Oil and Gas (6): PIB - Will It Ever Be Enacted?



Most discerning Nigerians would know one thing: that once a bill that is submitted to the National Assembly refuses to be enacted into law after three years of intensive pressure, then there is more to it than meets the eye. The economy – and financial security of our country for the time being depends significantly on oil revenues, yet a bill that is supposed to consolidate and protect Nigeria’s interest in the exploitation and management of its oil and gas wealth – the Petroleum Industry Bill (PIB) is yet to be passed after nearly three years with the National Assembly.


At the moment, no less than three different versions of the bill are said to be in existence, two of which are very highly watered down versions of the original. What is going on? This week, we bring to a close our six-week review of the most critical foreign exchange earner in the Nigerian economy with an overview of the PIB. The PIB is the culmination of nearly eight years of work as the initiative of the Bureau of Public Enterprises (BPE) to steer the reforms of the sector.


The Oil and Gas Reform Implementation Committee was established in 2000, chaired by Dr. Rilwanu Lukman as Presidential Adviser on Energy. The resulting broad consultative process led to drafting of the Bill in 2008. It was submitted to the National Assembly since early 2009 for enactment into law, to sanitise and reduce the opacity in the petroleum industry.


The PIB is an amalgamation of about 30 pieces of legislation and different Nigerian petroleum laws in a single coherent statute with the objective of removing the ambiguities – even deliberate confusion - that currently permeates the petroleum sector. It seeks to promote transparency, and is the first time that such a large-scale legislative consolidation has happened in the sector. Prior to the coming of the PIB, the main laws governing the sector were the Petroleum Act 1969, the Petroleum Profits Tax Act 1959 and the Nigerian Petroleum Corporation Act of 1977. Other sundry legislation cover fiscal terms with memoranda of understanding (MoUs) negotiated and signed periodically in between.


The whole landscape is a grand mess meant to confuse everyone! These and practically every other law and MoUs regulating the industry needed to be holistically reviewed to reflect the emerging dynamics in the global oil and gas industry. The PIB focuses on the establishment of a new framework for good governance in the petroleum industry to enhance increased petroleum revenues for Nigeria and open up job opportunities for Nigerians to participate at every level in the sector.


Part of the objectives of the proposed legislation is to establish clear rules, procedures and institutions for administration; create legal and regulatory framework and put in place appropriate institutions and regulatory authorities for the petroleum industry. Clearly spelt out in the original bill are guidelines for the operations of the upstream and downstream sectors of the petroleum industry with the objective of promoting good governance, encouraging Nigerian participation in the industry, elevate environmental and safety standards, while creating transparency in a manner that inhibits corrupt practices, which massively pervade the industry.


In a nutshell, the fundamental objectives of the PIB are to promote clarity in petroleum and natural gas; allocation of oil acreage; clear delineation of government participation in relation to private sector initiatives; enhancement of the objectives of the Nigerian Extractive Industries Transparency Initiative Act of 2007; Environment and Air Quality Emissions; Community Development;
and Nigerian Content.


An ingenious aspect of the bill is that it seeks to remove confidentiality from all procedures in the industry, including procurement procedures for all contracts and modes of payments for such. If the bill had been enacted into law, the present obscure tiny oligarchy controls and micromanages the revenues of the Nigerian government annually would have been a thing of the past.


At the moment, the Minister of Petroleum and the behemoth under his or her control – the Nigerian National Petroleum Corporation (NNPC) do with the operations of the 11 major oil corporations operating about 159 oil fields and 1,481 oil wells in the Niger Delta region is not within the full glare of either the Nigerian political leadership or the general public. Its account is never published. Its website contains data on oil production but never revenues earned or expenditure incurred.


The NNPC does not pay any taxes or remit surpluses to the treasury. It is a federal republic of its own! The passage of the bill into law would have provided case studies to test the Freedom of Information Act 2011. Some things are wrong here, and crying for change.


Despite the laudable focus and merits of the proposed legislation, it has remained with our National Assembly for nearly three years without
being passed into law. It brings to bear series of questions. Whose ox is being gored by the bill? Who are those truncating the process? Are they the fat cats in government or the international oil companies (IOCs) or both? Why do most Nigerians remain indifferent to the need to get our governments at all levels to do the right thing always? Available information indicate that part of the reasons for the delay in passing the bill is as a result of pressure being mounted on the National Assembly members by the various interested parties.


Feelers from the chambers of National Assembly indicate that there are three versions of the bill: the original version submitted by the Petroleum Ministry in 2008; the one submitted by the Joint Committee of the National Assembly on the PIB; and the one purportedly being adjusted and forwarded by the current petroleum minister.


The situation seems to have degenerated into an impasse as the Senate is reported to have suspended the report of the Joint Committee of the National Assembly so as to give particular consideration to the wide gap between the wishes of the minister and the recommendations of the committee.


Why do officials wish to have an unfettered discretion and caprice in an issue affecting public policy and implementation affecting 167 million people? This poser comes up in view of the fact that one of the reasons the petroleum minister reportedly interferes in the legislative process is the recommendation of the Joint Committee of National Assembly to curtail the provision in the original bill which confers on the Minister the power to award, revoke and re-award oil mining licences and leases.


What are the objections of the IOCs to the PIB? Should transparency in policies, institutions and regulations unhelpful to the investment landscape? There are rumours of "heavy droppings" of dollars in the National Assembly to dilute or even kill the PIB. This is plausible only because the bill is yet to be passed even though everyone agrees it is beneficial to the industry overall.


While the IOCs concede the need to update and harmonise the legal framework, they argue that fiscal terms must be certain particularly for risky deep-offshore exploration, while respecting the sanctity of existing contracts. The fiscal terms must encourage investment, grow total industry revenues and balance government take out of that, against business risks.


The licence and lease issuance should be transparently auctioned while their provisions must be reasonable, allow for access and long-term investment. These are not unreasonable, because the industry can only develop if the government is strategic in its relationship with IOCS, putting Nigeria's long-term interest always and focusing on (i) aggressive investment (ii) higher revenues for government (iii) in-country job creation (iv) technology transfer, and (v) environmental sustainability. That said, having studied the PIB in detail, it is pertinent to observe a couple of issues worthy of consideration.


First, the PIB seeks to create too many institutions, with the possibility of creating additional bureaucracy which may end up slowing the operational and regulatory functions envisaged for them. There is a need to merge some of the proposed institutions and wind up some of those in existence, limiting government to policy making, licensing and taxation, a few industry regulators, and a national operating company. Secondly, some other apparently unrelated legislation like NIMASA and Electric Power Sector Reform Act 2005 need to be harmonised with the PIB.


There may be others. NNPC needs to be not only fully incorporated as a limited liability company, publishing its accounts and paying taxes to the government, but be required along with its joint venture partners to list within five years on the Stock Exchange to enable more Nigerians participate in their prosperity. Finally, the power to issue and revoke oil licences should be vested in a regulator – the way we vested licensing powers in the NCC to the exclusion of the minister and the results are clear for all to see - and be the product of transparent competitive bidding and technical evaluation processes.


In a situation where the necessary reforms needed to reposition the industry that generates about over 90 per cent of revenues of government is being openly truncated, it is worrisome that those at the highest echelons of government are better attracted to the piece-meal deregulation of the industry through the withdrawal of a subsidy that can be removed by making our domestic refineries to work.


It would be very dangerous for government to underrate the anger in the land by playing politics with this issue right now. If government insists on any form of subsidy removal, the least it can do is to pass the original version of the PIB, and get more refineries built and operational first.


That way, all Nigerians, and not just the private profiteers in the sector will begin to enjoy the benefits of our oil wealth. And if the National Assembly fails to pass the bill this year, we must ask: whose interests are they serving?