About two weeks ago, the National Assembly (Senate and House of Representatives) of Nigeria passed the much awaited but much delayed Petroleum Industry Bill (PIB) in more than 10 years of trying. The PIB is an overarching legal framework for the governance, regulatory and fiscal regimes for the Nigerian Petroleum Industry. A significant aspect of the PIB is the development of Host Communities which is now coded in the laws and no longer left to the Corporate Social Responsibilities (CSR) of the operating companies in the oil and gas sector. The jury is out as expectedly the PIB has attracted wide ranging interest sharply dividing opinions of the stakeholders and industry experts. In this week’s column, we will be examining some of the issues relating to the PIB and making recommendations to add value to the bill.
The World is in Energy Transition
The world is rapidly transitioning from fossil fuel energy to renewables a less carbon-intensive and more sustainable energy system, including solar, wind, hydro, biofuels and others. The International Energy Agency (IAE) data shows that the share of renewables in electricity generation is projected to increase to almost 30% in 2021, their highest share since the beginning of the Industrial Revolution and up from less than 27% in 2019. The Word Bank’s data shows that in just a few years, solar and onshore wind have become the cheapest ways of generating new electricity in most countries and that some countries are already producing most of their daily energy needs from renewables with more than 260 GW of renewable energy capacity added globally in 2020, beating the previous record by almost 50%. The Bank further provides data that jobs in the renewable energy sector reached 11.5 million globally in 2019, and projects that a shift to low-carbon, resilient economies could create over 200 million net new jobs by 2030 in 24 major emerging market economies if they focus on green investments this decade. Shell the dominant operator in Nigeria’s oil and gas industry projects that every new passenger car in the world could be electric by 2050 and expects clean energy to make up half of the company’s energy mix somewhere in the next decade.
The data above points clearly to the fact that in 10-20 years’ time, the world would have moved substantially from fossil fuels to renewables, so the overall value and impact of the PIB in a fast-fading fossil fuels in the energy mix is debatable and even questioned. Nigeria is therefore thinking in the past and there is urgent need to begin forward thinking in line with global energy developments. The National Assembly therefore needs to quickly begin work on a new bill – the Energy Industry Bill – to provide a holistic grundnorm for all energy sources with special focus on renewables which is the energy for the future!
The PIB provides for penalties on operating companies who flare produced gas. These penalties are not far reaching and punitive enough. For 60 years these operating companies have preferred to pay the penalties and flare produced gas which could have been harnessed for power generation to provide electricity 24/7 to the nation. Nigeria is the only gas producing country in the world with perennial power cuts! A nation that needs 200GW of electricity is only being fed with 4GW and the economy will continue to remain comatose with this highly abysmal power availability levels. The National Assembly needs to amend the PIB to increase the punitive measures for gas flaring to include revocation of operating licences and the filing of criminal charges against the executives of the defaulting companies. Gas flaring does not only cause environmental disaster, but it also impacts negatively on the health and wellbeing of the people who live in the Niger Delta region and elsewhere. Flaring gas is also economic sabotage due to loss of revenue and the power deficit that stunts economic growth and job creation. Gas has many other uses for example if the flared gas is harnessed and piped into homes, it will create huge jobs in the construction sector and in the management and operation of the systems to provide the gas to customers. These are the benefits that Nigeria has been losing for the past 60 years and it is a shame that the National Assembly continues to play with kid gloves with operators who are causing these environmental, health and economic sabotage to the nation!
Commercialisation of the NNPC
The PIB provides that the current National Oil Company (NOC) the Nigerian National Petroleum Corporation (NNPC) be dissolved and in its place a fully commercial limited liability company known as the Nigerian National Petroleum Company Limited (NNPC Limited) be incorporated under the Companies and Allied Matters Act. This is a commendable move which is in line with the recommendations made by this column in our article titled – The NNPC and NLNG: Same Parents, Different Outcomes – published before the passage of the PIB. The NNPC as presently constituted has become a major drainpipe on the nation’s resources and instead of operating profitably and paying dividends to the federation account, the NNPC consumes trillions of Naira every year without delivering results. For example, the NNPC by the published financial statements spent N325 billion between 2018 and 2019 on the four refineries to refine zero barrels of crude oil. The NNPC has been a spoilt brat who has access to the nation’s resources and squanders it without any commercial or business sense! The National Assembly needs to amend the PIB to remove the sale of Nigeria’s crude from the NNPC Limited to pave way for a fully commercialised entity to fund its operations from their revenue generated.
Funding of Frontier Exploration
The PIB provides for the establishment of a Frontier Exploration Fund (FEF) which is to be funded with 10% of rents on petroleum prospecting licences and 10% rent on petroleum mining leases and 30% of NNPC Limited’s profit oil and profit gas as in the production sharing, profit sharing and Risk service contracts. The FEF is to be dedicated for the development of frontier acreages only. In line with the earlier recommendation on a new bill to incorporate energy transition, the National Assembly needs to amend the PIB to dedicate the FEF solely for the development of renewable energy. Thus, we will be using the declining fossil fuels to build the structures for the energy for the future. Nigeria is well endowed in renewable energy sources with a guarantee of 8-10 hours of pure sunshine daily (summer all year round – what the temperate countries can only wish for), a network of rivers for hydro, strong winds especially at the coastal areas and massive cultivable arable land for biofuels. If the FEF is committed to the development of renewable energy, Nigeria will become a global player in renewables and even export energy to earn foreign revenue.
One of the most important provisions of the PIB is the provision of a legal and regulatory framework for the development of Host Communities (HCs). The HCs are no longer to depend on the goodwill of the operating companies (settlors) but now have legal backing for their development which must be complied with by all operators (settlors). The PIB provides for the establishment of Host Community Development Trust Fund (HCDTF) for each HC and requires each operator (settlor) to make an annual contribution to the applicable HCDTF of an amount equal to 5% (passed by the House of Reps), 3% (passed by the Senate) of its actual annual operating expenditure of the preceding financial year in the upstream and 2% in the midstream and downstream in respect of all petroleum operations affecting the HCs for which the applicable HCDTF was established. This is a good development, and it is commendable to give legal backing to the rights of the HCs to benefit from the operations of the oil and gas activities that often impact negatively on their day-to-day lives.
The differences between the Senate (3%) and the House of Representatives (5%) for the remittances to the HCDTF has generated unbridled controversy amongst stakeholders which if not managed can derail the PIB all together. But it should not be about the quantum of money committed that should occupy attention, rather it is the application of that money. Currently the Niger Delta (oil producing) states have the following special intervention funds targeted at the region (not applicable to non-oil producing states) – 13% derivation, the Niger Delta Development Commission (NDDC) and the Federal Ministry of Niger Delta Affairs. Additionally, the Niger Delta states share in the Federation Account Allocation and also earn their internally generated revenues. The oil companies also spend massively on CSR in the HCs. Yet despite all these interventions and trillions of Naira funded to the Niger Delta states, the HCs remain pinned down in poverty with little development to show for it. It will serve the HCs better if the energy and gusto that is being applied on debating the differences in the Senate and Reps passage of the amounts to be remitted to the HCDTF be directed to questioning the application of the interventions directed to the development of the HCs as listed above!
- The National Assembly to begin work on a new bill – the Energy Industry Bill – that will cater holistically for all energy sources particularly renewable energy which is the energy for the future as the world transitions away from fossil fuels.
- The National Assembly to amend the PIB to raise the punitive measures for gas flaring to including revocation of operating licences and the filing of criminal charges on the executives of the defaulting companies.
- The National Assembly to amend the PIB to remove the sale of Nigeria’s crude from the NNPC Limited. This could be by transferring the National Petroleum Investment Management Services (NAPIMS) the arm of the NNPC that manages the Federal Government’s (FG’s) investment in Joint Ventures (JVs) with International Oil Companies (IOCs) and the Crude Oil Marketing Division of the NNPC that sells the FG’s share of crude oil produced by the JVs from the NNPC Limited and vesting them under the Federal Ministry of Petroleum Resources or even the Federal Ministry of Finance. Currently the NNPC takes the proceeds from Nigeria’s crude sales, spends as much as they want and transfers only what is left to the federation account. Recently the NNPC had the temerity to tell the nation that they will be spending every dollar from crude sales and will deliver zero to the federation account. This profligacy by the NNPC must stop to pave way for a fully commercialised entity to fund its operations from their own generated revenue and save Nigeria the resources currently being haemorrhaged by an inefficient NNPC.
- The National Assembly to amend the PIB to dedicate the Frontier Exploration Fund solely for the development of renewable energy to position Nigeria to become a global player in the energy for the future.
- The National Assembly to amend the PIB to provide for serious punitive measures for mismanagement of the Host Community Development Trust Funds. This will ensure that the funds are committed to the real beneficiary communities and not the current situation where the host community leadership benefits from the funds leaving their members pinned down in poverty living in damaged environments.
The National Assembly has done commendably well and acted courageously by passing the PIB. What is left is for the President to give assent to the PIB to enact it into law. That last time the Petroleum Industry Governance Bill (a fraction of the current bill) was placed before the President in 2018, he declined assent. Given that the recently passed bill is an executive bill, we hope that the President speedily passes it into law so that nation will begin to reap from the benefits envisaged in the bill.