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PIGB: A New Dawn In Nigeria’s Oil And Gas Administration

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The passage of the Petroleum Industry Governance Bill (PIGB) by the legislature is expected to produce positive outcomes in the management of oil and gas business in Nigeria as predicted by analysts, writes CHIKA IZUORA.

Nigeria’s oil and gas sector have been affected by periods of varied fortune or discreditable incidents.

Historically, bad practices have prevented the nation’s oil industry from operating competitively and the industry has not only been denied the required environment for strict commercial and professional operations, but its regulatory agencies and the state-owned oil company, the Nigerian National Petroleum Corporation(NNPC), have remained weak and unaccountable.

Indeed, several commissioned and independent studies on the operations of the industry point to a colossal decay and opacity; the situation calls for highly concrete and practical reform measures to enable Nigeria’s oil sector to function in accordance with best practices and for the benefit of Nigerians.

Just last year, the Natural Resource Governance Institute’s (NRGI) Resource Governance Index which benchmarks the quality of governance of oil, gas and mining in 58 countries against key indicators comprising institutional and legal setting, reporting practices, safeguards and quality controls, and enabling environment in its report ranked Nigeria 40th, with a weak overall composite score of 42 of 100.

According to Dauda Garuba, the Natural Resource Governance Institute’s Nigeria officer, “This poor showing only confirms the findings of five different oil and gas audit reports by the Nigeria Extractive Industries Transparency Initiative, (NEITI) the KPMG report on the NNPC, the House of Representatives Ad-Hoc Committee report on the fuel subsidy regime, the (two) Aig-Imoukhuede-led committee reports on fuel subsidy claims and payments, the Kalu Idika Kalu report on refineries, the Dotun Sulaiman Committee report on governance and global best practices in the NNPC, the report of the Nuhu Ribadu-led Petroleum Revenue Task Force, the Nigeria Natural Resource Charter benchmarking reports (2012 and 2014) and the PwC report on the alleged unremitted funds into the federation account by the NNPC.”

All of the reports, Garuba opined have exposed gaps and procedural infractions resulting in loss of revenue to government at several points during computations, payments, reconciliation and remittances of finances; during the sale and transportation of physical oil; and during decision-making processes around licensing bids, contracting and regulation.

 

On the revenue assessment and collection side, he observed that there were issues of Petroleum Profit Tax (PPT) under assessment saying that in particular, the government has been perennially unable to meet its cash-call obligation because of fund diversion and NNPC’s practice of signing agreements requiring joint venture partners to fund project field development or production improvement projects (PIP).

The subsequent recovery of costs together with interest through capital allowances, investment tax allowances and additional production entitlements have often resulted in PPT underassessment, he said adding that companies often secure special cost considerations from the government, which amends the fiscal terms of the production sharing contracts (PSCs) a practice that has culminated in reduction of the PPT rate from 85 per cent to a maximum of 60 per cent in any given PSC contract(s).

He also said lack of transparency has further resulted in unresolved issues of non-remittance by the NNPC which has for too long operated using blank checks purportedly granted it by its enabling act.

Garuba said the present administration of Muhammadu Buhari started well with the dissolution of the NNPC Board but he argued that the financial flows (dividends) from an NNPC subsidiary, Nigerian Liquefied Natural Gas and loan repayment totaling $8.8 billion, covering 2006 to 2011, were yet to be resolved with the absence of a commercial regime for gas profit sharing and a framework for commercial gas exploitation.

Another issue of concern relates to return of discretion and its associated problem of opacity in the oil block licensing after the 2005 and 2007 open bid exercises. The domestic crude allocation practice by which the NNPC gets oil priced in US dollars under a 90-day credit line, but paid in Nigerian naira after a delay, exposes institutional weakness.

Garuba further observed that beyond giving undue advantage to the NNPC over other buyers of Nigerian crude, the practice also condoned delayed payment which, together with accruals from exchange rate disparity, has shown consistently higher prices than the per-barrel revenue it has subsequently remitted to the government.

Further concerns he noted are reflected in NNPC’s receipt of 445,000 barrels of daily crude oil allocated for domestic use, whereas local refineries utilize only about 22 percent of that and that NNPC’s swapping of the unutilized balance through product exchange and offshore processing agreement has remained inefficient and non-cost effective, and has resulted in revenue losses to the government.

“Perhaps one of the biggest challenges that has remained unaddressed since the very first NEITI audit report—and which has kept re-appearing in subsequent ones — is the absence of metering infrastructure for measuring quantity of crude flows from wellheads to export terminals. The Nigerian government’s apparent lack of demonstrable interest in accepting Norwegian technical assistance on this front raises suspicion. And without metering at both ends of the pipeline no one can say how much oil the country is producing, let alone what it is losing through theft and vandalism,” he said.

Equally problematic is a lack of effective control in the fuel subsidy payments that has gulped 7.19 trillion naira ($36.3 billion at current exchange rates) in the last 10 years. This colossal spending derived partly from abuses of the guidelines of the petroleum support fund (PSF) established by government to stabilize domestic prices of petroleum products against volatility in international crude and products prices. While contemporary low oil prices have been seen as a good opportunity to abolish the subsidy, the situation has not stopped the debate about whether subsidy, corruption, or both, are to blame for the present scarcity of petroleum products in the country.

Experts have insisted that the gamut of issues highlighted above demands urgent reforms of the sector, through policy reforms.

Garuba suggested that the reform issues can be grouped into three clusters: the legal-institutional-process cluster, the technological-capacity cluster, and the regulatory-transparency-accountability cluster.

The PIGB And Accountability Expectations

Agitations by Industry operators and stakeholders for enabling law to govern the Industry is coming to becoming a reality with the House of Representatives last week passing the Petroleum Industry Governance Bill (PIGB).

Above all considerations is the clause which approved the unbundling of the Nigeria National Petroleum Corporation (NNPC) and merger its subsidiaries into an entity.

Dada Thomas, president of the Nigerian Gas Association, NGA, told our correspondent that the PIGB would promote efficient and effective governance of the Nigerian Petroleum Industry via well-defined policy formulation, regulatory and operational institutions with defined roles and responsibilities which would help create transparency and accountability within the industry and capacity and efficiency of the national oil company and associated entities.

Thomas observed however that the Bill may not be perfect but the real test of its effectiveness in achieving its objective would be in the implementation. The jury is still out but we all hope that this time there will be consistent and effective implementation of the policy.

Of greater importance is the passage of a win-win Petroleum Fiscal Bill which will be investor friendly providing incentives to grow the Nigerian gas and oil sectors and yet provide safeguards for ensuring the nation benefits fairly.

 

The remaining two bills would also have to be passed swiftly to ensure investment decisions can be made with certainty based on fact and law. The fiscal policy however is the most important to investors as it allows investors to determine whether the rewards are worth the risk.

 

Reacting to the Bills passage also, Dolapo Oni, the head of Energy Research at the Ecobank Group, and responsible for research and market intelligence on the energy sectors, expressed confidence the Bill would entrench accountability in the system.

 

Oni said with the unbundling of the NNPC, the commercial, regulatory and monopoly in petrol importations would be split for effective management.

 

He noted that though the Bill may not holistically address all the challenges of the industry, however, it will go a long way to bring sanity into the system.

 

“The discretionary power of the minister of petroleum under the new arrangement will be addressed and we expect the president will consider this as a top priority to give his assent, and to quickly gazette it for the benefit of all,” he advised.

 

The bill was passed following the adoption of the report and recommendations of by the ad hoc committee on petroleum industry bill.

Highlights of the 134-clause bill include the restructuring and reformation of the nation’s oil and gas industry and unbundling of the NNPC and other like bodies, and create new ones.

 

The bill also provided for the establishment of a new regulatory agency, known as the Nigeria Petroleum Regulatory Commission (NPRC), which would take over the functions of Petroleum Inspectorate (PI), the Department of Petroleum Resources (DPR) and the Petroleum Products Pricing Regulatory Agency (PPPRA).

 

The NPRC will administer and enforce policies, laws and regulations relating to all aspects of petroleum operations which are assigned to it under the provisions of the Act.

 

The PIGB also seeks the establishment of two new companies, Nigeria Petroleum Assets Management Company and National Petroleum Company, with certain assets and liabilities of the NNPC, while the National Petroleum Company, would operate as a full independent commercial entity.

 

 

It further PIGB provides that the ministry of petroleum resources would be renamed “ministry of petroleum incorporated”. The bill provides that “upon the recommendations of the new commission, minister of petroleum resources can grant, amend, renew, extend or revoke any licence or lease required for petroleum or production, pursuant to the provisions of the Act or any other enactment.”

It also provides that when the commission is created, it shall be vested with all assets, funds, resources and other movable and immovable property, which immediately before the commencement of operation of the new commission, were held by the PI, DPR and PPPRA.

 

 

The bill however vested more powers on the commission, as the president or the minister of petroleum resources, who hitherto had such powers, would no longer have same. The bill whittled down the powers of the president and the minister of petroleum resources in exercising control over the oil and gas sector.

 

 

 



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