INTRODUCTION : The history of Oil in Nigeria dates back to the pre-independence period of 1956, when Oil was first discovered at Oloibiri in the Niger Delta after almost half a century of intense exploration. The novel discovery was apparently made by Shell-BP. As a result of this cheering development, Nigeria joined the ranks of the world’s oil producers in 1958 when its first oil field came on stream producing 5,100 barrel per day (bpd). However, it was not until 1960 that exploration rights in onshore and offshore areas adjoining the Niger Delta were extended to other foreign companies.
The year 1970 which marked the end of the Biafran war coincided with the rise in the world oil price, and Nigeria was able to reap instant unprecedented riches from its oil production. Nigeria joined the Organization of Petroleum Exporting Countries (OPEC) in 1971 and established the Nigerian National Petroleum Company (NNPC) in 1977, a state owned and manned company which is a major player in both the upstream and downstream sectors. By the late sixties and early seventies, Nigeria had attained a production level of over 2 million barrels of crude oil a day. Although production figures dropped drastically in the eighties due to economic slump, however the year 2004 saw a total rejuvenation of oil production to a record level of 2.5 million barrels per day.
THE PETROLEUM INDUSTRY BILL (PIB) : The Nigerian National Assembly officially passed the long-awaited Petroleum Industry Bill (PIB) on Thursday the 1st of July 2021 after it was first presented in 2008, the PIB is an amalgam of 16 Nigerian petroleum laws that outline the framework to boost oil and gas output in Nigeria while enhancing the sector’s attractiveness for international investment to the benefit of Nigeria and Nigerians as a whole. NJ Ayuk, Executive Chairman of the African Energy Chamber stated that “For 13 years, our oil and natural gas industry pushed and waited for this moment. Passing the Petroleum Industry Bill lays the foundation for a stronger, efficient and attractive energy industry in Nigeria”.
It is imperative to note however, that the laws that regulate the oil and Gas sector currently in Nigeria are stale, long overdue for reform and moribund in the very sense that most of these archaic laws including the Petroleum Act of 1969 were enacted many decades ago as such not germane and accommodating to the present economic advancements in technology, volatility and susceptibility of oil prices, climate changes influencing the driving forces of global economy and obviously of course certain propositions in the PIB come as much welcomed improvements to the sector which we need as a nation in order to foster real prosperity and growth to the benefit of this generation and the numerous generations to come.
The bill in all ramifications targets to substantially improve the efficiency and strengthen the commercial roles of the state-owned NNPC by transitioning or transforming it into a limited liability company, NNPC Limited. According to the bill however, NNPC Limited would obviously be constituted within six months of enactment, opening it up to private capital, and making for a more transparent system given the requirement to publish annual reports and audited accounts. In the bill therefore, is a clause that seeks to limit and circumscribe the powers of the Minister of Petroleum Resources which is being currently held by Nigeria’s President revoking the Minister’s power to grant, amend, revoke or renew licenses, and expunging the Minister’s seat on the board of NNPC Limited. Two proposed regulators, the Nigerian Upstream Regulatory Commission (the ‘Commission’) and the Midstream and Downstream Petroleum Regulatory Authority (the ‘Authority’) would replace and or supplant the multitude of regulating bodies (the DPR, Petroleum Inspectorate, the Petroleum Products Pricing Regulatory Agency, the Petroleum Equalisation Fund, among others) and must consult each other on new regulations or amendments. Such structural reforms create a clear separation between NNPC Limited’s operations as a commercial entity and the regulatory roles to be exercised by the regulatory authorities, creating room for more transparent oversight.
Interestingly, the PIB seeks to establish environmental remediation funds which require an environmental management plan for any project requiring an environmental impact assessment and prohibits the use of chemicals in upstream operations unless a permit is granted by the Commission. The PIB in amending or altering flaring regulations would prohibit flaring of gas and instead require the installation of metering equipment; flaring or venting except for in the case of an emergency, pursuant to an exemption by the Commission, or as an acceptable safety practice, would result in a fine that is not eligible for cost recovery and not tax deductible. The bill would also require gas producing licensees or lessees to submit an elimination and monetization plan for the associated gas within one year of the effective date of the law.
The Bill contemplates host communities’ development trusts that would act as funds for environmental, social, and infrastructure projects for host communities in order to alleviate their age long sufferings and unmitigated plights from oil and Gas activities that have continued to undermine the progress of the host communities till date.
PITFALLS OF THE BILL: Despite the monumental significance of the Bill which undoubtedly has far-reaching direct impact to the Nigerian people and the economy, it is of interest to note that the bill fails to invalidate fiscal stabilization clauses in existing petroleum contracts, or at least create an obligation on NNPC Limited to attempt to renegotiate existing contracts so that stabilization clauses would not apply to climate-related fiscal measures. The clauses on fiscal stabilization contained in existing contracts would likely hamper Nigeria’s use of new fiscal instruments to effectuate the requisite change on climate goals.
PIB fails to acknowledge the Paris Agreement, account for climate change, and address the need for diversification to adequately prepare Nigeria for the energy transition which most civilized climes are yearning for while some have already adopted in order to administer world best practices within their domain.
The PIB threatens to exacerbate Nigeria’s stranded asset risk while failing to account for the stranding risk.
CURSE OR BLESSING? : The PIB is more of a blessing than a curse to Nigerians and the Nigerian economy for the following unarguable reasons: i. The Bill seeks for the first time in the history of Nigeria to checkmate the excessive overconcentration of powers of the oil and Gas sector in the hands of the minister of Petroleum alone thereby entrenching devolution of powers as required in countries were petroleum best practices are obtained. ii. The Bill has taken into candid consideration the age long unmitigated plights of the host communities by the provisions of trust funds to ameliorate the hardships of the host communities. iii. The Bill seeks to radically convert NNPC to a limited liability company and shall operate as such within the ambit of the law. iv. The Bill seeks to propose for the first time the Nigerian Upstream Regulatory Commission (the ‘Commission’) and the Midstream and Downstream Petroleum Regulatory Authority (the ‘Authority’) which would replace and or supplant the multitude of regulating bodies. v. The Bill lays the foundation for a stronger, efficient and attractive energy industry in Nigeria. vi. The PIB seeks to establish environmental remediation funds which require an environmental management plan for any project requiring an environmental impact assessment and prohibits the use of chemicals in upstream operations unless a permit is granted by the Commission. etc .
CONCLUSION : The Petroleum Industry Bill is welcome development, a step in the right direction that calls for accolades and commendations. However, climate change governance principles should be inculcated and subsumed in the entire plan for a sustainable energy sector in Nigeria.
ABOUT THE AUTHOR
Emmanuel Menseh Madaki, Esq. Partner at M. Y. SALEH (SAN) & CO [email protected] +2348065939239