Imminent Impact of Nigeria’s new Petroleum Industry Law

On Thursday 1st of July 2021, the National Assembly finally passed into law, the long-overdue Petroleum Industry Bill, PIB, after many attempts to rewrite, restructure and modify the bill to suit the various sectors involved. First proposed to the national assembly in 2008, the oil and gas sector reform bill has witnessed several disagreements and debates over its merits to oil-producing communities, the government, and the oil companies operating on the oil field in Nigeria. 

Having languished at the National Assembly since 2008, the 8th assembly broke the bills into parts as Petroleum Industry Governance Bill (PIGB), Petroleum Industry Fiscal Bill, Host Communities Entitlement and Protection Bill, and the Petroleum Industry Administration Bill which eventually culminated in its passage by the 9th assembly.

Despite over 60  years of being Africa’s largest oil producer and exporter, Nigeria has witnessed little development in the oil and gas sector to be commensurate with the level of investment. Nigeria has lost a sizable yield of investment to corruption, gross inefficiency, low productivity, and insecurity that has continued to plague the sector and nation at large.

Foreign oil companies have also contributed to malice by exploiting crude oil from local communities without adequate compensation for the disruption caused by oil spillage, and pollution caused to their environment. The multi-Billion company, Shell Plc, has reported about 1,010 oil spills since April 2011, resulting in a loss of 110,535 barrels of crude oil. 

The passed bill aims to create a consistent legal, regulatory, and fiscal framework for the oil and gas sector operations in Nigeria and the development of local host communities. The bill was proposed to amend three key areas of more controlled taxation, better redistribution of wealth, and the transformation of the Nigerian National Petroleum Commission (NNPC) into a commercial company. 

While the law’s implementation rate remains to be seen, it largely depends on the cooperation of the oil companies and governmental institutions in implementing the changes made by the law. Once fully implemented, the new legislation will have considerable effects on the economy and lives of the people, especially the masses in the local host communities of the oil companies.  

Host Communities

The provisions in the Host communities component of the bill is a welcome development to underprivileged residents of oil-producing areas. According to Clause 240 (1) “Each settlor, where applicable through the operator, shall make an annual contribution to the applicable host community development trust fund an amount equal to 2.5 percent of its annual operating expenditure in the immediately preceding calendar year in respect of all operations affecting the host communities for which applicable host community development trust was established.” While there has been contention as regards the percentage of the operating expenditure of oil license holders to be contributed to the host community development trust fund, the House Committee insisted on a 5 percent but was outvoted by the majority who voted for 3 percent. 

If fully implemented, the host communities in oil-producing areas will begin to witness development, including the availability of social amenities which has eluded them over the years in compensation for the damages caused to their environment by the exploration of oil. 

Although the bill did not adequately address environmental pollution, giving oil operators to flare gas under specified conditions of emergency, exemption expressly granted by the commission, and acceptable safety requirements under established regulations, which is still in contravention to the Paris Agreement on climate changes. 

Supply to the Market

Deregulation of the downstream sub-sector under the Nigerian Midstream and Downstream Petroleum Regulatory Authority (the ‘Authority’) will encourage the inflow of domestic and foreign investors to participate in oil production in the downstream oil sector, making it more competitive. 

The act, on implementation, will ensure that the crude oil and condensate for the domestic market will be on the willing supplier and buyer basis, creating room for a free, competitive, and healthy market. However, the commission is granted the power to issue regulations and guidelines on the mechanism for setting domestic crude oil supply obligation for lessees in the upstream petroleum operations. The power of demand and supply is expected to regulate the market, making petroleum products easily accessible to the masses.

Subject to the Federal Competition and Consumer Protection Act, the Authority has the power to curb monopoly and restrictive market practices of “powerful” operators, which will create a conducive business environment for investors. 

Infrastructural Development in the Oil Sector 

Section 33 (y) of the bill proposed the midstream authority will be in charge of administering a midstream infrastructure development fund with funds accrued from fines paid by middle stream operators for gas flaring. This developmental fund, alongside the Frontier Exploration Funds, which is 30 percent of NNPC Limited Profits, will be used to improve infrastructures in the midstream sectors and oil exploration across all basins in Nigeria. 

The long-term effects of these will raise the level of oil production in Nigeria, thereby contributing to revenue generation and improving the economy. 

Other provisions in the fiscal framework of the bill aim to improve the level of transparency witnessed in the oil sector over the years, increase revenues initially lost to corruption and money laundering, and create more jobs and opportunities for Nigerians. 

The merits and demerits of the bill are all subjected to the level of implementation by major stakeholders in the oil sector, including the government and oil companies. Generally, the bill is by far an improvement to the people than what has been witnessed in the black gold sector over the years. On Monday, 16th August 2021, President Buhari signed the PIB into law. All fingers remain crossed at the next course of action.

Oluwatobi Ojo’s interest is in corporate communications and public policy. He writes from Nigeria.

Photo by Randy Laybourne on Unsplash.