THE PETROLEUM INDUSTRY ACT (PIA), A VEHICLE FOR THE REVOLUTION OF THE PETROLEUM INDUSTRY (the first series)

THE PETROLEUM INDUSTRY ACT (PIA), A VEHICLE FOR THE REVOLUTION OF THE PETROLEUM INDUSTRY (the first series)~  by Olubor Uyi Esq.

For the best part of the last two decades. The Nigerian Legislature has tried effortlessly to revitalize the Petroleum industry by trying to pass the Petroleum Industry Bill (PIB). However, this bill has continually been hindered, either due to legislative filibustering or constitutional impediments on passing of Legislative bills.

However, this year the National Assembly passed the PIB which was finally assented by the President.

The PIA aims at promoting transparency, good governance and accountability in the administration of petroleum resources in Nigeria. This is one major reason the National Assembly via the PIA decided to unbundle the Nigeria National Petroleum Commission (NNPC) into the Upstream commission which will be responsible for the governance of the upstream Operations and the Midstream and Downstream Authority who would oversee the midstream and downstream Operations. To further unburden the NNPC of the weight it hitherto carried. The Honourable Minister is empowered by virtue of section 53 of the PIA to Incorporate within six months from the effective date of the PIA, under the Corporate and Allied Matters Act (CAMA). A Limited Liability company which shall be called the Nigerian National Petroleum Company Limited (NNPC Limited). The Ministry of Petroleum Limited and the Ministry of Finance Limited are designated by virtue of the PIA to hold all shares proportionally in NNPC Limited on behalf of the Government. 

This company which would be created, would sound like music in the ears of a lot of industry practitioners. In the past, a lot of industry practitioners have criticized the situation where the NNPC is involved both as a player and a regulator and have opined that, that would not give it a robust marketing edge to attain the level of its contemporaries like Petrobras and Saudi Aramco. However, with this recent unbundling, the Upstream Commission and the Midstream and downstream Authority can focus on regulating the technical and managerial activities of their respective streams. 

While NNPC Limited is vested with the right to carry out Commercial activities in comparison to other IOC's and LOC's in Nigeria. To ensure that NNPC Limited is not clogged by existing Government bureaucracies. The company is exempted from the Public Procurement Act, Fiscal Responsibility Act and the Treasury Single Account. Also, NNPC Limited shall be vested on behalf of the Federation as the concessionaire of all Production Sharing Contracts (PSC's), Profit Sharing and Risk Service Contracts. Further to that, NNPC Limited is vested with the authority to sell royalty oil, tax oil on behalf of the Upstream Commission and the Federal Inland Revenue Service. NNPC Limited and other parties to Joint Operation Agreements (JOA's) are at liberty to restructure their JOAs' to an Incorporated Joint Venture Company (IJVC). Which shall likewise be exempted from the Fiscal Responsibility Act and the Public Procurement Act. This would ensure that the IJVCs' are not hindered by existing public bureaucracies, and NNPC Limited and its partners can therefore optimise their joint Ventures.

In order to bolster the productivity of NNPC Limited. NNPC Limited shall transfer 30% of its profits to the Frontier Exploration Fund Escrow Account and shall be applied subject to the approval of the National Assembly to the exploration and development of Frontier Acreages. These funds, if properly managed, would open up more business portfolios for NNPC Limited and would make it a more profitable organization for the benefit of its shareholders. 

A careful reading of the PIA would manifest a great desire by the lawmakers to ensure that International best practice is enshrined in the Oil and Gas sector. This is evident in the continuous hammering of the PIA against anti-competitive behaviours. Although, most critics would opine that section 317 (8 and 9) of the PIA abandons this intent of strengthening competition by making a provision for backward integration that would force major players in the industry to invest in the downstream sector, most especially as it relates to refining of Crude Oil.

To ensure uniformity of Laws, the PIA was made a one-stop shop for oil and gas regulations. The Parliament achieved this by repealing the NNPC Act, NNPC(projects) act, the Petroleum Product Pricing Regulatory Agency Act (PPRA) and all other allied laws. However, in respect of the following laws ; Petroleum Act, Petroleum Profit Tax Act, Deep Offshore and Inland Basin Production Sharing Contracts Act and Oil Pipelines Act. They shall remain relevant until the expiration of all Oil Mining Leases (OML's) and Oil Processing Licenses (OPL's) that have not been converted by the parties under Section 92 of the PIA.

In addition, Organizations such as the Petroleum Inspectorate, Department of Petroleum Resources, Petroleum Equalization (Management Fund), the Petroleum Product Pricing and Regulatory Agency (PPRA) shall all cease to exist and their assets and liabilities would be inherited respectively by the new regulatory agencies created by the PIA: the Upstream Commission and the Midstream and Downstream Authority. This would invariably ensure consistency and efficiency, as we would no longer have multiple agencies almost sometimes performing the same functions. With the coming in force of the PIA, only the Commission and the Authority would have the capacity to regulate their respective streams. To wade against all possible disputes, the PIA mandated that all employees of agencies that would cease to exist with the enactment of the PIA, shall be moved depending on their competence to either the Upstream Commission, Midstream and Downstream Authority or NNPC Limited. This invariably would assure a smooth transmission of the changes brought by the PIA.

In a nutshell, the PIA is definitely a game changer, and it is expected that in the not too distant future, it would radically change the Oil and Gas industry. This intent is very evident upon a careful reading of this law. One can observe a common Spirit to rejuvenate this particular sector and ensure that the Nigerian Citizens are the biggest beneficiaries. But to ensure this would be the impact, it is not sufficient that the President assented the bill. Going forward, the major players must ensure they put their best foot forward in ensuring that the spirit of this law is brought to fusion.

Disclaimer: this article was written with the copy of the PIB that was passed by the National Assembly. As we are yet to lay our hands on the gazetted copy assented to by the President. However, we don't expect any departure from that passed by the National Assembly.

Note: You can read other articles of this nature on my blog Oluboruyi.blogspot.com and expect, in the coming days, the second series to this article