Buhari signs PIB into law

Head of NNPC hails new legal regime, says it will resolve host communities’ concerns

WHAT: Nigeria’s president has signed the long-awaited Petroleum Industry Bill (PIB).

WHY: The West African state is finally in a position to establish a stronger foundation for the economically vital oil and gas sector.

WHAT NEXT: According to the head of NNPC, the bill will do a better job of addressing host communities’ concerns.

Nigerian President Muhammadu Buhari has signed the Petroleum Industry Bill (PIB), a piece of legislation that establishes a new legal regime for the country’s oil and gas industry, into law.

According to Femi Adesina, a spokesman for Buhari, the president took this step on August 16, a month after the PIB was passed by both houses of Nigeria’s National Assembly. He signed the bill at his home, while observing a five-day quarantine following his return from a visit to London on August 13, Adesina said.

“[The] president assented to the bill Monday, August 16, in his determination to fulfill his constitutional duty,” the spokesman said. “The ceremonial part of the new legislation will be done on Wednesday [August 18], after the days of mandatory isolation would have been fulfilled.”

Background

Nigeria’s government has been working for more than a decade to secure the adoption of a new law governing the oil and gas sector.

This was partly because the existing legal regime was thought to be outdated and incapable of handling all the challenges posed by changes in the industry and partly because it did not adequately address the concerns that international oil companies (IOCs) had voiced about corruption, contracts and other issues. However, all previous attempts to pass a new law failed.

The most recent of these attempts began in August 2020, when Buhari’s administration submitted its draft version of the PIB to the National Assembly. At the time, the president said he expected MPs to approve the measure by the end of the year. Members of the Senate and House of Representatives duly passed the legislation in the first draft in late September and in the second draft in late October. But they subsequently postponed the third reading in order to concentrate on other key tasks, including the passage of a new budget for 2021. After resuming debate on the PIB in the spring of 2021, they finally approved the bill in the third reading in July.

Now that the president has signed the PIB, Abuja can start the process of implementation. This is likely to generate some controversy, given that the final version of the bill reserves only a 3% share of total oil expenditures in the previous year for the communities that host oil and gas development operations. Representatives of many host communities in southern Nigeria, where most of the country’s onshore fields are located, have complained that this share is too small and have lobbied for 5% or 10%.

This issue has the potential to become contentious. Resentment of federal policies on oil and gas development is widespread and long-standing in these southern host communities, and it could intensify if the PIB attracts more investment to the hydrocarbon sector as planned.

Host community concerns

But according to Mele Kyari, the group managing director of state-owned Nigerian National Petroleum Corp. (NNPC), host communities are actually likely to realize greater gains under the new legal regime, even though the portion of investments to which they are entitled is relatively small.

During an appearance on the Arise television channel earlier this week, Kyari noted that the oil and gas sector’s total expenditures had amounted to about $16bn in 2020. A 3% share of this sum would put host communities’ take of 2020 investments at $480mn, and the NNPC chief reported that he expected the figure to rise to $500mn per year in the near future. This is more than the amount currently allotted to the Niger Delta Development Commission (NDDC), a parastatal agency established to foster economic development in the Niger River Delta region, he noted.

“[Three percent] of your operating expenditure is a huge number. Many people argue around whether it should be 10% or 5% or 3%. But percentage of what? I think that’s what most people don't understand today,” Kyari told Arise. “Last year’s operating expenses for the year was about $16bn. [Three percent] of $16bn is a large number, somewhere around $500mn-plus. That’s because in today’s context, it is probably bigger than the NDDC. That’s really what it is. That's what you're providing.”

He went on to say that the PIB would also give host communities more flexibility. Rather than waiting for NDDC to decide which projects to execute and which sites to develop, these communities will be able to exercise far more control over their share of oil and gas investments and decide which projects to fund, he said.

This represents a significant departure from previous efforts to aid the Niger River Delta, he added. He acknowledged that the federal government’s past attempts to do so had not been executed well, even though they were designed to meet corporate social responsibility (CSR) objectives.

Change in NNPC’s status

The managing director also made note of other changes in the pipeline, pointing to plans for transforming NNPC into a company that would no longer be directly funded by the government.

Under the PIB, NNPC will still be majority government-owned but will not act as an arm of the state. Instead, it will have to operate under the parameters of the Company and Allied Matters Act (CAMA), he told Arise.

“The meaning of this is that this company will just be another privately-owned company, in a sense,” he commented. “This company will pay taxes, this company will pay royalties, and this company will deliver dividend[s] to its shareholders. This isn’t the situation today, because the corporation has no such obligation today.”

The switch to this new structure should be complete by early next year, he indicated. “What this bill will do now is that in the very short term, within the framework of the Petroleum Industry [Bill], within six months, a new company will be incorporated,” he said. “That means [nearly] all liabilities and assets of this company will be transferred to the new company.”

NNPC is heading for a certain amount of restructuring and divestment of assets, Kyari added. “By the way, the bill is also very clear that some toxic assets of the corporation [will] no longer would be with the corporation,” he stated. “But the shareholders can decide to keep some of the assets and leave some within the corporation.”

He did not say whether any specific assets were being targeted for sale or liquidation.