Analysis

Reducing Oil and Gas Industry Bureaucracy: Role of the Executive Order

May 28, 20240320

-Dapo Akinosun

Nature of an Executive Order

  • An Executive Order is a rule or order directly given by the President to an executive agency, class of persons or body under the executive arm of government and having the force of law.
  • The legal basis for executive orders is provided by section 5 of the Nigerian Constitution which vests the executive powers in the President, including the enforcement of existing laws and the execution of government policies. Similarly, Section 315 of the Nigerian Constitution grants the President the power to amend or modify existing law to bring it to conformity with the constitution.
  • The purpose of executive orders is to:
  • Ensure efficient administration of public policies.
  • Clarify existing legislation or fill gaps where needed.
  • Direct government agencies on specific regulatory matters.
  • Establish and promote governmental priorities.
  • However, executive orders operate within certain limitations:
  • Executive orders generally apply to federal agencies and their employees.
  • They cannot contravene or override existing laws enacted by the National Assembly.
  • They serve as binding guidelines for government officials but do not create enforceable rights for private individuals against the government.
  • Their legal status can be challenged if they exceed constitutional or statutory authority.
  • Courts can annul Executive Orders if deemed ultra vires (beyond the President’s powers) Challenges of Bureaucracy in Nigeria’s Oil & Gas Industry
  • Fragmented Regulatory Oversight: The industry faces challenges due to oversight by at least 16 federal agencies with overlapping responsibilities, including the Federal Ministry of Petroleum Resources, NNPC, NUPRC, and NMDPRA, leading to bureaucratic complexities, inefficiencies, and increased operational costs for businesses.
  • Political Interference: Government interventions often disrupt the regular operations and strategic decisions within the industry, leading to inefficiencies and a lack of clear direction.
  • Legal and Process Violations: There is a frequent disregard for the law and established procedures, undermining the regulatory framework and leading to unpredictability and instability.
  • Bribery and Corruption: These practices are rampant, with officials sometimes exploiting the bureaucratic complexity for personal gain, thereby eroding trust and increasing operational risks.
  • Delays in Licensing and Approvals: The prolonged processes for obtaining necessary licenses and approvals can significantly delay projects, inflate costs, and deter potential investments.
  • Inconsistent Regulatory Timelines: The lack of predictable timelines for regulatory approvals creates uncertainty, complicates project planning, and can discourage long[1]term investments.
  • Lack of Redress Mechanisms: The absence of effective grievance redress mechanisms leaves businesses with unresolved disputes and grievances, further complicating the operational environment and potentially leading to legal battles or public relations issues.

Role of the Executive Order

  1. Streamlining Processes: Executive Orders can be utilized to streamline regulatory processes by reducing redundancies and overlaps among the numerous regulatory agencies. This would involve directives to consolidate similar functions and promote a more centralized approach to regulation, enhancing efficiency.
  2. Enhancing Transparency: By mandating clearer guidelines for interactions between oil and gas companies and regulatory bodies, Executive Orders can increase transparency. They can set forth requirements for public disclosures and timelines which regulatory agencies must adhere to, reducing opportunities for corruption and delays.
  3. Facilitating Quick Decision-Making: Executive Orders can set strict timelines for decision-making processes within regulatory agencies, ensuring that approvals and inspections are completed within reasonable timeframes. This can significantly reduce the delays currently plaguing the industry.
  4. Promoting Accountability: With direct mandates from the Executive, these orders can strengthen accountability mechanisms within regulatory agencies. For example, introducing penalties for non-compliance with the set timelines or procedural guidelines can enforce greater responsibility.
  5. Reducing Legal and Regulatory Ambiguities: Executive Orders can provide precise definitions and clarifications on regulatory roles and responsibilities that currently overlap among various agencies, thus minimizing conflicts and enhancing cooperative efforts.
  6. Encouraging Innovation and Investment: By simplifying the regulatory landscape, Executive Orders can make the oil and gas sector more attractive to investors. Clear and efficient regulatory frameworks are often key considerations for both local and international investors when assessing industry viability. Practical Examples of the Role of the Executive Order
  • Bureaucracy in Nigeria’s oil and gas industry has produced adverse consequences including stifling operational costs and complex legal processes which have limited capital importation in the industry. Consequently, the industry has witnessed multinational companies operating in Nigeria and other businesses closing their Nigerian base and leaving Nigeria in droves due to the harsh business environment.
  • The most recent legislative intervention in the oil and gas industry is the Petroleum Industry Act 2021. The Act was supposed to overhaul the industry and create investment opportunities for local and international investors, but its implementation has been stifled by bureaucratic obstacles in the regulatory agencies.
  • On the other hand, the executive has deployed executive orders as tools to address the bureaucratic challenges in the oil and gas industry.
  • Practical examples of such efforts are President Bola Ahmed Tinubu’s executive orders issued in 2024 namely: a) Presidential Directive on Reduction of Petroleum Sector Contracting Costs and Timelines 2024 b) Presidential Directive on Local Content Compliance Requirements 2024 Practical Examples of the Role of the Executive Order The latest executive orders offer practical explanations on the role of the executive order in reducing bureaucracy in Nigeria’s oil and gas industry as follows : Presidential Directive on Reduction of Petroleum Sector Contracting Costs and Timelines 2024
  • Simplified Contracting Cycle: The Presidential Directive legally mandates that the contracting cycle be compressed to a maximum of six months. This alignment with global industry standards significantly reduces delays that historically took up to two years or more, thus improving Nigeria’s competitiveness. Clear timelines provide certainty for both international and local investors, encouraging more participation in the sector.
  • Single -Level Approval System : The Executive Order mandates NNPC, NUIMS, and NCDMB to implement a single -level approval process for prequalification, technical, commercial, and final stages, and ensure that approval is issued within 15 days . This eliminates redundant multi -stage approvals, and ensures that regulatory approvals are obtained more efficiently, fostering timely project execution, and reducing compliance costs.
  • Increased Financial Approval: The Presidential Directive stipulates amending Production Sharing Contracts (PSC) and Joint Operating Agreements (JOA) to raise the financial approval threshold to at least USD 10 million or the Naira equivalent this simplifies the approval process for smaller contracts and allows higher -value contracts to move through the approval process faster, reducing regulatory bottlenecks and enhancing operational efficiency. The Directive also mandates annual threshold adjustments based on inflation, which ensures the thresholds remain relevant.
  • Deemed Approval Mechanisms: The Presidential Directive stipulates that if NNPC Limited, NUIMS, or NCDMB fail to communicate a decision within the stipulated 15 days, approval or consent shall be deemed granted. This mechanism holds agencies accountable and minimizes unnecessary delays, creating a more investor -friendly environment Practical Examples of the Role of the Executive Order Presidential Directive on Local Content Compliance Requirements 2024
  • Clear Local Content Guidelines: The Presidential Directive laid down clear guidelines to strengthen local content capacity in the oil and gas sector and to tackle high-cost operating environments and project delivery delays. Instructively, it compelled NCDMB to consider the lack of in-country capacity for certain services when approving Nigerian Content Plans (NCPs) and ensure that local content compliance does not hinder investment or increase project costs. By the directive, NCDMB must approve NCPs only for contractors that meet the legal definition of Nigerian content and demonstrate tangible capacity to execute projects within Nigeria. This prevents the approval of intermediary entities lacking execution capacity, reducing delays associated with vetting unqualified contractors. It also ensures that only capable Nigerian companies are selected, improving project delivery timelines.
  • Stakeholder Engagement: The Presidential Directive mandates NCDMB to develop guidelines for assessing and verifying the capacity of contractors in consultation with industry stakeholders. This ensures practical and industry-friendly compliance requirements and reduces bureaucratic red tape by addressing potential implementation challenges before guidelines are enforced. • Prohibition of Intermediary Entities: The Presidential Directive stipulates that NCDMB shall not approve NCPs containing intermediaries that lack the essential capacity to perform services. This ensures a more efficient contractor selection process and reduces bureaucratic bottlenecks associated with vetting multiple intermediaries, thus expediting project execution.

Recommendations for Executive Orders

  1. Unified Regulatory Framework: An executive order could establish a unified regulatory framework to centralize oversight and decision-making. This would minimize the current fragmentation across different regulatory agencies, providing a single point of contact for compliance and approvals, which would further streamline operations and reduce costs.
  2. Digital Transformation: Mandate the comprehensive digitalization of the licensing, approval, and reporting processes. This would reduce physical interactions, cut down on paper-based processes, and make the entire system more transparent and less susceptible to corruption. Digital platforms could also facilitate real-time tracking of applications and automatic renewals, where applicable.
  3. Enforcement of Regulatory Compliance Deadlines: While some executive orders have set timelines, additional orders could enforce strict penalties for regulatory bodies that fail to meet these deadlines. This would ensure that the stipulated times are not merely guidelines but are adhered to strictly, thereby reducing delays.
  4. Incentives for Compliance and Performance: Introduce incentives for regulatory bodies that improve efficiency and meet performance indicators, such as reduced bureaucracy and timely processing of applications. These could include additional funding, bonuses for staff, or public recognition, motivating agencies to adhere to the principles set out in the executive orders
  5. Strengthening Grievance Redress Mechanisms: An executive order could establish more robust and clear mechanisms for addressing grievances and disputes within the industry. This would enhance trust among stakeholders and ensure that disputes are resolved swiftly and fairly, reducing the need for prolonged legal battles.
  6. Streamlined Environmental and Safety Reviews: While maintaining rigorous environmental and safety standards, an executive order could streamline the review processes by establishing integrated teams from relevant agencies to conduct joint inspections and reviews. This would reduce the need for multiple separate assessments and speed up the overall process.
  7. Periodic Review of Regulations: Implement a directive for periodic review and pruning of outdated or redundant regulations that complicate the current legal framework. This ongoing process would ensure that the regulatory environment remains adaptive to new technologies and market conditions, reducing unnecessary bureaucratic layers.

Conclusion

The role of executive orders in streamlining bureaucracy within Nigeria’s oil and gas industry cannot be overstated. These directives have the potential to significantly enhance efficiency, promote transparency, and foster investment by simplifying regulatory processes and enforcing accountability. As we continue to refine these orders and introduce new measures, the focus must remain on creating a regulatory environment that is not only robust but also agile enough to adapt to the dynamic needs of the industry. By addressing the existing challenges with decisive and innovative executive actions, we can unlock the full potential of Nigeria’s oil and gas sector, driving economic growth and development in a sustainable and equitable manner.

Dapo Akinosun SAN, made this Presentation at Centre for Petroleum Information (CPI), Oil & Gas Law Forum held in Lagos.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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