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  On August 16, President Muhammadu Buhari signed the much anticipated Petroleum Industry Bill into law. The bill—now an act of the Federal Republic –provides legal and regulatory guidance for Nigeria’s petroleum industry, as well as the development of communities that play host to the industry’s activities.
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The path to this destination has been fraught with disagreement between the parties involved in its creation, discussion, and passage. Government officials, representatives of host communities, and analysts had put forth divergent visions for the act, and much work has gone into harmonizing the disparate positions. Here, we will explore some of the noteworthy facts and key changes to the Act you should know.

The Journey To Realizing The Petroleum Industry Act

Things kicked off with the present act about twenty years ago, when President Olusegun Obasanjo set up the Oil and Gas Reforms Committee (OGRC). The committee made recommendations, some of which were included in a bill brought before the National Assembly in the Umaru Yaradua administration. However, the bill remained unattended. It was reintroduced to the House of Representatives in 2012, which passed it shortly before the end of the Goodluck Jonathan administration. The Senate did not pass it. The eighth assembly took up the bill and decided to introduce it in parts. One segment, the Petroleum Industry Governance Bill (PIGB), was twice transmitted to President Buhari. On both occasions, he refused to sign it. In September 2020, the executive sent its version of the Petroleum Industry Bill to the National Assembly. It was passed into law this August, following deliberations on it.

Some Facts About The Petroleum Industry Act

  • The Petroleum Industry Act contains five chapters, 319 sections, and 8 schedules.
  • The act deals with matters related to governance and institutions of the petroleum industry, administration, the development of host communities, fiscal framework (including taxes), and sundry issues.
  • It establishes the Nigerian Upstream Regulatory Commission, which will regulate the upstream sector (i.e. oil and gas exploration and production). The commission will take over the functions of the Department for Petroleum Resources.
  • The act also creates the Nigerian Midstream and Downstream Regulatory Authority, which will regulate midstream and downstream activities in Nigeria (i.e. transportation, storage, marketing, and distribution of petroleum products).
  • A 1% levy on the wholesale price of petroleum products sold in Nigeria.

More Facts: Changes In The Petroleum Industry Act

These are some of the more widely discussed changes that were introduced in the Petroleum Industry Bill before it was signed into law.

The Replacement Of NNPC By NNPC Limited

The Nigerian National Petroleum Corporation (NNPC) will be replaced by NNPC Limited, a profit-focused company registered under the Company and Allied Matters Act (CAMA). This will happen within six months from the commencement of the new law.
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The new company will be registered by the Ministry of Finance Incorporated and owned by that ministry, as well as the Ministry of Petroleum Incorporated. This structure will be temporary and should lead to the eventual sale of shares in NNPC Limited to Nigerians.

NNPC Employees Will Be Absorbed Into The New NNPC Limited

Employees of the NNPC will be recognized as employees of the new NNPC Limited when the latter begins to exist. The terms and conditions of their employment are also expected to be at least just as favourable as they had been before the establishment of NNPC Limited. The CEO and board of NNPC Limited will be appointed by the president. Upon the change in the ownership structure (i.e. sale of shares in NNPC Limited to the public), the board of the company will be appointed by shareholders

30% Of Oil And Gas Profits For Frontier Exploration Fund

One change that has caused much discussion is the remittance of 30% of proceeds of oil and gas sales to the Frontier Exploration Fund. The fund will finance oil exploration in ‘Frontier Basins’, which include the Chad Basin, Sokoto Basin, and Benue Trough. NNPC Limited will own a further 10% of proceeds as management fees.

The Host Communities Development Fund

Companies granted oil prospecting licenses or mining leases are expected to contribute a portion of their annual expenses to a host communities development trust fund. Upstream companies will contribute 3% to 5% of their annual expenses, while other companies are to contribute 2%. These contributions are in addition to amounts due to the Niger Delta Development Corporation (NDDC). According to the act, 75% of the development fund will go to capital projects, 20% to reserves, and 5% will cover administrative expenses. However, there will be deductions covering the cost of repairs in host communities if there is vandalism, sabotage, or civil unrest in their location.

Taxes From Companies In The Petroleum Industry

The act empowers the Federal Inland Revenue Service (FIRS) to collect a Hydrocarbon Tax of 15%-20% on profits earned from crude oil production. This replaces a previously existing petroleum profits tax. Rents, royalties, and production shares will be charged as well. Companies that file tax returns late will pay a fine of ₦10 million on the first day and ₦2 million for the following days for which the failure continues.

The Nigerian Upstream Regulatory Commission’s Role In Contracts

The Nigerian Upstream Regulatory Commission will be in charge of developing a model license for petroleum prospecting companies, and a model lease for petroleum mining firms. These contracts will include a ‘carried interest provision’, which will give NNPC Limited the right to participate in up to 60% of a contract.

Final Words

Some analysts believe that the Petroleum Industry Act will herald positive changes in Nigeria’s petroleum industry. Others are not that enthusiastic about it. Time will tell whether their optimism or pessimism about it is justified. Featured Image Source: Vanguard News NG
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This article was first published on 26th August 2021

ikenna-nwachukwu

Ikenna Nwachukwu holds a bachelor's degree in Economics from the University of Nigeria, Nsukka. He loves to look at the world through multiple lenses- economic, political, religious and philosophical- and to write about what he observes in a witty, yet reflective style.

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