-Olufunke Afolami
The Petroleum Industry Act (PIA) is a product that emanated from Petroleum Industry Bill (PIB) that took Nigeria almost two decades to pass into law after much legislative rigmarole by successive governments. Stakeholders and operators of the oil and gas sector waited until they breathed a sigh of relief in 2021 when President Muhammadu Buhari signed the bill into law.
But stakeholders believed that the Act though gave respite to operators, some sections still leave bitter taste in the mouth of operators due to implementation. For instance, the Department of Petroleum Resources (DPR) that regulated the industry has been divided into two sections, Nigeria Upstream Petroleum Regulatory Commission (NUPRC), known as Commission and Nigeria Midstream and Downstream Regulatory Authority (NMDPRA), known as Authority, giving the oil sector two regulatory bodies. Some operators were of the view that the two regulatory bodies have resulted to conflict of interests as they remain subservient to them.
The Centre for Petroleum Information (CPI) at its Webinar Edition: Oil & Gas Law Forum, with the theme: Petroleum Industry Act (PIA 2021) Success and Drawbacks Two Years on; discussed the issue.
Engr. Afolabi Oladele, Chairman of CPI Board of Governors, said certainly the PIA remains a topical issue and “every day that we can learn something, we should take advantage of the same.” Two years have passed on and there is need to make an assessment about the impact of PIA in terms of enhancing the activities of exploration that the country can produce.
In his opening remarks, Chairman of the occasion, Adeoye Adefulu, said the PIA is an important part of daily activities for the industry and it will take a while for it to impact the sector. Now that the law has been passed, what impact has it had on investment or ease of doing business? What impact has it had on regulation? How do operators and players of the industry philosophically view the PIA?
Obviously, over the last two years, certainly, there have been some challenges around regulatory structure in terms of security.
Olayemi Anyanechi, Commission Secretary and Legal Adviser of NUPRC delivered a paper at the CPI Oil & Gas Law Forum titled: Regulation and Compliance. She noted that the PIA was twenty years in the making because the entire industry felt there has to be adjustment to put things right in order to be effective and encourage investments into the oil and gas sector.
Ultimately, the PIA was enacted to address issues plaguing the Nigerian economy and create better governance framework realistically for the industry.
Key Initiatives of PIA
Anyanechi stated that PIA created a unique situation in Nigeria. One of the initiatives is that it created two separate regulatory bodies and a national oil company that was commercial and the law freed some regulatory functions for the industry.
The PIA provided a myriad of transparency provisions. Nigeria doesn’t rank high in transparency index and the oil and gas sector was considered as one of the most corrupt aspects in Nigeria.
PIA tried extensively to create transparency and some provisions, two years on, the country is making progress even though it is slow from the perspectives of stakeholders.
She stated further that PIA has a unique selling point which gave operators as participants in the oil and gas sector an active voice. Stakeholders have been given opportunities through consultation and invitation to air their views. There is a forum where people can speak and express their views with continuous stakeholders’ consultations and engagement with oil and gas associations such as Oil Producers Trade Section (OPTS), Independent Petroleum Producers Group (IPPG) among others. Certainly, in stakeholders’ conversation, NUPRC has fared well.
One other significant aspects of the PIA is default approvals, not just in oil and gas sector, but in Nigeria as whole.
Presently, the oil and gas sector has dual regulatory regime and the Commission tries to treat operators fairly. Some operators cannot be given unfair treatment which is not equitable. The default approval is now a norm in the Nigerian public sector.
The PIA created several funds such as the Host Community Development Fund, Environmental Remediation Fund, Decommissioning and Abandonment Fund, Frontier Exploration Fund among others. Since oil and gas companies especially the multinationals have global Memorandum of Understanding (MoU) that handles corporate social responsibility and other matters, the PIA goes further to codifies it into law. NUPRC has done a lot of extensive work making it possible for the communities to develop and benefit from it.
Regulatory Bodies and IOCs
Referring to the creation of NMDPRA, as the Legal Adviser of NUPRC, Anyanechi pointed out that there is no confusion in having dual regulatory bodies, but that as a country, operators have failed to see it as one part of the country’s jurisprudence. “Our law also has canons of interpretation and construction, and if we apply those laws, there is no confusion but what the law intended.”
Continuing she said, “while section 4 provides and delimits the power of NUPRC for all upstream operations alone, and the authority for midstream and downstream operations alone, it however looks back at history and the law realizes that before we got here things were done holistically and were not divided into upstream and midstream and it will continue for as much as we have access that were govern under the petroleum Act.”
“Once you have an integrated operation, a facility or infrastructure that integrates upstream and midstream operations, there is no issue which is where the solution lies.”
In the midstream and downstream, there is overlap which has led to agitations. Although the law envisages instances where midstream is integrated with upstream. For instance in natural gas, the infrastructure should be examined if it is integrated with upstream, the law requires that it should be treated as a typical upstream operations. This has created regulatory overlap but the PIA has resolved the issue.
When such situation arises, lawyers are to advise their clients, that there are ways statutory law will deal with it for a resolution. This will lead to sanity and consistency in the sector.
One of the key introductions of PIA is that it empowers the regulatory agencies and does not limit the powers of the Minister as being insinuated. “It makes sense because they are the technical agencies close to operators. They do technical review and analysis required. The minister’s role is purely policy and overall guidance.
As the PIA provides, when it comes to certain function, regulators make recommendations, for instance, in assignments, after doing due diligence looking at whether the entity is technically or financially viable with good conduct. Based on recommendation, the minister takes decision.
PIA suggests that if recommendation is made, the minister should approve. Hence, the power is to make a recommendation. It gives the Commission discretion to recommend which does not mean its powers are absolute. Operators should not be afraid since the law has created a process to test the ambit of the regulator’s powers.
Anyanechi disclosed that some operators try to cut corners and by-pass NUPRC to the presidency for favourabe review of the law. According to her, she usually advised operators to sue the Commission if aggrieved and test the might of the law. But some are afraid so that the regulator will not wield its powers to victimise them. Today’s NUPRC does not victimise people rather it understands that operators have right to dissent and separate opinion. Anyone is free to go to court to seek redress.
Part of the achievement of PIA is that it makes Nigerian National Petroleum Corporation (NNPC), a commercial entity and provides that the “Corporation and its subsidiaries shall conduct their affairs on a commercial basis in a profitable and efficient manner without recourse to government funds.”
Interestingly, the law provides that “NNPC shall not be subject to normal procurement laws. It is free from procurement and a commercial NNPC is in tune with 21st century and can do its business better. The law also mandates that it must retain 20% of its profits to grow its business.”
Being a commercial entity, the Corporation competes with International Oil Companies (IOCs) favorably in the oil and gas sector. Anyanechi believed that when the PIA is matured, NNPC will find it easier to settle in its role like TotalEnergies, Shell and other IOCs as a commercial entity without any regulatory function.
However, the Commission has made things easy and people can go online for information. Traditionally, these pieces of information are paid for but at present, they can be accessed at the Commission’s website.
The beauty of it is that it creates transparency and standard. The long term benefit is that international community can be involved in any contract in the oil industry because investment is easy and less dependence on vagaries of regulator due to standard practice.
The PIA says there is no discretionary award as experienced in the past with transparency and fair process of bidding with compliance of regulation. This will give confidence to foreign investors to invest in the oil sector.
Giving her candid opinion at the CPI Oil and Gas Law Forum, Folasade Olusanya, Partner, Jackson, Etti & Edu & Co spoke on the ease of doing business with regards to oil sector.
According to Olusanya, the ease of doing business was popularised by the World Bank since 2002 and an assessment of regulatory framework of a company or a country in terms of its ability to attract and retain investments.
The World Bank identified different indicators that it felt impacted or determined whether an investor made an investment in a country, if it would continue to retain its operations in the country.
These indicators are from starting a business, getting electricity, registering property and paying taxes. It also involves trading across borders, enforcing contracts. Nigeria, during the first term of the previous administration move up fifteen places.
Has issues around post PIA resolved? The general view had been non conformity with global best practices. There was regulatory inefficiency with bureaucracy.
The conflicting roles of NNPC such as multiple taxes and charges, an unfavourable investment climate and host community issues, looking at ease of doing business, two years on, what has really changed?
Olusanya said taking a look at PIA, the ease of doing business was on the mind of the drafters and law makers. From the initial provisions, the objective of PIA is to foster a business environment conducive for petroleum operations, promote transparency, good governance and accountability. There has to be accountability in administration of petroleum resources in Nigeria, to create efficient and effective governing institutions with clear and separate rules for the petroleum industry. That’s the objective of PIA with the metrics of ease of doing business.
The minister is also empowered and mandated to promote an enabling environment and investment in Nigerian petroleum industry. NUPRC and NMDPRA are created by the Act. The Commission is mandated to promote enabling environment for investments in upstream petroleum operations while the Authority is required to promote, establish and develop positive environment for international and domestic investments in midstream and downstream petroleum operations
The foundation to drive an enabling business culture in the petroleum industry is the PIA. It has foundation for the building blocks of ease of doing business.
The fact that Nigeria has one codified document for the industry is certainly an improvement that has created ease of doing business for the operators. The PIA provides fixed timelines for transferred leases or licenses giving hope to operators.
According to Olusanya, lack of transparency and dualization of regulatory responsibility is an issue to operators because they consider it opaque for the industry.
The dualization is supposed to provide for an efficient and transparent regulatory environment which should have been the ultimate objective because the expectation is that the body’s regulatory functions will be streamlined but it appears there is overlap. These aspects should be reviewed.
General consensus is that fiscal regime is uncompetitive. The enforcement of contracts is a key indicator on ease of doing business, but the PIA being an industry legislation, would typically not extend enforcement of contracts by way of court system.
Host community conflicts under the PIA
On the aspect of Host Community, Olusanya was of the view that PIA system sought to deal with it by way of having each license that creates Community Development Trust Fund. The objective of the fund is stated in the Act which is infrastructure development and economic empowerment. It provides the amount that each license holder would pay into the fund 3% of its operating expenditure and existing host community projects will be transferred to the fund. Its implementation will determine if those provisions would reduce community conflicts.
Nevertheless, the PIA has some provisions that drive ease of doing business.
Speaking further, Olusanya said laws are not problem in Nigeria, but outdated ones should be reformed. The engagement of stakeholders in determining processes of regulations is the brain of ease of doing business. “The PIA alone is not enough to achieve ease of doing business in the sector. The expectation of ease of doing business just by PIA provisions or regulations is not sufficient.”
A collaborative approach should be taken to the ease of doing business. The Commission and Authority though new agencies should create units and departments of ease doing business.
“We should develop our own indicators for the petroleum industry.” Stakeholder’s engagement is a continuous process doing business with an enabling environment.
Reactor Panel
Taofeek Shittu, Managing Partner, Ikeyi Shittu & Co, reacting to PIA pointed out that the focus should be on transparency in the industry. This is the critical issue in the industry. The challenge is not about PIA but how participants, stakeholders and regulators are serious with the laws.
If regulators can ensure transparency in the industry which is key objectives of PIA, there will be respite. The challenges in the oil and gas industry evolve largely around lack of transparency and accountability. It seems to be a deliberate act to ensure there is no transparency in the sector. The process of getting permits and approval shouldn’t be cumbersome. Technology can interface between regulators and stakeholders.
On his part, reacting to the subject matters, Amonia Tariah, Internal Audit Manager, Platform Petroleum, was of the view that when operations of the oil business are integrated, it falls under the purview of the Commission but there are still conflicts.
Another concern is transparency and corruption that have pervaded the industry. There is no clear case of corruption, but it hasn’t been dealt with it fully. The Commission has become a revenue arm of government as against regulation which it is expected to provide for smooth governance in the oil and gas business with the intent of doing business in Nigeria a reality.
The regulator, whose job is to regulate operations of oil and gas industry as expected, has become an enterprise.
“Is the Commission created to drive revenue for the nation or to provide enabling environment for the industry?
Tariah lamented that the Commission goes beyond its bound to provide vendors for operators to do business which is not palatable for oil business and making it boring for operators. It would have been more profitable to invest elsewhere with interests. This is a key issue that must be resolved with regards to transparency.
Stakeholders believe that NUPRC plays dual role of promoting the oil and industry through regulation and revenue generation for the government at the same time. The cost of regulation should only reflect on services.
Shouldn’t the cost of regulation only reflect fairly on the cost of services as opposed to making a premium?
Reacting to a question at the Forum, Anyanechi posited that section 8D of the PIA says: “where in such facilities or fix of operating platforms or vessels provide for fully integrated upstream and midstream petroleum operations, the Commission shall consider and the Commission shall be in charge of such integrated operations and petroleum operations may be considered integrated when there’s a joint use of utilities for upstream and midstream operations.” This makes it clear. If this is applied according to section 8D, where there is integrated facility, the Commission should oversee it.
On judicial review, the NUPRC Legal Adviser, said when an operator feels that a regulator has exceeded its administrative power due to a decision, it can be challenged. Such judicial review works for the entire industry.
Comment here