Nigeria Negotiates $300m job creation scheme with World Bank

The Nigerian Petroleum Industry Governance Bill - Reforming a Sector in a Low Oil Price Environment  Ugbizi  Ogar

Overview

Energy reforms have been long overdue  in Nigeria, but since 1999 when Nigeria returned to democratic governance, attempts  to  overhaul   the  oil and gas sector have been unsuccessful.

The Discovery of crude oil in commercial quantities in Nigeria in 1956 signalled the dawn of a new era in the countries energy landscape. By 1958, commercial production of crude oil had started in earnest and by the turn of the century, a myriad of laws had been developed around the unincorporated joint ventures and production sharing contracts which the Federal Government had entered into, with several international oil companies (IOCs).

The Plural laws governing Nigeria’s oil and gas industry  have many inadequacies, which make  it difficult to  efficiently manage the industry and guarantee optimal returns to the traditional  resource owner – the Federal Government of Nigeria. Bottlenecks and downsides exist in the myriad of oil and gas laws, chief of which is the failure of the 1993 PSC contracts to capture a windfall profit to the government in the event of a rise in global crude oil prices. These drawbacks  and subsequent desire of the democratically elected government of Olusegun Obasanjo to completely overhaul the oil and gas sector in Nigeria necessitated the formation of the Oil and Gas  Reform Implementation Committee  (OGIC) in year 2000.

The recommendations of the OGIC emphasized the need to clearly separate the commercial institutions in the oil and gas sector  in Nigeria, from the regulatory and policy making institutions. These functions were at some point being performed by the humongous national oil company – the Nigerian National Petroleum Corpration (NNPC) whose regulatory, commercial and operational functions remained an unscrupulous maze that served to engender sharp practices.

The recommendations of the OGIC gave rise to the Petrleum Industry Bill (PIB),  an executive bill seeking to reform  the oil and gas sector, first sent to Nigeria’s legislative house by the Government of Umaru Yar Adua in 2008.  The PIB was mooted as an omnibus bill which sought to streamline the 18 different oil acts into one law, and thus consolidate the
various
legislative,
regulatory, and fiscal policies, instruments and
 institutions that govern the nation’s all important oil and gas industry. Nigeria still depends on its petroleum resources for over 70% of government revenue.

Objectives

The Petroleum Industry Bill set out to:

• Create a conducive environment for petroleum operations;
• Enhance exploration and exploitation of petroleum resources in Nigeria for the benefit of the Nigerian people.
• Optimize domestic gas supplies, particularly for power generation and industrial development;

• Establish a progressive fiscal framework that encourages further investment in the petroleum industry while optimising revenues accruing to the Government;
• Establish commercially oriented and profit driven oil and gas entities;
• Deregulate and liberalise the downstream petroleum sector;
• Create efficient and effective regulatory agencies;
• Promote transparency and openness in the administration of the petroleum  resources of Nigeria;
• Promote the development of Nigerian content in the petroleum industry;
• Protect health, safety and the environment in the course of petroleum operations;

The PIB exprienced several hiccups in the leglislature, the IOCs were against any change of laws and ultimately stopped new investments in the sector in Nigeria, citing policy inconsistencies and unclarity. Other producers like Ghana and Angola benefited from this position while Nigeria lost the opportunity to increase Government take, when crude oil sold for over $100/bbl  and many deep water projects were most viable.  

Nigeria’s incumbent government which assumed power on may 29th 2015, opted to split the PIB into four distinct parts namely: The Petroleum Industry Governance Bill,  Petroleum Fiscals Bill, The Upstream, Midstream and Downstream Administration Bill and the Petroleum Revenue Management  Bill including Petroleum Host Community Fund. On 25 May, 2017  the Nigerian Senate passed the long awaited Petroleum  Industry Governance Bill (PIGB) The first of four bills taken out of the omnibus PIB.   

The PIGB aims to:

•          Separate the regulator from the NOC by establishing a new regulator for upstream and downstream to be called: the Nigeria Petroleum Regulatory Commission.

•          Incorporate the Nigeria Petroleum Assets Management Company that will manage the state's non-paying interest in PSCs.

•          Incorporate a fully-integrated NOC, called the National Petroleum Company.

Implications

Nigeria missed its golden opportunity to reform its oil and gas industry and still encourage deep water investments when the crude oil price was over $100/ bbl. Since the fall in global crude oil prices which started in June 2014, Nigeria has snow balled into a grippling recession and government revenues have more than halved. Foreign direct investments have dwindled due to fiscal and monetary policy inconstiencies which have adversely affected the Nigerian Naira. It is estimated that the Nation lost about $120 billion investment inflow into the oil and gas sector due to the non passage of the PIB.

 Today, reforming the oil and gas industry in Nigeria is a bitter pill that must be swallowed, Investors confidence which has been in a quagmire for over a decade has to be restored, reforms which engender policy clarity and define the role of Government will enhance commitment in the industry. The Federal Government  in Nigeria needs  to undertake to follow though with oil industry reforms in a seemingly negative  macroeconomic environment.

Conclusions

If implemented, oil and gas reforms will remove regulatory uncertainties and create efficient and effective institutions  in the oil and gas sector in Nigeria,  with the potential to attract up to $30 billion investment into the industry in Nigeria. The Onus is therefore on the Federal Government  to follow through with the PIGB.