Governors Pick Six Holes in Petroleum Industry Act


Governors have picked holes in the Petroleum Industry Act  signed by President Muhammad Buhari on Monday.

They described the law as a recipe for disaster.

The governors identified six unfavourable areas in an August 10 letter to the President. They pleaded with him to withhold his assent to enable the National Assembly take another look at the Bill along the lines of their observations.

The letter was signed on their behalf by Chairman of the Nigeria Governors’ Forum (NGF), EKiti State Governor Kayode Fayemi The Nation learnt.

The identified pitfalls, according to the governors are in Sections 9(4) and (5); 33; 53(2), (3); (4); 54 (1) and (2);  55 (1); and  64(c).

Despite the request for a stay of action, President Buhari got the advice to sign the Bill on his return from the United Kingdom at the weekend.

He signed the Bill while observing self-isolation on Monday.

The issues the governors raised include:

The law will deny states their fair share from the Federation Account because it favours the Federal Government and the Nigerian National Petroleum Corporation (NNPC), which will transform to a limited liability company.

The governors, who nevertheless hailed the law as good for the oil and gas sector, are unhappy about the provisions for the incorporation of NNPC Limited under the Companies and Allied Matters Act.

They said rather than reforming the sector, the Petroleum Industry Act has made the NNPC Limited a more powerful oil company.

They faulted  the removal of the requirement to transfer payments into the Federation Account as unconstitutional.

They alleged that the interest of the sub-national governments (mostly states) is not protected by the law.

They said excluding states from the affairs of NNPC Limited will not enable them to share in the distribution of dividends when they become due.

They also claimed that the wording of the PIA indicated that only the Federal Government would have shares in this company.

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The governors also said the setting aside of 30 per cent profit as Frontier  Exploration  Fund constitutes  further  depletion  of  funds  that  should  accrue to the Federation Account.

They recommended a framework  that accommodates the states in the new law.

They governors claimed they communicated with the leadership of the National Assembly on their reservations but nothing was done, before the Bill was passed.

It was unclear last night whether the governors will challenge the law at the Supreme Court or seek a political solution.

The letter by the governors, read in part: “We note with great shock and displeasure that the interests of the sub-nationals were not put into consideration in the bill that was recently passed by both chambers of the National Assembly.

“In a previous communication with the leadership of the National Assembly, we had noted that Section 53 of the Bill provided for the incorporation of the Nigerian National Petroleum Company Limited (NNPC Limited) under the Companies and Allied Matters Act to carry out petroleum operations on a commercial basis.

“The said Section 53 in (2) went on to provide for consultations between the  Ministers of Petroleum  and  Finance  on  the  number  and nominal value of the shares to be allotted which “shall form the  initial paid-up capital” of NNPC  Limited and further added that the Company shall subscribe and pay cash for the shares.

“ In our said letter, we observed  that the  wording  of (3) suggested  that  only the  Federal Government would have shares in this company and stated that ownership of all the shares in  the  company  shall  be vested  in  Government  and  held  by the  Ministry  of Finance on behalf of Government.

This sub-section is silent on what Government it referred to, but an inference could clearly be made  by the express mention of the Ministry of Finance  as the sole custodian of the shares.

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“We then recommended that a framework  that accommodates the states  be worked  out  and  included in the  allotment of shares  and  incorporation of NNPC Limited. We observed that excluding  states from this arrangement precluded them from  having  a voice in the running and administration of the company  and excludes them from sharing in the distribution of dividends when they become due.

“In  the  same   vein,   Section   53  (4)  of the  Bill  provides  that  the  Ministry  of  Finance Incorporated in consultation with the Government, may increase the equity capital of NNPC Limited. Here again, we note the non-inclusion of sub-nationals in the consideration of this very important provision and recommend that the Nigerian Sovereign Investment Authority (NSIA) and Central Bank of Nigeria in consultation  with the Federation Governments and Federal Capital Territory, may from time to time increase the equity of NNPC Plc.”

The governors raised some fundamental issues bordering on the removal  of the  requirement to transfer fiscal payments to the  Federation Account; 30%  profit  oil and  gas as Frontier  Exploration  Funds; and the  imposition of gas  flare  penalties

The letter said: “The removal  of the  requirement to transfer fiscal payments to the  Federation Account is unconstitutional and of grave concern to Nigerians.  NNPC Limited is an entity created from a national asset whose  proceeds always went to the Federation account for distribution amongst the tiers of Government  and we are at a loss as to the reason  for excluding   a necessary component of the Federation from owning stakes in a successor vehicle.

“Similarly,   in  Sections  9(4),  (5) and 64 (c), the setting  aside  of 30%  profit  oil and  gas as Frontier  Exploration  Funds  constitutes  further  depletion  of  funds  that  should  ordinarily accrue to the Federation Account.

“In Section 33,  the  imposition of gas  flare  penalties  arising out of midstream  operations which penalty shall  be paid into the Midstream  and Downstream  Gas Infrastructure Fund, an account within the control of the NNPC and one in which only the NNPC alone would have access to carry out any infrastructural  projects, constitute significant loss of revenue to the Federation Account.

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“Section  54  (1)  and  (2) of the Bill empowered  the Ministers  of Petroleum  and Finance to jointly determine assets, liabilities, and interests to be transferred to NNPC Limited.

“Again, we  recommended  that  States  ought  to  be consulted  and  involved in the  processes to determine transfer of these assets, liabilities and interest to the new company.

“Our advice was  predicated  on  the  joint  ownership  of  these  assets,  liabilities  and  interests.  We extended our opinion on this to the winding down processes covered in Section 55 (1).

“ In Section  64 (b), NNPC Limited has an additional  responsibility  to act as a State Agent in all Production Sharing Contracts (PSCs) and entitled to oil and gas profits. NNPC appears in every commercial  arrangement  making its status  even less commercially oriented and more  favoured than  is obtainable today.”

They said rather than reforming , the Petroleum Industry Act has made NNPC Limited a more powerful oil company.

The letter said: “We  are  concerned  that  rather than  reforming NNPC  and  by  extension  the  oil  sector, the  PIB  as  presently constituted makes  NNPC Limited an even more powerful  oil company.

“Mr.  President would  understand  our shock at finding the version  passed  by the  National Assembly without considering the concerns of the NGF and the States.

“We  do  not  believe  that  in  passing  this  Bill,  the  National  Assembly   gave  adequate consideration to every relevant facet of our federation, and this can be a recipe for disaster.

“The afore-mentioned concerns represent some of the many pitfalls in this  Bill capable of hurting the federation  and we  respectfully pray Mr.  President to withhold  assent pending the resolution of all the thorny areas.”

The Nation


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