RESTRUCTURING NIGERIAN ENERGY SECTOR: A CASE FOR PETROLEUM INDUSTRY BILL

The Nigerian petroleum industry has been the main driver of the economy. It accounts for 98% of export earnings and 83% of federal government revenue. However, this sector has been steep in sleaze. In 2015, the then CBN governor, Mr Sanusi Lamido alleged that $20 billion was missing from oil revenue. Several shady deals have been unearthed, involving the award of oil blocks. These and several other malfeasances have rock the industry and put it in bad light in the international sphere.

However, with the commencement of work on the Petroleum Industry Bill (PIB) in 2008, a ray of hope seems to have dawn on the energy industry. A spanner was recently placed in the works of the bill when the current administration of President Mohammadu Buhari refuse to assent to the bill by signing it into law citing the fact that it whittles down his power. This is absolutely preposterous.

The PIB seeks to restructure the energy sector in Nigeria by increasing its competitiveness and making it to be commercially-oriented through unbundling the industry and removing all forms of regulatory uncertainty. These undoubtedly should be a welcome development.

Ever wonder why several Nigerian presidents doubles as Minister of Petroleum? This is not unconnected to the seemly inherent powers it affords them to award licenses at their discretion. Political undertone is always call into play in this process. Licenses ends up in the hand of political stooges and cronies rather than the best bidders. Thus, creating a non-competitive atmosphere within which graft can fester. In the PIB, this powers are eliminated and non-discretionary licensing process that is insulated from political interference is ensured. Most of these regulatory processes are handled by a corporate body created by the bill.

The purpose of the Nigerian Content Development and Monitoring Board (NCDMB) is to create a platform for the development of local content in respect to all operations in the energy sector. The deliberate utilization of Nigerian resources, both human and material as well as services in the energy sector constitute the local content in the sector. This is provided for in the bill, which is supposed to complement the Nigerian Content Act of 2010. The PIB if passed, will ensure the transfer of technology and the development of local capacity. More Nigerians will then effectively participate in the sector. Indigenous owners of marginal field will be protected against the unfair advantages IOCs enjoys. Thus, creating incentives for local investors.

By extension, the PIB, will foster the creation of jobs in the process of ensuring local content. According to the chairman, Senate committee on Petroleum(upstream) Senator Tayo  Alasoadura, as cited in the online NTA news, the new PIGB regime will outlaw the employment of foreigners for any “skill that can be sourced locally”. He continued further that, “even when such skills are sourced from abroad, due to its unavailability locally, it would be mandatory for Nigerians to understudy such expatriate.”

Furthermore, the PIB will engender an increase in Foreign Direct Investment and by extension the Federal revenue profile of the government. According to the online news media, PressReader.com, in 2003, the then country chair of shell companies in Nigeria, Mutiu Sanmonu, SPDC placed a hold on some investment decision worth $30 billion until a new law was approved. Again, in 2015, the Petroleum Technology Association of Nigeria (PETAN) boss, Anthony Okorafor, estimated that $10 billion of new investment is lost due to non-passage of the PIB. Nigerian Extractive Industry and Transparency Initiative (NEITI) in a brief also stated that Nigeria loses about $15 billion worth of investment yearly due to regulatory uncertainty in the sector. According to its 2016 publication the nation has lost over $200 billion due to lack of governance law in the industry. This loss in revenue are a result of withholding or diversion of investment to other less uncertain jurisdictions. If we must halt this hemorrhage in our FDI, a new industry law such as it is contained in the PIB must be passed.

The foregoing expresses the heightening levels of uncertainty inherent in the sector. There is a popular mantra in the energy sector that, “investors can model risk but cannot model uncertainty”. According to Paul McGrath, the head of MPN, what the sector needs so as to unlock its potentials is certainty. The passage of the PIB will create a predictable operating environment for investment decision in the oil and gas sector. The bill will ensure a clear delineation of roles for key actors in the sector and provide several regulatory agencies with distinct functions. This will create a more certain environment in the industry rather than leaving it to the whim and caprices of NNPC which is wholly uncertain, increasing the cost of investment and  creating a strong barrier to new entrant in the sector.

For instance, in the current law, the NNPC under the watchful eyes of the Minister of Petroleum is both an operator and a regulator. This has given the NNPC an unfair advantage over other operators concomitantly fueled a cycle of systemic corruption and train of scandal in the sector. Under the PIB, the NNPC will be unbundled into five entities.

Among these entities will be the Ministry of Petroleum Resources to be oversee by the minister of Petroleum. It will be responsible for creating the overall industrial goal for the sector. The minister will no longer have powers to grant or renew licenses except in an event of emergency. Another entity is the National Regulatory Commission (NPRC), it will be saddled with the responsibility of regulating the entire industry by enforcing the laws and ensuring compliance of various operators in the value chains of the sector. It will be run by a governing board of eleven persons that will be appointed by the president subject to the approval of the Senate.

The Nigerian Asset Management Company is another entity. It will be responsible for managing the assets currently held by the NNPC under the Production Sharing Contract (PSC) signed with the oil companies. It will be managed by a board of director’s subject to the approval of the President. Another separate and distinct entity would be the Nigerian Petroleum Company (NPC). It will manage the asset of NNPC that are not under the PSC. Forty percent of the shares of NPC will eventually be divested to the private sector.

The last entity is the Ministry of Petroleum Incorporated. It will hold the shares in successor commercial entities of the NNPC on behalf of government. Two more ancillary institutions will also be established by the bill. The Nigerian Petroleum Liability Management Company (NPLMC) which will take care of the current liabilities of NNPC, after settlement of all these liabilities it will be liquidated. The other is the Petroleum Equalization Fund(PEF). It will pay a five percent levy on petroleum products sold within the country. Funds generated by it will be used to develop infrastructure in the country as well. Unbundling the mammoth that is NNPC will doubtless boast investors’ confidence in the sector. Furthermore, it will mean efficiency, transparency and less corruption in the system leading to increased revenue for capital development.

Another nagging issue to be addressed by the PIB is host community issues. The Host Community Bill is subsumed in the PIB. This bill seeks to establish a fund for the development of host communities. This fund will be managed by communities themselves, this might be invaluable in mitigating the restiveness of the Niger-Delta that has taken a toll on the sector.

Another bill subsumed in the PIB is the Nigerian Industry Petroleum Administration Bill. It would provide the legal framework of how licenses, leases and permits will be issued, it would ensure a strict compliance to health, safety and environmental standards. Under this bill gas flaring will be prohibited.

The final aspect of the bill is the petroleum Industry Fiscal Bill. It will provide the legal framework for the collection of oil revenues, such as rents, royalties and tax on the behalf of government. It will eliminate dual taxation, high percentage profit and taxes and other issues that have kept investors away. The PIB is a new dawn for the petroleum industry in Nigeria. It will aid the diversification of the economy, creating a commercially-oriented and profit-driven petroleum entities. This will ensure value-addition and the internationalization of the sector. It will further see to the expansion of petrochemical industries in Nigeria.

In conclusion, the historic speech delivered by Barrack Obama to the Ghanaian parliament in 2009, come in handy. In it he stated that “African doesn’t need strong men, it need strong institutions”. To then believe that the passage of the bill will whittle the power of the presidency is a myopic attempt at self-serving, design to create strong men rather than strong institutions which the bill epitomizes. I therefore urge Mr.  president to pass the PIGB as the first step in making the PIB a success.

Written by John Aiyede