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Summary of the Petroleum Industry Bill in Nigeria


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.

Background to the Bill

The PETROLEUM INDUSTRY BILL 2012 is the culmination of several years of efforts at industry reform. The process began under President Obasanjo in 2000, with the establishment of the Oil and Gas Implementation Committee (“OGIC”). OGIC issued a report and policy document, which was later approved by the Yaradua government and resulted in the Petroleum Industry Bill 2008 being forwarded to the 6th National Assembly.

The Petroleum Industry Bill 2008 went through several redrafts including a wholesale amendment by the executive arm of the government (the Interagency Team Draft) but ultimately failed to pass during the 6th National Assembly. In the aftermath of the fuel subsidy protests in January 2012, the Nigerian Minister for Petroleum, Mrs Diezani Alison-Madueke announced the establishment of a technical committee headed by Mr. Osten Olorunsola to harmonise the various versions of the draft bill. The  PETROLEUM INDUSTRY BILL 2012 is the result of this process.

Part I – Objectives
This part comprises of 4 sections, which provide the general principles governing the Bill. Section 1 lays out a number of objectives, which include:
* Creation of a conducive business environment for petroleum opeations;
* Establishment of a progressive fiscal framework that encourages further investment in the petroleum industry while optimizing revenues accruing to the Government;
* Creation of efficient and effective regulatory agencies; andPromotion of transparency and openness in the administration of the petroleum resources of Nigeria.Section 2 emphasizes the principles laid out in section 44(3) of the Nigerian Constitution, which vests property and control of all petroleum in Nigeria including the Continental Shelf and Exclusive Economic Zone, in the Federal Government.

Part I is rounded out by binding all agencies and companies created under the Bill to the provisions of the Nigerian Extractive Industries Transparency Initiative Act in carrying out their responsibilities.

Part II – Institutions

Institutional reform was a key platform of the oil and gas reforms leading to the draft of the Bill. Part II provides for the institutions to be created, their functions, funding as well as the mode of appointment of senior officials. The post-PIB reform structure will look like the image attached yo this topic

* PTB – Petroleum Technical Bureau
* MPR – Ministry of Petroleum Resources
* UPI – Upstream Petroleum Inspectorate
* DPRA – Downstream Petroleum Regulatory Agency
* PTDF – Petroleum Technology Development Fund
* PEF – Petroleum Equalisation Fund
* PHCF – Petroleum Host Communities Fund
* NAPAMCorp – National Petroleum Assets Management Corporation
* NAPAMCO – Nigerian Petroleum Assets Management Company Limited
* NOC – National Oil Company
* NGC – National Gas CompanyThe Ministeris “responsible for the co-ordination of the activities of the petroleum industry and shall exercise general supervision over all operations and all institutions in the industry”. This all encompassing role of the Minister is backed up by significant powers, which include the power to formulate, determine and monitor government policy in the oil and gas industry; the power to issue licences and leases in the upstream and downstream sectors of the oil and gas industry and the power to advise the President on the appointments of the Chief Executive Officers of the institutions established under the Bill.  The Minister is also to act as Chairman of NAPAMCorp.

Unlike previous drafts of the PIB, the Bill does not seek to replace the Ministry of Petroleum Resources. Indeed it does not propose any change to the structure of the Ministry. It does however propose the establishment of a Petroleum Technical Bureau (“PTB”) in the office of the Minister. The PTB is to be staffed with professionals in the petroleum industry as the Minister may from time to time deem fit. Its functions shall include providing  professional support to the Minister; assisting the Minister in the formulation and monitoring the implementation of policy as well as carrying out the functions of the Frontier Exploration Service of NNPC. The Minister may also assign other functions to the PTB.

The Upstream Petroleum Inspectorate (“UPI”) has been proposed to carry out the upstream functions of the current DPR. Its functions are to include the regulation of the technical aspects of the upstream petroleum industry; regulation of commercial activities within the upstream petroleum sector as may be designated by the Minister; and execute policies assigned to it by the Minister.

The UPI is to be headed by a Director-General (“DG”) appointed by the President on the advice of the Minister of Petroleum. It will have a board made up of the DG and such other number of executive Directors as approved by the Minister as well as non-executive directors representing specified industry stakeholders. The Inspectorate is required to maintain a fund which shall consist of budgetary allocations, monies derived from fees, gifts, loans and grants etcetera.

The Downstream Petroleum Regulatory Agency (“DPRA”) is to be established to regulate the downstream sector of the petroleum industry. This includes responsibility for regulating natural gas markets and infrastructure. Its functions include regulating the technical aspects of the downstream sector; regulating the commercial aspects of the industry as may be designated by the Minister; the issuance of downstream licences to industry operators; and the facilitation of an enabling environment for for investments in the downstream petroleum sector.

The DPRA is to be overseen by a board including the Director-General, executive and non-executive directors all appointed by the President on the advice of the Minister. The Agency  is required to maintain a fund which shall consist of budgetary allocations, monies derived from fees, gifts, loans and grants etcetera.

The Petroleum Technology Development Fund (“PTDF”) established under the Petroleum Technology Development Fund Act is to continue. The sources of the fund includes monies granted by the Government, multilateral agencies or bilateral institutions. The purpose of the fund is to facilitate the training of Nigerians for jobs in the petroleum industry. The Board of the PTDF is to include an Executive Secretary as well as other board members representing specified organisations.

To facilitate uniformity in petroleum pricing nationwide, the Bill proposes to retain the Petroleum Equalization Fund. The Equalization Fund shall be funded by payments from petroleum products marketing companies as well as the Federal Government. The Bill allows for the abolition of the Fund by the Minister where full deregulation has taken place.

Under the Bill all petroleum producing companies are required to remit on a monthly basis, ten per cent of their net profits into the Petroleum Host Community Fund. Unlike previous iterations of this concept, the PHCF under the Bill is a centralised establishment similar in many respects to the existing Niger Delta development Commission. The PHCF is to be utilised for the development of the economic and social infrastructure of the communities within the petroleum producing area.

Where an act of sabotage which causes damage to any petroleum facility within a host community occurs, the cost of repair is to be derived from the PHCF unless it is established that no member of the community is responsible.

To carry out the government’s commercial functions in the oil and gas industry, the Bill proposes the establishment of four entities. TheNational Petroleum Assets Management Corporation (“NAPAMCorp”) is to be a “holding company operating fully on commercial principles”, whose principal function shall be to acquire and manage investments of the Federal Government in the Nigerian upstream industry.

NAPAMCorp is to be provided funds by the government to fund the activities of its subsidiaries, one of which shall be the Nigerian Petroleum Assets Management Company Limited (“NAPAMCO”). The assets and liabilities of NNPC comprising of the interests in all the unincorporated joint ventures are to be transferred to NAPAMCO. The Corporation’s ability to borrow may be capped by the President, whose approval is also required for borrowing in currencies other than Naira and where such borrowing is not to be temporary.

The board of the Corporation is to be chaired by the Minister and its board  of directors shall include the Permanent Secretary of the Ministry of Finance and two other persons appointed by the President.

A new National Oil Company is to be incorporated by the Minister within three months of the passage of the Bill. All assets and liabilities of NNPC save for its interest in the unincorporated joint ventures and the Nigerian Gas Company Limited shall be vested in the NOC. Up to thirty percent of the shares in the NOC may be divested on the Nigerian stock exchange any time within six years of the date of incorporation. The assets of the subsidiaries of NNPC listed under the Public Enterprises (Privatisation and Commercialisation) Act shall be de-listed. The NOC is to be subject to the governance rules of the Securities and Exchange Commission.

The National Gas Company Plc is also to be incorporated as a limited liability company. NGC is to take over certain assets and liabilities of NNPC, although as is currently worded, the nature of the assets and liabilities are unclear. Up to forty nine percent of the shares in the NOC may be divested on the Nigerian stock exchange any time within six years of the date of incorporation.The company is to be subject to the governance rules of the Securities and Exchange Commission.

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