Nigeria: Revisiting the PIB

21 July 2020

Chineme Okafor writes on plan by the federal government to represent the Petroleum Industry Bill which has been ignored for years to the National Assembly for passage

The Minister of State for Petroleum, Mr. Timipre Sylva, recently disclosed that his ministry will within two weeks send to the National Assembly a revised Petroleum Industry Bill (PIB) to pass into law.

During an interview on Arise News, the broadcast arm of THISDAY Newspapers, Sylva explained that the government was desirous of sending to the parliament its version of the PIB, adding that its subsequent passage will gain for Nigeria's oil industry immense investments and revitalisation.

The minister, clarifying the condition of the bill that should go to the parliament this week, noted that its content has remained comprehensive and fit-for-purpose.

"It (the PIB) has not been watered down. I don't know who has seen the bill. It's still in draft. It has gone through several modifications. That's the whole idea. You can't change the laws very easily," said Sylva during the interview.

He further stated: "It tells you that when we are able to pass the bill, it won't change for a long time because it has taken us about 20 years to get to where we are. It's now ready to go to the national assembly. But it has not been watered down."

Sylva indicated that the PIB the parliament will get has been reviewed to take in considerable interests of Nigeria, as well as that of other parties in the oil industry.

According to him: "Everything has been done in the national interest and in the interest of Nigeria and we are hoping that in the next two weeks, we will be ready to go to the national assembly, and then people can talk. Before seeing the bill, you can't say it has been watered down.

"It's a bill at the foundation of the main industry. There are lots of parts to it: community, government, industry, everybody's interest has to be accommodated. We have been able to take a lot of interests on board. Not everybody will be on the same page. There's no way government and private sector will be on the same page 100 per cent, but what we have tried to do is to narrow the gap as much as possible."

"Right now, we are ready to go to the national assembly, so we can get this bill passed," the minister stated in a somewhat tone of devotion.

Earlier in the year, Sylva informed that the government's review of bill had advanced and its passage will happen in 2020.

Speaking then on the back of his ministry's accomplishments in 2019 which according to him included the amendment and passage of the Deep Offshore and Inland Basin Production Sharing Contract Act and signing of the Final Investment Decision (FID) for the Nigerian Liquefied Natural Gas (NLNG) Train 7 project, Sylva inferred that the government was committed to getting the PIB passed.

"We look forward to delivering on all our aspirations as we remain committed and focused in the New Year," he said then, to perhaps reinforce the commitment.

The urgency of a reform

As confirmed by Sylva, Nigeria has delayed reforms in her oil industry through the PIB for close to 20 years now; today, all signs indicate that the country's oil industry is burdened by both market and governance failures. Experts spoken to insist the conditions could deteriorate further without needed reforms through the PIB.

In September 2016, the Nigeria Extractive Industries Transparency Initiative (NEITI) released a policy paper titled: 'the urgency of a new petroleum sector law,' in which it underlined the need for the country to reform her oil industry.

Nigeria's oil production then was about 1.805 million barrels a day (mbd), down from the 2.127mbd which was the average production in 2015. NEITI also noted that the sector's productivity was on a steady decline.

According to it, between 2016 and 2015, the volume of oil produced in the country were 659,137 million barrels (mbbls) and 776,668mbbls, indicating a production fall by 117,531mbbl or 15.13 per cent.

To amplify the import of this, NEITI stated then that: "There has been a steady decline (in oil production) from 2012 to 2016, with the sharpest drop occurring in 2015 and 2016. Similarly, total crude oil lifting in 2016 dropped by 112,280mbbls from 780,429mbbls in 2015 to 668,148mbbls in 2016, representing a 14.39 per cent decrease."

This equally had impact on oil revenue with the NEITI stating that in 2012, $62.94 billion was earned but it dropped to $58.08 billion in 2013, and further to $54.56 billion; $24.79 billion and $17.05 billion in 2014, 2015 and 2016 respectively.

It attributed these to the lack of forward-thinking reform in the industry, a condition that the PIB was planned to address.

Nigeria, the chief loser

In the policy brief, the NEITI pointedly declared that without the PIB in place, Nigeria has remained the chief loser in the scheme of things. It explained that in context, the country had lost enormous value to market and governance failures associated with the old law it uses to run the oil industry.

It called for an end to the delay in passing the PIB into law, saying that: "The process of enacting a new law for Nigeria's petroleum sector has gone on for far too long, and at enormous costs to the country. More urgency, more clarity and better coordination are needed."

The agency further estimated that such delay has earned the country an estimated $200 billion loss of potential revenue.

"In the 16 years the process of reforms commenced, and in eight years since the PIB was first drafted, there was no question that the petroleum industry was in desperate need of regulatory reforms.

"Some of the reasons like imprecise rules, excessive regulatory discretion, and the fusion of regulatory, policy and operator roles were first-order problems which in turn created second order causes.

"Others like corruption, lack of transparency and accountability were consequences in a chain of ripple effects, leading ultimately to a severely underperforming economy, loss of benefits to the country, and a largely impoverished population," the NEITI stated to accentuate its position and fears for further delay on the PIB.

Passing a good PIB

Given the harmonious relationship between the National Assembly and executive, industry experts have therefore expressed hopes that the PIB will this time get a speedy legislative process, and the disagreements which have held it back effectively sorted.

Some of the disagreements which resulted in President Muhammadu Buhari's refusal to assent to a version of the bill, the Petroleum Industry Governance Bill (PIGB), in 2018 were mostly about regulatory framework, that is, the power of the minister petroleum; ownership and control of the oil resources; host community benefits; environmental concerns; and fiscal regime.

Experts in this regard explained that the harmony both arms of government now enjoy should benefit the bill and give Nigeria's oil industry a new lease of life.

Stretching back to the period before the life of the PIB, the NEITI noted that the oil sector has deteriorated largely because the laws that govern it are either not sufficient for effective regulation or too outdated to be relevant in today's global energy environment.

According to it: "For instance the Petroleum Act (1969) was enacted when the country's economy revolved less around oil and when the global oil market was less competitive than todays. Yet the country has failed to enact laws to adapt to the changing realities in the sector locally and internationally."

"Relying on rules and methods that were crafted for the market as it was four decades ago is not only a wrong choice, it is a very costly one in reality.

"Inevitably, the cost of failure of policy and regulation to adapt as the industry evolved has left a yawning gap between endowment and performance," NEITI added.

Similarly, the Programme Manager of the Nigerian Natural Resource Charter (NNRC), Tengi George-Ikoli, stated in NNRC's description of a good PIB that it should comprehensively accommodate the demands of all stakeholders.

"A good PIB must ensure that the rights and obligations of the stakeholders in the oil and gas industry are clear and fair. It must clarify the mandate of the regulator and provide for qualifications for staff and members of the regulatory commission," George-Ikoli stated.

She further said that the NNRC and indeed industry stakeholders expect that the PIB to be considered will adequately take care of oil and gas acreage licensing system in the country.

"Beyond the award of licences, a good PIB also needs to address how the licences awarded are monitored. The PIB must also ensure that the rigours applicable to the award of licenses are also extended in its regulation of the transfer of licences to fresh licenses," she added.

Additionally, Adeoye Adefulu of the Section on Business Law (SBL) of the Nigerian Bar Association (NBA), advocated during the recent launch of the 2019 Benchmarking Exercise Report (BER) of the NNRC, for the planned PIB to reflect the content of the BER.

Adefulu noted that considering that the institutional framework of Nigeria's oil and gas industry was central to the PIB, having the planned bill reflect the precepts in NNRC's BER would give Nigeria a precise national strategy for her oil and gas industry.

"A good PIB must ensure that the rights and obligations of the stakeholders in the oil and gas industry are clear and fair; clarifies the mandate of the regulator; provides for qualifications for staff and members of the regulatory commission; designs proper governance mechanisms; provides the regulator with the tools required to achieve its objectives; and mandates mechanisms to enhance transparency in the operations of the regulator," Adefulu stated..

He further explained that one of the important elements of the anticipated PIB would be the licensing system for the oil and gas industry, adding that, "the NNRC presents a useful framework to assess a good licensing system. The new licensing system must address the process for awarding oil and gas licences in the first place."

A good PIB, he stated in this regard would: "Clarify who is responsible for awarding licences; provide a framework for the transparent award of licences; limit discretionary powers in the award of licences; outline the process for screening license applicants; and provide legal backing for periodic license rounds."

According to him: "The passage of the PIB offers the opportunity for a fresh lease of life for Nigeria's oil and gas industry. It is not however enough to pass a PIB, the national assembly must pass a good PIB."

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