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Author Topic: Summary of the Petroleum Industry Bill in Nigeria - Section 4  (Read 1860 times)

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Summary of the Petroleum Industry Bill in Nigeria

The PETROLEUM INDUSTRY BILL 2012 is a 223 page document with 362 sections and 5 schedules. The Bill is divided into 9 parts, which propose to cover the entire spectrum of the oil and gas industry. This topic seeks to summarize the Bill with respect to its 9 parts.

Part V – Downstream Petroleum
Part V is further divided into 3 sub parts. The first division covers operations, the second deals with specific provisions for gas whilst the last addresses the issue of Domestic Gas Supply Obligation.

A.  Operations

Downstream Deregulation – A major addition to the PIB is the deregulation of the pricing of petroleum products in the downstream sector.

Open Access – The bill maintains the provision for open access as in previous drafts in relation to “regulated open access facilities” which include jetties, loading facilities and storage depots or pipelines currently owned by downstream operators. This does not however preclude the construction and operation of independent pipelines, depots and jetties by any licensed oil marketing companies, bulk consumer of petroleum products or independent refineries for their exclusive use subject to regulation by the Agency.

Tariff Methodology and Price Monitoring – The Agency shall oversee tariffs for transportation pipelines, bulk storage of petroleum products in regulated open access facilities and any regulated open access facility in a manner which allows efficient operators to recover the full cost of its business plus a reasonable return on investment, provides incentives for service improvement, prevents undue discrimination amongst consumers and gradually reduces cross-subsidies.

Notice of the establishment or change of a tariff methodology shall be publicized and representations made by stakeholders shall be considered by the Agency in arriving at a methodology. The Agency is also empowered to monitor the pricing of petroleum products in the domestic market to prevent pricing collusion or manipulation. Engaging in any activity likely to adversely affect the price of petroleum products is an offence which upon conviction would result in the payment of a fine as determined by regulation.

National Strategic Stock – The bill also makes provision for the maintenance and distribution of the national strategic stock in accordance with regulations made by the Minister on the advice of the Agency.

Dispute resolution – The Agency is also empowered to mediate in all disputes between downstream operators and consumers in the downstream sector.

B. GAS PROVISIONS

Transportation pipeline owner licence – The PIB grants the Agency powers to issue a licence to a transportation pipeline owner to operate and maintain a transportation pipeline within a route as defined in the licence subject to conditions as stipulated in the bill and as may be imposed by the Agency.

Transportation network operator licence – The Agency is also empowered to grant licences to transportation network operators for the conduct of activities specified in the licence and such licensees amongst other obligations, are required to ensure transparent access to the network, establish and publish terms and conditions for access to the network and enter into relevant agreements for connection to and operation of the network. The licence may also include an obligation to develop mutually agreeable market rules among stakeholders.

Gas supply licence – A gas supply licence, granted by the Agency, allows the licensee “supplier” to supply gas into the downstream petroleum sector nationwide subject to conditions as specified in the bill. Such supply licence may also come with the rights, as determined and regulated by the Agency, to terminate gas supply to a customer in the event of nonpayment following a notice period and regulated disconnection procedure, recover all associated costs reasonably incurred in the supply of gas, and licence fees, enter into premises to remove, read and test meters. The supply licence is to be issued to gas producers seeking to provide gas into Nigeria’s downstream sector.

Gas distribution licence – The Agency is empowered to grant a gas distribution licence conferring exclusive right to own and operate a gas distribution system to distribute gas within a local distribution zone to non-wholesale customers. Conditions imposed upon such licence include amongst others, the duty to cooperate with the Agency in the development of the Network Code and to offer and publish terms and conditions of access to its distribution network. Similar rights as conferred on gas suppliers are also applicable to the gas distributor.

Network Code/ Wholesale Gas Market – The Agency is empowered to establish the Network Code in consultation with licensees and stakeholders covering all aspects of the downstream gas network and copies of the guidelines for the code shall be made available to interest parties. Following consultations with stakeholders, the Agency may also request the Minister to issue regulations determining classes of customers to be categorized as wholesale customers and the criteria for such classification. Such wholesale customers shall be entitled to secure gas from any gas supply licensee.

Third Party Access – The bill also allows a non-discriminatory right of third party access to transportation pipelines/networks or a distribution networks for the purpose of having gas transported to points of consumption subject to specified terms and conditions.

Gas pricing – The Agency, upon consultation with licensees and industry participants and in accordance with gas pricing principles as set out in the bill may regulate the prices of gas charged by licensees, where the Minister on the advice of the Agency determines that a monopoly situation exists. Tariff structures to be applied by licensees shall be approved by the Agency.

Wholesale gas prices – This is to be negotiated directly between parties on an arm’s length basis such that the gas transfer price between an upstream gas producer and a downstream gas purchaser shall reflect the costs of transfer between the parties subject to the powers of the Agency to monitor wholesale gas supply transactions.

The supplier is also required to provide the Agency with all relevant information regarding any wholesale gas transaction with fourteen (14) days of the transaction and such information shall be classified as confidential information by the Agency not to be disclosed to any person or institution except the Federal Inland Revenue Service (the “Service”) for a period of five (5) years. An intentional failure by the supplier to provide the requite information to the Agency within the stipulated timeframe or the provision of false or misleading information shall result in a penalty not exceeding NGN1,000,000 per day until the provision of the information.

Transitional pricing arrangements – This allows the Agency in consultation with the Ministers of Petroleum Resources, Finance, Industries, Power and Steel, gas producers, electricity producers, the National Electricity Regulatory Commission (“NERC”) and other key stakeholders, to introduce and implement a transitional pricing plan which allows a gradual transition into the pricing arrangements specified in the bill.

Anti-competitive behaviour/ Consumer protection – The Agency may investigate and impose penalties for anti-competitive behaviours by licensees and may advise the Minister to issue regulations requiring licensees to conduct their operations in a specific manner formulated to protect their customers. Licensees and related persons with ability to influence the terms and conditions on which licensed activities are performed and the price at which petroleum products are supplied are also prohibited from exercising their powers in a manner liable to manipulate market prices or the price of any product or service or cause the direct or indirect exclusion of other licensees.

C. DOMESTIC GAS SUPPLY OBLIGATION

In addition to the provisions of the bill and government policies as determined from time to time, the Inspectorate and Agency are required to regulate the gas sector in accordance with the National Gas Master Plan.

Upon the yearly determination by the Agency of the Domestic Gas Demand Requirement (“DGDR”), the Inspectorate shall allocate the DGDR to every petroleum mining lessee by means of a Domestic Gas Supply Obligation (“DGSO”) determined as a function of the gas production and proven gas reserves of the lessee.

The Agency shall require the Domestic Gas Aggregator to establish an aggregate price for gas (“Aggregate Gas Price”) for only the volume of the Domestic Gas Demand Requirement, which shall be based on the weighted average of the purchase prices and supplied volumes of the purchased gas, and shall be used by the Domestic Gas Aggregator as a basis for gas supply to the domestic market. Failure to comply with the DGSO by a lessee shall result in the payment of penalty, embargo from supplying to any export project and revocation of gas licence where the non-compliance continues for a period exceeding three months.

Gas Licensing – The Bill requires companies intending to export gas are required to apply for a gas export licence (“GEL”) issued by the Agency pursuant to guidelines to be determined by the Agency. The Agency is empowered to refuse the grant of a licence where in its opinion such gas export is not in the national interest due to insufficient available proved gas reserves to supply to long term domestic market. However, such discretion shall not hamper the supply of contracted gas export capacity being undertaken under an export licence. For volumes of gas in excess of the DGSO, parties are free to contract in accordance with terms and conditions as agreed between them.

Prohibition of gas flaring – The Bill provides for the prohibition of gas flaring after “the flare out date” to be prescribed by the Minister in subsequent regulation. Any flaring after that date may only take place with the permission of the Minister. The circumstances under which such permission may be given are:

  • Startups;
  • Equipment failure;
  • Shut down;
  • Safety flaring; or
  • Inability of gas customer to offtake.
Ministerial permission may only be granted for 100 days or such additional time as approved by the Minister.

Gas flaring undertaken without ministerial permission would be subject to a fine not less than the value of gas flared and the oil and gas facility may be shutdown.

Oil and gas operators are also required to submit gas utilisation plans for the approval of the Inspectorate within 6 months of the passage of the Bill. Operators are to categorize all of their flared gas resources (daily flare quantity, reserve, location, composition) and submit this data along with the gas utilisation plans for approval by the Inspectorate.

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Adewale Odubiyi
Owner, Nigeria Oil & Gas Forum

Nigeria Oil & Gas Forum


 

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