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Implications of the petroleum industry bill on the nation
In this analysis, Tunde Oyesina examines the provisions of the Petroleum Industry Bill and posits that the bill is part of efforts being made to encourage Nigerian entrepreneurs to participate in the oil and gas sector business.
The bill which is popularly referred to as PIB stands for the Petroleum Industry Bill. It came into being following the attempt by the present administration to undertake a reform process of the oil and gas industry in order to improve the general efficiency of the sector.
The reform process of the oil and gas industry would require a holistic approach. This, in effect, means that the existing laws governing the administration of the industry in the country would have to be repealed or reviewed. The present Petroleum Legislation and especially, the fiscal regimes were no longer in tune with the current realities of Nigeria and international best practices in the oil and gas industry.
The changes to the existing laws were specific as well as diverse in many instances. For example, the laws sought to create a much more transparent administrative system where all interested parties could assess information and indicate interests on a given venture/projects in the oil and gas industry. It attempts to amend aspects of the Petroleum Profit Tax Administration, (PPTA), which treat information relating to the chargeable profits of companies as confidential and secret. The new laws also clearly state procedures for bidding processes and retention of licences and leases which were hitherto, not the case in the old laws. It also simplifies collection of petroleum revenues by emphasising on rents and royalties and less on taxes.
The PIB would encourage the development of small fields with significant low tax incentives having a bottom level of five percent royalty scale, based on daily oil production. This provision is a deliberate effort to encourage Nigerian entrepreneurs to partake in the oil and gas sector business. In addition, the local content provision has been incorporated into the new law which would require all projects and procurements to have Nigerian content elements in them. By this, all purchase of local goods and services in the oil industry would receive a significant boost, given that the PIB makes only 80 per cent of foreign costs deductible for Nigerian hydrocarbon tax purposes. The deregulation of the downstream sector coming alongside the reform is also expected to stimulate economic activities in the country as new areas of local entrepreneurship skills would be promoted to enhance the operation and management of the downstream assets under a deregulated regime.
The provision of the bill provides adequate incentives to promote domestic gas utilisation in Nigeria. This is consistent with the National Gas Master Plan. Article 282, 335, 404 - 410 of the Gas Master Plan which highlighted the significance of encouraging the use of gas in domestic markets as well as ending gas flaring.
As specialised bodies and institutions with distinct roles and responsibilities, duplications of functions are highly unlikely. The separation of the oil and gas value chain into Upstream, Midstream and Downstream, with clear demarcation of boundaries among the segments ensures that the institutions function properly without any recourse to overlapping responsibilities. The number of institutions being created is linked to the oil and gas value chain. Indeed, most of the institutions are already in existence, namely the Inspectorate, the Authority, the Fund, the Frontier Service and the Centre. In technical terms, therefore, only two new institutions were being created. The “Agency” and Directorate” all of which have clearly defined roles.
In order to ensure prudent management of resources and accountability, the institutions’ running cost would be tied specifically to the sectors that they regulate and would not unduly put burden on Government finances. For example, the “Authority” would derive their fund from fees and levies on Petroleum Products and Gas sales.
The policy and regulatory roles of the NNPC is to be excised and transferred into three regulatory entities for effectiveness and efficiency. Therefore, government would still have strong oversight and control of the oil and gas industry.
NNPC would not be privatized but be fully commercialised. The reform would rather see the present NNPC transit from being a statutory Corporation into a Limited Liability Company under the Companies and Allied Matter Act,(CAMA). It would function as a purely commercial business entity but wholly owned by government. It would have freedom to enter into commercial ventures within and outside of Nigeria and pay taxes on its profit to the government.
The PIB provides for the current Directorate of Petroleum Resources to be transformed into the National Petroleum Inspectorate, (NPI), which is an autonomous regulatory body empowered with financial and operational independence to regulate the activities in the upstream petroleum sector.
The new laws request each oil and gas producing company in Nigeria to supply a certain proportion of gas for use in the domestic market under the domestic gas supply obligation to be issued by the Minister of Petroleum Resources.
All the provisions in the previous downstream gas bill had been incorporated in the PIB. The Gas sector would be regulated by the three regulators: Agency, Inspectorate, and Authority.
Under the Corporate Social Responsibility section of the Bill, an elaborate presentation on the roles and responsibilities of companies and what constitutes their corporate social responsibilities to their host communities recommends stiff penalties for any act of environmental pollution by companies. In addition, it also spelt out provision for effective engagement and participation of host communities in the economic spin-offs, arising from oil and gas activities in their vicinity. Companies are required to present a well articulated sustainable community development plan consistent with the PIB guidelines for effective sustainable engagement programme.
The reform process of the oil and gas industry is more or less about creating opportunities for Nigerians. The various institutions to be created would seek to engage Nigerians from all walks of lives to be involved throughout the entire value chain of the oil and gas industry. Moreover, the bill compelled oil and gas companies to employ host community members in their employments and contract awards, especially on community related development projects.
The Bill mandates oil and gas companies operating in Nigeria to be guided strictly by the PIB Local Infrastructural Development and Maintenance Guidelines. It also stipulates for a Mandatory Consultation with host communities in the development of infrastructure and all related development initiative under SCR to be undertaken by company operating in an area. The bill mandates that all oil and gas companies must ensure support for educational and skill acquisition training programmes for indigenes of the host communities. The sole aim is essential to create a highly skilled manpower as well as provide the unskilled persons with skills that would provide employment for them, especially, in the operational segments of the oil and gas industry.Share