What PIB Bill means to Nigerians

 

Twenty years after it was conceived and 14 years after it was first introduced into the National Assembly, the Petroleum Industry Bill (PIB) has been passed into law. What does the law mean for Nigeria and the oil and gas industry? 

The passage of the Petroleum Industry Bill (PIB), about 14 years after it was first introduced into the National Assembly, is a landmark achievement. Industry stakeholders have argued the PIB when assented to will enhance and attract local and foreign investments. Apart from creating unique governance and regulatory structure for the industry, the PIB, as passed, contains a provision that spells out the mechanism for the development of the host communities.

Those opposed to the bill have often argued that with a full-fledged Ministry for the Niger Delta and the intervention funding provided by the Niger Delta Development Commission (NDDC), putting in place another funding mechanism for the oil-producing communities will be an overkill. However, oil host communities have rejected the three per cent and five per cent provided in the Bill by the Senate and House of Representatives respectively, as a contribution from the operating expenses of oil companies to the host community development trust fund. Senator James Manager (Delta South) described the development as “a bitter pill to swallow.” On his part, Chairman, Senate Committees on Media and Public Affairs, Senator Surajudeen Ajibola Basiru, said the three per cent approved by the Senate translate to over $500million annually.

The Chairman, Senate Joint Committee on Petroleum (Downstream), Petroleum (Upstream) Gas, Senator Sabo Mohammed Nakudu, said the three per cent agreed upon by the Senate as a contribution to host communities’ trust fund was in addition to other statutory funding arrangements for the Niger Delta.

The bill vested property and ownership of petroleum resources within Nigeria, its territorial waters, and continental shelves and exclusive economic zones on the Federal Government. The objective is to create effective governing institutions with clear and separate roles for the petroleum industry; establish a framework for the creation of a commercially oriented and profit-driven national petroleum company, and strengthen the accountability and transparency of NNPC Limited as a full-fledged limited liability company. It will also promote transparency, good governance and accountability in the administration of the petroleum resources of Nigeria, among others while creating a funding mechanism for frontier basins. These frontier basins are areas where the government has been prospecting for crude oil to expand the revenue base of the Federation. The Bill earmarks the use of 30 per cent of oil and gas profits of the Nigerian National Petroleum Corporation Limited to fund oil exploration activities in frontier basins.

It is believed that activities in the frontier basins shall within a short period boost the revenue available to the three tiers of government.

The bill is also expected to promote the exploration and exploitation of petroleum resources in Nigeria for the benefit of the Nigerian people; promote efficient, effective and sustainable development of the petroleum industry, promote the liberalisation of the downstream petroleum industry among other objectives. When it comes into effect, the law will establish what the promoters regard as a globally competitive and progressive fiscal framework that places Nigeria as the desired investment destination in Africa, balancing rewards with risk and enhancing revenues to the Federal Government. It is also expected to establish a forward-looking, easy to implement fiscal framework with clarity, transparency and effectiveness, and enhances the revenue base of the country while ensuring a better return on investments. The PIB, according to stakeholders in the industry, will enable the exploration and exploitation of petroleum resources in Nigeria for the benefit of Nigerians, liberalise the downstream sector, fosters sustainable peace and prosperity and provide direct social and economic benefits to host communities.

In passing the bill, the lawmakers agreed on the need to make funds available for the exploration of oil across the country. While the government made provision for 10 per cent rent on petroleum prospecting licenses and petroleum mining leases, the lawmakers made an additional provision of “30 per cent of NNPC Limited’s profit oil and profit gas as in the production sharing, profit sharing and risk service contracts”. The fund, the Bill says, shall be applied to all frontier basins and undertaken simultaneously, while mandating the NNPC limited in section 9(5) of the Bill to transfer the 30 per cent of profit oil and profit gas to the frontier exploration fund escrow account dedicated for the development of frontier acreages only.

However, while the Bill has explained what is meant by petroleum prospecting licenses and petroleum mining leases as well as rent, it is silent on what constitutes profit oil. The Chairman of the House Adhoc Committee on the PIB, Mohammed Tahir Mongunu, said experts in the industry were in a better position to explain what profit oil means.

Mongunu added that profit oil in the country now stands at $275 million per annum. However, checks by The Nation revealed that profit oil means the amount of production, after deducting cost oil production allocated to costs and expenses that will be divided between the participating parties and the host government under the production sharing contract. In other words, while investors receive cost oil to cover their expenses, profit oil is divided between the investors and the government based on the negotiated formula in the production sharing arrangement.

Aside from the Frontier Exploration Fund, the Bill dedicates a whole chapter to dealing with issues of host communities, which was defined by the explanatory aspect of the Bill to mean “any community situated in or appurtenant to the area of operation of a Setlor, and any other community as a Setlor may determine pursuant to Chapter three of this act”. Mongunu said the definition has been expanded to include communities where pipelines pass through. Even though this is not specifically mentioned in the bill as passed by the lawmakers, he said: “The definition of the host community is not only restricted to the areas but include areas and communities where pipelines pass through. For example, Cross River State is not an oil-producing community, but it has a lot of pipelines that traverse across the nooks and crannies of the state. The same applies to Edo State. Sometimes, there are leakages and when these leakages occur, it spoils the environment and also retards the ability to engage in meaningful farming and they will lose their source of livelihood in terms of fishing and what have you. So, the definition of the host community is now expanded to include even communities where pipelines pass. So, it is not as restrictive as it is.”

The law has made provisions for how the money going to the host communities will be shared and who should benefit from it. The lawmakers have also included in the Bill a new subsection that will include a grievance mechanism to resolve disputes between settlors and host communities as well as the ability of the settlor to make the adjustments to reduce expenditures where the available funds for administration are insufficient to fund ongoing operations. The establishment of the host communities’ development trust is left entirely to the companies operating in the areas.

Section 235 (1) of both the bill submitted by the Executive and the one passed by the lawmakers states that “Setlor shall incorporate a trust for the benefit of the host communities for which the Setlor is responsible” known as host community development trust. It also vests the Setlor with the power to appoint and authorise a board of trustees to manage the trust fund after consultation with the host community. The government’s role in this regard is completely absent, giving room for likely crisis among contending factions in the host communities. In the same vein, the Setlor is mandated to undertake a needs assessment that will metamorphose into the community development plan to determine the projects to be undertaken by the host communities’ development trust. However, the board of the trust fund and the communities have not been given any role to play in this regard.

The establishment of the host community development trust is to provide funds to finance and execute projects for the benefit and sustainable development of the host communities; undertake infrastructural development of the host communities within the scope of funds available to the Board of Trustees for such purposes; facilitate economic empowerment opportunities in the host communities and advance and propagate educational development for the benefit of members of the host communities, among others. It is expected to draw funds from the actual operating expenditure of oil companies operating in such communities. While the government proposed 2.5 per cent of such operating cost, the host communities and some stakeholders in the area, including Non-Governmental Organisations, canvassed for 10 per cent equity shareholding in the oil companies in oil companies operating in the Niger Delta.

However, the oil companies sought something lower, but would rather go with the government’s provision of 2.5 per cent. But members of the House of Representatives sought a middle way, approving five per cent of such funds which Mongunu said would amount to about $895 million annually.

Mongunu, who is also the Chief Whip of the House of Representatives, said the House settled for five per cent because of the degradation occasioned by the exploration of oil in the communities. He said: “In oil-producing areas, their environment has been degraded. They have lost their means of livelihood and as such, there is a need for at least five per cent of the operating cost of oil companies to go to the host communities”.