August 22, (THEWILL) – The Petroleum Industry Bill (PIB) recently signed into law, has triggered mixed reactions among stakeholders who are directly or indirectly affected by the legislation. They point to the rain of cash and web of controversy they foresee the legislation to generate among different people. Those who will also be affected in the near future are taking positions that appear grounded in uncertainty as trends of anger unfold.
President Muhammadu Buhari on Monday, August 16, 2021, signed into law the PIB which had been trapped in the legislative web of the National Assembly since 2008 when it was first introduced. Since then, there have been various deliberations and amendments of it in the legislative process. In 2017, at a stage, four new pieces of legislation were created, namely: the Petroleum Industry Governance Bill (PIGB), the Petroleum Industry Administration Bill (PIAB), the Petroleum Industry Fiscal Bill (PIFB) and the Petroleum Host Society Bill (PHCB).
Major components of the new legislation include the conversion of the Nigerian National Petroleum Corporation (NNPC) to a private limited liability company (NNPC Limited) and the scrapping of the Petroleum Product Pricing Regulatory Agency (PPPRA). It also created separate regulatory authorities for the operations of the upstream, midstream and downstream sectors, while decreasing the royalty rate for offshore fields producing a maximum of 15,000 barrels per day to 7.5 percent from the former 10 percent
Knocks, Praise
While the National Assembly is applauded for eventually giving the bill a landing after many years of hovering in the spaces, there are concerns over the good, the bad and the ugly side of the legislation. As it is celebrated by a section of the country as a landmark accomplishment, it is, at the same time, creating mixed feelings and outright disaffection among the other sections, especially the oil-bearing communities. This is the goose that lays the golden egg who suffers the environmental degradation and other ecological risks that accompany this gift of nature.
As it is, the new oil sector legislation is seen by some people as deliberately structured to make the core North awash with cash as it provides for substantial funding of oil explorations in the “Frontier Basins”. There have been huge budgetary allocations for this purpose over the years. But it has grown in propensity since the beginning of President Buhari-led government in 2015. In 2016, the government allocated N39.4 billion for oil exploration in the Northern part of Nigeria.
A report published in August 2016 showed that the Federal Government had sunk a whopping $340 million and N27 billion into the search for oil in the North for three decades. The report followed a marching order handed down to the management of the NNPC by President Buhari to resume oil search in the Chad Basin after 30 years of futile efforts. This is seen in many quarters as robbing Peter to pay Paul, and with unrepentant impunity.
As such, the new legislation allowed at least 30 percent of the profit to be generated by the proposed NNPC Limited to go into the exploration of oil in frontier basins, according to Section 9 of the PIB. The nation’s frontier inland basins are basically in the North and include the Niger, Chad, Bida, Dahomey, Sokoto and Benue basins. Other parts of the country, such as Lagos and Anambra are also included.
Section 9(5) of the PIB states, “NNPC Limited shall transfer the 30 percent of profit oil and profit gas to the frontier exploration fund escrow account dedicated for the development of frontier acreages and utilize the funds to carry out exploration activities in the frontier acreages subject to the appropriation by the National Assembly.” This is seen as sucking cash from the commonwealth of the nation created by the oil-bearing communities.
Examples: The corporation reported export revenue of $2.62 billion in 2020. Its gross revenue up to October 2020 was N222.3 billion. The National Engineering and Technical Company (NETCO), a subsidiary of NNPC, reported a profit after tax of N3.37 billion. These are assumed to be part of the NNPC “profit” to be dedicated to oil exploration in the frontier basin.
But industry analysts explain that the 30 percent of NNPC Limited does not mean that portion of the company’s total profits in a particular financial year. “It is merely the commercial remuneration, which is an entitlement of the concessionaire under a production arrangement,” said Ken Ogbechie, an energy expert.
According to Ogbechie, profit from an oil exploration company can only be determined and charged after full recovery of the total cost for drilling which takes a long time, up to 10 years. The production sharing contracts are wholly funded by the explorer.
“NNPC or any other company could record zero profit after deducting the cost of drilling and other operating expenses. So the 30 percent profit is not a figure of certainty. It is hanging in the cloud of uncertainty. On the other hand, the 3 percent operating expenditure of an exploration company could be huge – running into billions of dollars. So, the question to ask is ‘percentage of what?” Ogbechie told THEWILL in a telephone chat.
What’s Enough?
This presents another side of the coin — the public impression that while the North is awash with cash; the oil-bearing communities will make do with a “paltry 3 percent” of annual operating expenditure of the exploration companies who are required to contribute the said amount to the applicable host community Development Trust Fund. The Trust Fund is headed by a ‘Settlor’ as head of the body constituted for the purpose of administering the funds generated through the “3 percent” contribution.
“Do not forget that what we are talking about here is 3 percent of operating cost of all the IOCs, all the operating licensees in exploration; that is huge,” said Mr Victor Ononokpono, an executive and National Treasurer, Petroleum and natural Gas Senior Staff Association of Nigeria (PENGASSAN).
“Initially, it was meant to be equity stake which means that when they do not make profit, there is nothing for the host communities. But this time, they are sure of the 3 percent, whether the firm makes profit or not. That is not a small amount,” the PENGASSAN executive told THEWILL in a telephone interview.
“Nothing can ever be enough. It is true that the host communities have suffered long years of environmental degradation, but the 3 percent arrangement is a good place to start off. There is room for improvement. If for 21 years we were waiting for something, and in whatever form it comes, you ask ‘Will it hurt or benefit me permanently?’ The answer is no.”
But the anger of the host communities is beyond whether the 3 percent is adequate or not. Their concern centres on the decision-making that surrounds the implementation of that section of the law, which they claim does not favour them as the people are made more of spectators than participators.
Explaining the displeasure and disappointment of the Pan Niger Delta Forum (PANDEF) over the Petroleum Industry Bill signed into law by President Muhammadu Buhari on August 16, 2021, the National Publicity Secretary of PANDEF, Mr Ken Robinson, said the people of Niger Delta were very sad about the Act which he said was designed to enslave the people of the region.
Speaking to an online news medium, Prime Business Africa, Robinson described the feeling in most part of Niger Delta since the signing of the Bill to be that of sadness, claiming that the legislation was meant to sentence the people of Niger Delta to permanent slavery. “It (PIA) is enslavement, an official document making the Niger Delta people slaves to the Integrated Oil Companies (IOCs).”
“They gave us a paltry 3 percent as host communities development trust fund and then gave the leeway to the companies, the settlers to decide who will be in the board of trustees of the trust fund and who will be in the management team of the trust fund. These will, of course, decide what projects the monies would be applied to, not minding the fact that they also gave them leeway to decide to bring someone who is not indigenous to the community into the trust fund board and the management board. This is not acceptable.”
Robinson said the people were disappointed that all the problems they hoped the Bill would address had not been addressed.
“We had hoped that the Bill and of course the Act would address significantly the issues of infrastructural decay, the issues of neglect and all that we had suffered all these years. So it’s completely unacceptable and as we have said, it shows the attitude of arrogance and disregard on the part of the Nigerian government on Niger Delta People,” he said.
He stated that the group would consult widely after which they would come up with the best political and legal response.
Notwithstanding the shortcomings, Ononokpono maintained that the signing of the PIB into law was a good step that has been taken by the government “considering that we have been on this for 21 years when we constituted the Oil & Gas Implementation Committee (OIGC) under former President Olusegun Obasanjo in 2000. Getting it through at this time is a plus; whether it is a perfect document is a different matter.”
But another ‘ugly’ face of the law is the fact that, in this context, host communities include communities “hosting” the oil and gas pipelines across the country. Ogbechie believes that this is a direct invitation to chaos, anarchy and pipeline destruction, corroborating the feelings of the Niger Delta people as Robinson explained.
Regarding the 30 percent of NNPC Limited profit to frontier areas, Ononokpono expressed displeasure over the “politics that has been brought into the matter”.
“The question is, 30 percent of what? NNPC is going to operate as a profit-making venture. That means, if they did not make profit, there would be no 30 percent. It is wrong to argue that the policy was aimed at favouring a particular part of the country because the issue here is ‘the source’.
“Frontier basins do not cover only the North; the South is inclusive. What about Lagos and Anambra where oil has been discovered? They are part of the frontier basin. Remember that the issue of host communities contributed largely to the delay in passing this bill because, at that time, no one was talking about frontier basins.”
Enter Uncertainties
Industry analysts harp on the uncertainty that awaits the PIA amid an unconducive operating environment from policies to attack by host communities. They emphasise that Nigeria is not popular with a conducive business environment and this accounts for the high declining rate of foreign investments in recent times.
Industry experts also point to the dilemma and uncertainties that await Nigeria in the mixed fortune of the petroleum sector law signed into law by the President. There are concerns that Nigeria does not have much time before the 2050 deadline to terminate fossil fuel emission. They observed that the IOCs are divesting to energy and selling off their assets in the crude production to Nigerians who lack the technology for exploration.
Saudi Aramco is selling off 50 percent of its stake in pursuit of a more profitable deal because the firm has been well managed. Angola, another success story, is going to the Middle East for investment. They also argue that if the PIB was signed 20 or 15 years ago, we would have enjoyed the benefit of a long time opportunity that the law provides.
Again, banks and other financial institutions are beginning to show reluctance in financing businesses of oil and gas exploration and this could spell double jeopardy for indigenous operators. They further stressed that while the world is moving away from fossil fuel, Nigeria is widening avenues for oil exploration and refining because of the quick cash it offers.
“We may be caught up with the era of end of fossil fuel and Nigeria will have its oil to drink or get impoverished. Many do not see the uncertainty that awaits the country,” Amadi said.
The Petroleum Industry Act provides legal, governance, regulatory and fiscal framework for the Nigerian petroleum industry, the development of host communities and related matters. President Buhari on August 18 2021, approved a steering committee to oversee the process of implementing the newly signed Petroleum Industry Act (PIA). The committee is headed by the Minister of State, Petroleum Resources, Timipre Sylva.
“They gave us a paltry 3 percent as host communities development trust fund and then gave the leeway to the companies, the settlers to decide who will be in the board of trustees of the trust fund and who will be in the management team of the trust fund. These will of course decide what projects the monies would be applied to, not minding the fact that they also gave them leeway to decide to bring someone who is not indigenous to the community into the trust fund board and the management board. This is not acceptable.”
About the Author
Sam Diala is a Bloomberg Certified Financial Journalist with over a decade of experience in reporting Business and Economy. He is Business Editor at THEWILL Newspaper, and believes that work, not wishes, creates wealth.
