Amidst the current clamour for clean energy, Nigeria signs in the Petroleum Industry Act 2021, nearly 20 years after it was conceived. Although this achievement is lauded by stakeholders, many questions remain, among them, if this move is a little too late. LEGAL BUSINESS’ Chuba Agbu speaks with Oladotun Alokolaro, Senior Partner, ADVOCAAT Law Practice, and head of the firm’s Energy and Infrastructure Group, on the potentials of the Act.
It is well known that it took almost 20 years to sign in the Petroleum Industry Act (PIA) 2021.Many have their opinions on why it took so long. You are well versed in your knowledge of the PIA, in your expert opinion what are the major snags that caused the enactment of this act to take so long? What can the country learn from this?
Firstly, the law should not have taken as long as it did before it was passed but I am sure the industry will be the better for it now that an all-encompassing modern petroleum law is in place to govern the sector. As to why it took so long, you will appreciate that there are multiple stakeholders in the sector: from the Government who seeks to maximise revenue from its resources to the operators who also want to maximise profit and a get a good return on their investments, to the communities in which petroleum operations are carried out who want a greater share of the revenue of resources extracted from their communities. With each stakeholder having its own objectives, you will appreciate that the need to marry all these objectives together to create a win-win situation for all and enact a comprehensive law would take some degree of time. The delay in passing the PIA was not without economic consequence for Nigeria as the sector suffered lack of investment during the period the bill was not passed with major oil and gas investment being diverted to other countries such as Ghana and Angola, who had more modern and progressive petroleum laws. This lack of investment, the oil shocks of the last decade and a half, and the recent pandemic are all contributing factors to the recession Nigeria is currently witnessing. Moving forward, with oil and gas being our major revenue source, we must understand the importance of being earnest and I say this, particularly, in light of the recent clamour on climate change, energy transition and the need for Nigeria to promptly implement the PIA so that it can rapidly develop its natural resources. The PIA provides a golden opportunity for Nigeria develop an energy mix that will transform its economy.
Just to go off on a slight tangent, with the world shifting more towards renewable energy is this bill a case of too little too late?
Not necessarily so and the reason is not too far-fetched. If you look at Nigeria’s oil and gas endowment, we have more gas than we do oil and having identified gas as a transition fuel and declaring the next ten years as the “decade of gas”, it is clear that we have a resource that can not only help Nigeria to rapidly industrialise but also be a major source of revenue as has been clearly demonstrated with the NLNG project. The PIA takes cognisance of this resource by providing a framework for its development and utilisation. Of course, there are still issues that need to be addressed and these include issues around the right pricing of gas and development of the necessary infrastructure needed to convey the resource to areas where it can be monetized. If we are able to develop and harness our gas resource very much in the same manner that Qatar has been able to do, Nigeria would be able to truly take advantage of the African Continental Free Trade Agreement (ACFTA) and become an economic powerhouse in Africa. It is instructive to note that most of Africa still lacks access to energy and even the most industrialized country in Africa (South Africa) still suffers from energy deficiency and whilst renewables will help reduce energy poverty, Africa would still largely rely on fossil fuel, particularly gas. to power the continent and this provides an opportunity for Nigeria to export and earn more revenue from gas, especially, if gas price trends continue to rise globally. So, we are not too late, provided we show sincerity and commitment to the development of gas, and this means putting in place the right pricing for gas produced and to ensure investment in critical infrastructure for domestic gas utilisation.
The push for Transparency within the Oil and Gas sector with this act is great on paper, however given historical deficiencies, few would raise a hand in belief that things would go smoothly in practice; how can the intention of the act to create transparency be best achieved?
Transparency cuts across the entire length and breadth of the PIA as several provisions require set degrees and standards of transparency. For example, the PIA has mandated transparency in the bidding and award process for all licensees and leases; its section 67 provides for transparency in the administration and management of petroleum resources in Nigeria. Other provisions in the PIA provide for keeping of public registers for oil and gas assets and their owners, as well as transparency in the conduct of NNPC LTD’s affairs, as it [NNPC] will now be required to file and publish its financial statements annually. There are also provisions for transparency in the pricing of both petroleum and gas products with operators required to publish tariffs and prices, additionally, failure to do so will attract sanctions under the Act.
It is well known that the NPPC has been running at a loss for as long as we can remember, briefly explain what this really means? Are there provisions in the act that when implemented could reverse this trend? What does efficient implementation look like in this regard?
The NNPC Ltd which has just been incorporated is to operate commercially and be profit-driven, in contrast to what obtained previously, where the NNPC participated as both regulator and sector participant, thereby blurring the transparency lines. With this development, the NNPC Ltd will compete commercially with other sector participants and with this reporting requirements provided for in the PIA, its operations will be open to public scrutiny, as such it has no other option than to be above board in its deadlines. Furthermore, if the long-term goal is indeed for the NNPC Ltd to be a listed company, then its management and operations must be accountable and viable.
The act established two regulatory agencies – The Nigerian Upstream Petroleum Regulatory Commission (NUPRC) and the Nigerian Midstream and Downstream Petroleum Regulatory (NMDPRA) Authority. What does this mean for the functions of NNPC?
The introduction of the two new regulatory agencies, the NUPRC and the NMDPRA allows for the clear delineation of regulatory and commercial functions in the oil and gas sector, so where previously NNPC acted as pseudo-regulator and sector participant, this will no longer be the case. The NUPRC will take over the technical and commercial regulatory functions of the DPR as it relates to the upstream petroleum sector and will be responsible for granting new licenses, leases, permits and other regulatory approvals in the upstream industry. It will also maintain the Frontier Exploration Fund needed to further develop unassigned frontier basins in the country. The NMDPRA will oversee the technical and commercial regulation of the midstream and downstream value chain and consolidate the functions of the DPR, the Petroleum Product Pricing Regulatory Agency (“PPPRA”) and the Petroleum Equalisation Fund (“PEF”). The NMDPRA will also issue licences and permits to operators in the midstream and downstream segments of the industry and design tariffs and pricing to ensure a competitive pricing regime. The NNPC Limited will be limited solely to commercial operations like any other exploration and production company but may also participate via subsidiaries in other sectors of the value chain whilst adhering to the rules of the sector and subjected to the regulations of the two new regulators.
How will implementation of this new act resolve the socio-economic and environmental issues plaguing the local communities in the Niger Delta?
The Host Community Development Trust Fund (HCDTF) is an extremely novel idea, in the sense that it is the host community itself that will choose their representative who will serve as a non-executive member on the management committee of the host communities’ development trust. Also, in addition to the trust which will be funded with 3% of the Opex of upstream players, there is still the Niger Delta Development Fund which provides even extra funds with which the host communities can be developed. There is also an environmental remediation fund and a decommissioning and abandonment fund which will ensure the proper remediation of the host community environment from the continued degradation resulting from environmental issues, oil spills and gas flaring associated with oil drilling etc. With the HCDTF and the way it is to be administered, it will address some of the lingering environmental issues, and create an assurance for these host communities that if there is indeed an occurrence of any environmental disaster, the necessary funds to remediate their environment are readily available. In addition, the act stipulates a penalty for failure to comply with host community obligations, including revocation of license.
Are they any other major issues that could arise during implementation of the PIA?
The passage of the PIA is laudable, but it is still but a first step in reshaping the industry. It provides the basic framework for the upstream, midstream, and downstream sectors of the industry and identifies gas as a standalone resource. There are however outstanding issues that future regulations will need to address, and it is important that all industry stakeholders and key players are carried along in the issuance of these regulations.