At long last, Nigeria passes PIB

Africa’s largest oil producer is on track to adopt a new petroleum law that has been in the works for more than a decade, but it will take time to assess the impact of this development

WHAT: Both chambers of the National Assembly have passed the PIB in the third reading.

WHY: The bill will replace an outdated legal regime that has drawn many complaints from IOCs.

WHAT NEXT: Assessing the impact of the PIB will take time.

Nigeria’s government has been trying for a long time to establish a new legal regime governing oil and gas operations.

It has had ample reason to do so, since the existing body of law is outdated. As the Andersen Global consultancy noted last November, Nigeria’s legal regime for the hydrocarbon sector is still largely based on the Petroleum Profit Tax (PPT) Act of 1959 and the Petroleum Act of 1969. Both of these acts were adopted at a time when conditions in the industry were quite different – when major international oil companies (IOCs) dominated the scene and Nigeria did not have a national oil company (NOC), when there was little interest in gas, when little thought was given to the prospects for developing local capacity and when transparency and ESG issues were easier to ignore. As a result, they have been inadequate for some time.

This inadequacy wasn’t just theoretical in nature. It was also a practical matter that couldn’t be ignored, given the frequency with which IOCs complained about corruption, inadequate transparency and lack of clarity about their financial obligations. Additionally, it was substantiated by the urgency with which government officials spoke about the money the country was losing, as investors opted to focus on other venues where they could be more certain about the terms to which they were agreeing.

Background

Even so, previous efforts to replace this inadequate legal regime failed multiple times.

Previous versions of the PIB failed in 2009, 2012 and 2018. The last of these, known as the Petroleum Industry Governance Bill (PIGB), made it all the way through both houses of Nigeria’s National Assembly but was never signed by President Muhammadu Buhari, who said he would not endorse it unless certain revisions were made.

When no such revisions were forthcoming, Buhari’s administration returned to the drawing board. Its efforts finally bore fruit last year, as the president submitted a new version of the proposed law, the PIB, to the National Assembly in August 2020.

At the time, Buhari said he expected members of the House of Representatives and the Senate to pass the bill before the end of the year. And initially it appeared that legislators might meet this deadline. They passed the PIB in the first reading in late September and then passed it in the second reading in late October – only to postpone the third reading indefinitely so that they could concentrate on drawing up a budget for 2021.

Subsequently, Ahmad Lawan, the president of Nigeria’s Senate, asserted that the delay would not be lengthy. He declared in January that he expected the National Assembly to pass the bill in the third reading in April and then send it to the president for signature in May.

Somehow, though, the target date for the third reading kept slipping back – first to May and then to June. Finally, late last month, members of both chambers pledged to wrap up discussion and pass the bill before their annual recess began on July 16.

And this time they succeeded. On July 1, the PIB passed in the third reading in both the Senate and the House of Representatives. Then on July 6, the Senate set up a conference committee to harmonise the two chambers’ versions of the bill. Once the committee finishes its work, the PIB can be sent to Buhari, who is expected to sign it in the near future.

Enthusiastic reception

This success has drawn a great deal of positive attention from the African Energy Chamber (AEC), an industry association formed to promote the development of the continent’s oil and gas resources.

In a statement dated July 1, the chamber said that the passage of the bill would benefit Nigeria financially, economically, politically and diplomatically. “By ensuring an enabling environment for investors backed by a transparent and strengthened regulatory framework, the PIB will present significant investment opportunities for both regional and international stakeholders,” it commented. “At a time when the global energy sector is particularly competitive for foreign capital, the passing of the PIB serves to elevate Nigeria as an energy leader on the global stage.”

NJ Ayuk, the AEC’s executive chairman, spoke enthusiastically about the PIB, describing it as a long-awaited milestone. “For 13 years, our oil and natural gas industry pushed and waited for this moment. Passing the Petroleum Industry Bill lays the foundation for a stronger, efficient and attractive energy industry in Nigeria,” he remarked.

Ayuk also predicted that the West African country would soon reap the benefits of the new law. “What we must do is make this legislation work for Nigerian companies and foreign companies in the energy sector,” he said. “I believe that this bill will make the Nigerian energy sector competitive again and you will see rig counts go up. Nigeria will out-innovate, out-produce and out-compete those who counted out or bet against its oil and natural gas industry.”

Ian Simm, principal advisor at consultancy IGM Energy, also struck an upbeat note. “This time around, there are signs that the PIB might stick, and with growing the pressure on listed companies to comply with more stringent regulations, it could be make or break for Abuja,” he told AfrOil.

Criticism – and a measured response

Some observers have been far more critical.

For example, Chief Edwin Clark, the national leader of the Pan-Niger Delta Forum (PANDEF), has denounced the PIB’s provisions covering host communities’ allotment of oil and gas revenues. In an open letter delivered to Lawan and other prominent legislators, he described the decision to offer host communities a 3% or 5% share of operating expenditures as “satanic and unjust” and called for the number to be raised to 10%. His complaints have been echoed by a number of public figures, including representatives of host communities in the states of Abia, Ondo, Edo and Delta and the governors of several southern states, according to the Nigerian press.

Meanwhile, other observers have offered a more measured response. Obo Idornigie, the vice-president of sub-Saharan African research for Welligence Energy Analytics, told AfrOil by email earlier this week that it would take time to assess the new law’s impact on Nigeria and on foreign investors as well. “We expect investors, particularly the incumbents in joint venture partnerships with NNPC [Nigerian National Petroleum Corp.], to wait and see how the law unfolds before committing to new joint venture projects,” he wrote, adding: “NNPC’s joint venture partnerships with the IOCs cover the onshore and shallow-water sector.”

One point of interest will be the fate of deepwater offshore projects, Idornigie commented. “In the deepwater sector, some of the majors have been negotiating licence extensions on their deepwater PSCs [production-sharing contracts],” he noted. “The PIB permits ongoing negotiations on contracts to continue provided such contracts are signed within one year of the effective date. The extension of these deepwater licences under reasonable terms will pave the way for operators to sanction deepwater projects that have been in the pipeline.”

NNPC’s fate (and other issues)

Analysts should also pay attention to the unfolding of plans for the restructuring of NNPC into a corporation that does not receive direct government funding, he added. “The details on how the new NNPC structure will work – particularly, [on] how all outstanding liabilities will be paid – will be of interest,” he said.

When asked whether the restructuring would make NNPC a more effective partner for IOCs, Idornigie responded: “NNPC’s payment of its share of project funding through the government has been a huge obstacle and has resulted in the IOCs carrying NNPC’s costs over the years for a number of big-ticket projects. If NNPC is run as a pure commercial entity with no interference from the government and can pay its cash calls, it should be an effective partner. But to get the full support from its JV partners, the new entity will need to lay out a plan on how it will manage all outstanding liabilities.”

He also pointed to the provisions of the PIB that called for the establishment of new state agencies to regulate upstream, midstream and downstream operations in the oil and gas sector. “A key concern for operators is [whether] the creation of new regulatory agencies (one for upstream and another for midstream/downstream) will increase the bureaucratic process for getting approvals and extend project cycle time,” he told AfrOil. “This will be a bigger concern for operators looking at integrated projects across the oil and gas value chain.”

Simm took a slightly different view, saying: “NNPC has really struggled to balance operations across its integrated portfolio and recently resigned itself to being a bit-part player in the downstream. It is possible that this legislation will herald a new era for the country’s oil and gas sector, but small steps are needed. Admission of past failings is a good place to start.”