Petroleum Industry Act: The Gains the Losses, the Politics

Nigeria’s petroleum industry breathes a new life with the passage of a bill that has been in the mill for years


History was made on Monday, August 16, 2021, as President Muhammadu Buhari signed the much awaited Petroleum Industry Bill (PIB or “the Bill”) now Petroleum Industry Act (PIA) 2021 into law. The development was made known to the nation through a statement issued by the Special Adviser to the President on Media and Publicity, Femi Adesina. The signing of the Bill into law by the President was in furtherance to the passage of the Bill by both the Senate and the House of Representatives earlier in July 2021. The expectations of the Act are high. The Petroleum Industry Act, 2021 (PIA) according to petroleum industry experts will expectedly grow investors’ confidence in Nigeria’s Petroleum Industry and create more employment opportunities for the populace in the host communities. Nigerians and the international community are expecting a lot from the Petroleum Act. The PIA, according to experts is expected to introduce pertinent changes to the governance, administrative, regulatory and fiscal framework of the Nigerian Petroleum Industry, in order to ensure transparency, strengthen the governing institutions and attract investment capital, among other objectives. The Act contains five chapters which include governance and institutions, administration, host communities’ development, petroleum industry fiscal framework and miscellaneous provisions.

The experts noted that based on the existing regulations and laws, an entity can operate in more than one sector (i.e. Upstream, Midstream and Downstream sectors) of the Nigerian Oil and Gas Industry. For instance, a company engaged in upstream petroleum operations for example, the production of crude oil, may also invest in the processing of the associated gas (downstream/midstream operation). However, this would become an old practice as a company shall not be involved in more than one stream of petroleum operation with the introduction of the PIA. Thus, companies impacted by this new provision would have to register a separate company for each stream of petroleum operations, subject to certain exemptions. Interestingly, certain changes were made to the operations of upstream companies through the amendment of various oil industry laws. However, the passage of an omnibus Act demonstrates a resolve to position the Nigerian Petroleum Industry for relevance provided immediate implementation actions are taken and monitored for overall industry performance. What are the other implications of the PIA?

The signing of the Bill into law is a welcome and timely intervention as it is expected to provide certainty to potential and existing investors on the applicable fiscal regime in Nigeria’s Petroleum Industry. The new fiscal regime contained in the PIA will apply to new licenses and also become applicable to existing licences upon renewal of same. Thus, the erstwhile Petroleum Profits Tax Act will continue to apply to existing Oil Mining Licences (OMLs) or Oil Prospecting Licences (OPLs) obtained prior to the signing of the Bill until they are renewed, except the operators opt for the application of the PIA. Where companies intend to adopt the fiscal framework of the PIA prior to the expiration, renewal or termination of their subsisting OPLs and OMLs, they will be required to enter into conversion contracts. Given the numerous changes to the fiscal framework of the industry, it is important for companies and stakeholders in the petroleum industry to conduct an impact assessment to decide whether or not to adopt the fiscal regime of the PIA prior to the due date of mandatory adoption.

Meanwhile, several days after signing the bill, the Federal Government took time to explain what the nation stands to gain with the Act. President Muhammadu Buhari in Abuja said the country lost an estimated $50billion worth of investments in 10 years, created by the uncertainty of non-passage of the Petroleum Industry Bill (PIB), lack of progress and stagnation in the petroleum industry.

In his remarks at a ceremony on passage of the PIA, which preceded the Federal Executive Council (FEC) meeting, the president said the stagnation affected growth of the economy, citing lack of political will on the part of past administrations to actualise the needed transformation. President Buhari said assent of the Petroleum Industry Bill on August 16, 2021, marks the end of decades of uncertainty and under-investment in the petroleum industry. According to him: “We are all aware that past Administrations have identified the need to further align the industry for global competitiveness, but there was lack of political will to actualize this needed transformation. This lack of progress has stagnated the growth of the industry and the prosperity of our economy. In the past ten years, Nigeria has lost an estimated US$50billion worth of investments due to uncertainty created by the non-passage of the PIB.”

President Buhari added: “This administration believes that the timely passage of the Petroleum Industry Bill will help our country attract investments across the oil and gas value chain. In view of the value our Nation and investors will derive from a fiscal framework for the oil and gas industry, our Administration has found it necessary to work with the two Chambers of the National Assembly to ensure the passage of the PIB.’’ President Buhari noted that the signing of the bill was part of the administration’s commitment to building a competitive and resilient petroleum industry that will attract investment, improve our revenue base, create jobs and support our economic diversification agenda. The president said as a “nation that depends on oil resources for the development of other sectors, Nigeria runs a Petroleum Industry that is governed largely by laws enacted over 50 years ago such as the principal legislation; the Petroleum Act of 1969 and other obsolete legislations.’’

He said the presidential assent of the bill to “Petroleum Industry Act 2021” marked the beginning of the journey towards a competitive and resilient petroleum industry that will attract investments to support the nation’s Economic Recovery and Growth Plan. According to the nation’s leader: “The Petroleum Industry Act 2021 creates a regulatory environment that would ensure efficiency and accountability across the oil and gas value chain and reposition NNPC to a commercially driven National Petroleum Company that is accountable to the Federation.

“The Act also provides for a direct benefit framework that will enable sustainable development of Host Communities. I appeal to the host communities to look carefully at the contents of the Bill which in the implementation will bring real and lasting benefits to them. To demonstrate the government’s commitment towards implementing its side of the Act, President Buhari has approved a steering committee to oversee the process of implementation of the newly signed Petroleum Industry Act (PIA). The steering committee is headed by the Minister of State, Petroleum Resources, Timipre Sylva. Other members of the implementation committee include: Permanent Secretary, Ministry of Petroleum Resources, Group Managing Director, NNPC, Executive Chairman, FIRS, representative of the Ministry of Justice and representative of the Ministry of Finance, Budget and National Planning.

The Senior Special Assistant to the President on Natural Resources, Olufemi Lijadu, will serve as External Legal Adviser, while the Executive Secretary, Petroleum Technology Development Fund, will serve as Head of the Coordinating Secretariat and the Implementation Working Group. The president announced this while marking the passage of the PIA, which he signed into law. According to the president, the committee is tasked with completing the implementation of this Act within 12 months. He, therefore, directed all relevant Ministries, Departments and Agencies of government to fully cooperate in ensuring the successful and timely implementation of the PIA.

“Furthermore, the Act provides for deliberate end to gas flaring which would facilitate the attainment of Nigeria’s Nationally Determined Contributions of the Paris Agreement through a funding mechanism to support gas flare out project in host communities.” The president commended the two chambers of the National Assembly for ensuring the passage of the PIB. “Let me now commend the leadership of the 9th Assembly for their continued pursuit of our national aspiration and demonstration of mutual harmony with the Executive in the pursuit of a patriotic outcome in the passage of the PIB. “I also commend the entire team in the executive that worked tirelessly to ensure the delivery of this strategic legislation for our country,’’ he said.

The passage of the PIB has proved to be a real nightmare for successive administrations since the need for the bill was first mooted by the former President Olusegun Obasanjo administration. In 2018, after the National Assembly passed a harmonised version of the bill; the petroleum industry governance bill (PIGB), President Muhammadu Buhari refused assent due to “legal and constitutional reasons”. The Senate had passed the bill on July 15, 2021, while the House of Representatives did the same on July 16, thus ending a long wait since early 2000s.

On July 1, the Senate and the House of Representatives had recommended 3% and 5% respectively to host communities. This, however, generated reactions from stakeholders in the oil industry and leaders in the Niger-Delta region. Several stakeholders including Seriake Dickson, senator representing Bayelsa west; Douye Diri, governor of Bayelsa state; Edwin Clark, an Ijaw national leader, have argued that three percent allocated to the oil producing communities is unacceptable. At the public hearing on the bill, representatives of the host communities had demanded that they be allocated 10 percent. Meanwhile the Senate President, Ahmed Lawan, has denied allegations from some quarters that the National Assembly members were bribed with the sum of 10 million dollars before eventually passing the Petroleum Industry Bill into law. He said there is no truth in the report. According to Lawan: ‘‘Recently someone alleged that $10 million was given to the Speaker and the Senate President to pass 3% development fund. That is funny, but also very serious. Those kinds of unwarranted fake and false information being fed to the public, and the danger this poses are causing damage to the reputation of people.”