum Mining Leases (PMLs), but is exempt in deep offshore operations. Investment tax credits have been replaced with production allowances, while allowable costs under HT are capped at 65% of gross revenue, reshaping fiscal planning across the industry.
- Operational Sectoral Funds: The PIA created several dedicated sectoral funds to support exploration and development. Some of these funds which have become operational, are the Frontier Exploration Fund (30% of NNPCL's profit oil/gas), Host Community Trust Funds and the Gas Infrastructure Fund.
- Acreage Management and Relinquishment:4 The Act mandates relinquishment of idle acreage under drill-or-drop and conversion protocols. This has encouraged more active exploration and development efforts.
- Market-Driven Pricing and Import Reforms:5 The PIA liberalises gas pricing and permits licensed refiners or qualified traders to import petroleum products, supporting downstream deregulation.
- New Licensing Framework:6 The old licensing regime has been replaced with three new titles—Petroleum Exploration Licence (PEL), Petroleum Prospecting Licence (PPL), and Petroleum Mining Lease (PML), each requiring standardised Model Licences and Leases before Ministerial approval. Recent licensing rounds have applied this framework.
LEGAL GAPS AND IMPLEMENTATION CHALLENGES UNDER THE PETROLEUM INDUSTRY ACT (PIA) 2021
Despite being a landmark piece of legislation, the PIA has encountered several legal and structural gaps and implementation challenges that continue to hinder its transformative potential.
- Ambiguities in Key Definitions and Legal Drafting
The PIA suffers from a lack of clarity in fundamental terms. Definitions of "frontier basin" and "host community" are vague or entirely absent, with regulators or licensees left to define them, leading to regulatory uncertainty and room for manipulation.7 Furthermore, there is no clarity on whether the Host Community Development Trust Fund (HCDTF) supersedes or exists alongside earlier development levies (e.g., NDDC levy), creating potential overlaps.8
- Disparities in Funding and Regional Discontent
The PIA mandates that oil companies contribute 3% of their annual operating expenses to (HCDTF), a move seen by many in the Niger Delta as inadequate given the environmental degradation and economic hardship they continue to face. Prior to the passage of the PIA, community leaders pushed for a 10% allocation. In sharp contrast, 30% of NNPC Ltd's profit from oil and gas is allocated for the Frontier Exploration Fund, a provision widely perceived to disproportionately favour northern frontier regions with limited proven reserves. This has raised suspicions of political bias and unequal development priorities, and broader concerns around fiscal justice, transparency, and national unity.9
- Ownership and Resource Control Tensions
Section 1 of the PIA vests petroleum resources exclusively in the Federal Government, without any legal recognition of state or host community participation. Critics argue that the provision should have been expanded to reflect a more inclusive ownership structure involving state governments, local governments, and host communities, and that this would have ameliorated the persistent demands for resource control and reduced incidents of pipeline vandalism, crude oil theft, and related unrest.10 However, Section 44(3) of the Constitution of the Federal Republic of Nigeria 1999 (as amended) provides for the vesting and control of all mineral rights in the Government of the Federation, and whilst this provision remains, the PIA cannot on its own make provisions which are contrary to the Constitution.
- Implementation Delays and Weak Accountability
While some structural reforms have taken place, implementation has been inconsistent. Several host communities have yet to establish Trusts, and settlor compliance has been weak. Regulatory oversight by bodies like the NUPRC has been questioned for its limited enforcement capacity.11
- HCDT Structural Omissions
While subsidiary legislation made pursuant to the PIA provides for ADR mechanisms, there are no enforcement provisions for such mechanisms. Furthermore, there is no clear mechanism requiring oil and gas companies operating within the same host community to coordinate their development efforts, leading to project duplication and missed opportunities for collaboration.12
- Environmental Justice and Enforcement Gaps
Although the PIA introduced environmental provisions, including penalties for gas flaring, enforcement remains weak. In addition, section 107 of the PIA, which allows for the NUPRC or NMDRPA's discretion to override gas flare prohibitions, undermines environmental accountability.
- Overlap in Regulatory Mandates
Despite creating two distinct regulators, overlapping mandates persist, especially at crude oil export terminals. A 2023 presidential directive attempted to address this by assigning oversight of such terminals exclusively to the NUPRC13 but this lacks legislative backing.
- Disconnect from Global Energy Transition Trends
The PIA's emphasis on fossil fuel expansion through the (Frontier Exploration Fund) runs contrary to global clean energy trends. Critics argue that Nigeria missed the opportunity to embed sustainability or allocate revenue to a renewable energy innovation fund, posing long-term relevance concerns14.
RECOMMENDATIONS
To address these challenges, legislative clarification of key terms like "host community" and "frontier basin" is essential to ensure consistency and reduce legal disputes. The 30% allocation to the Frontier Exploration Fund should be reviewed in favour of more equitable development priorities. Strengthening Host Community provisions requires enforcing settlor compliance, coordinating upstream operator efforts within the same community, and establishing clear enforcement procedures for dispute resolution mechanisms and impact tracking. Stronger environmental safeguards are also needed, including clear oil spill compensation mechanisms and tighter controls on gas flare exemptions. Furthermore,. the PIA should be amended to resolve jurisdictional overlaps between NUPRC and NMDPRA. Transparency mechanisms, such as Nigeria Extractive Industries Transparency Initiative (NEITI) compliance, independent audits, and digital reporting, are essential. Lastly, the PIA should align with global energy transition goals by creating a renewable energy innovation fund and incentivising clean energy adoption.
CONCLUSION
The Petroleum Industry Act 2021 remains a landmark legislative reform, but its true potential is yet to be fully realised. While progress has been made in restructuring institutions and harmonising laws, certain gaps, such as legal ambiguities, weak enforcement, and delayed implementation continue to hinder impact. The success of the PIA ultimately hinges on statutory amendments, political will, transparency and accountability, consistent regulatory oversight, and stakeholder collaboration.
Footnotes
1. Chapter 1, Part iii, iv & v of the Petroleum Industry act 2021.
2. Chapter 3 of the Petroleum Industry Act 2021.
3. Chapter 4 of the Petroleum Industry Act 2021.
4. Section 88 of the Petroleum Industry Act 2021.
5. Section 167, 173 &317(9) of the Petroleum Industry Act 2021.
6. Section 70, 71 & 72 of the Petroleum Industry Act 2021.
7. Oluwafisayo Taiwo, ''a critical study on Nigeria's Petroleum Act 2021'' in https://illuminem.com/illuminemvoices/a-critical-study-on-nigerias-petroleum-industry-act-2021 (Accessed 5 July 2025).
8. David Oladeji Ehijie Borha,Olusola Joshua Olujobi, "An examination of the Petroleum Industry Act 2021: prospects, challenges, and the way forward 7.
9. Oluwafisayo Taiwo, ''a critical study on Nigeria's Petroleum Act 2021'' in https://illuminem.com/illuminemvoices/a-critical-study-on-nigerias-petroleum-industry-act-2021 (Accessed 5 July 2025).
10. David Oladeji Ehijie Borha1,Olusola Joshua Olujobi, "An examination of the Petroleum Industry Act 2021: prospects, challenges, and the way forward", 6.
11. Blessing Anolaba, "urgent Action Needed for the Optimal Implementation of the Petroleum Industry Act (PIA) in Oil-Producing Communities in the Niger Delta", in https://nigeria.accountabilitylab.org/urgent-action-needed-for-the-optimal-implementation-of-the-petroleum-industry-act-pia-in-oil-producing-communities-in-the-niger-delta/ (Accessed 5 July 2025).
12. David Oladeji Ehijie Borha1,Olusola Joshua Olujobi, "An examination of the Petroleum Industry Act 2021: prospects, challenges, and the way forward", 11.
13. KPMG (2023) "The President Clarifies Oversight Responsibility for Crude Oil Export Terminals and Integrated Petroleum Facilities, issue No 10.3 , 1.
14. ABC News, "Experts applaud PIA but want national plan on renewable energy, in https://abcnig.com (Accessed 7 July 2025).
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