By Ezedike Chuka P. (LL.B, B.L)
Amidst the jubilation, fanfare and as much, the political self-aggrandizement that has followed the milestone event of 16th August 2021, a patriot may find the need to ask some pertinent questions, constructive ones, about what direction Nigeria’s Energy Industry is headed, albeit with an eye on the clock.
The confirmation as law, of the Petroleum Industry Act (PIA), was left till the eleventh hour (and possibly, a half), evidence of this as seen in the clear contradistinction with other countries and economies where there has been a transition from over-reliance on carbon fuels into a reliance on more renewable non-carbon forms (green energy). Notwithstanding, a number of welcome developments have been identified and duly commended, others of which have sparked various debates on the relative strengths and weaknesses of the PIA in light of current realities. Worthy of note, is that the PIA now repeals the NNPC Act as the primary legislation on the petroleum energy sector.
It would be inconclusive to discuss the new PIA without recourse to its key highlights, criticisms and the proffered recommendations to critical issues raised.
The New Regulators (Chapter 1, Parts III & IV)
The Petroleum Industry Act in its Section 4, establishes the Nigerian Upstream Regulatory Commission (NURC) “the Commission”, which shall as the name implies, regulate the Upstream sector [that is to say, the sector primarily concerned with the drilling-up of crude from the ground]. In its Section 29, it goes further to establish the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA), “the Authority” as the regulator of the midstream and downstream sectors [that is, the sectors responsible for the translocation, storage and marketing of oil crude (midstream) as well as the processing and purifying of oil crude to finished products and by-products (downstream)].
The Incorporation & Commercialization of the Nigerian National Petroleum Corporation (NNPC) (Chapter 1, Part V)
Section 53 establishes NNPC Limited (NNPC Ltd) to be run on a commercial model (profit-making venture), subject to the principles of corporate governance (Section 61). This is more likely to spell the end of the subsidy era as the high costs of production vis-à-vis the low output on foreign exchange, makes the fuel subsidy practically impossible to sustain, much less as a profit venture. However, it remains to be seen whether the citizenry would bite back at any such eventuality.
The Frontier Exploration Fund (Section 9 (4) & (5))
This shall be 30% of the NNPC Ltd’s profit oil and profit gas, payable to the Frontier Exploration Fund (FEF) escrow account dedicated for the development of frontier basins or acreages, as funds will be utilized for the exploration, constructive exploitation and development activities in those areas; subject to the appropriation by the National Assembly. Such areas include but are not limited to Anambra, Dahomey, Bida, Chad, Niger Basin and Benue regions.
Host Communities Development Trust (Chapter 3 of PIA)
The PIA introduced a hotly debated topic as it established the Host Communities Development Trust Fund which is to be computed as 3% of the opex of Settlor companies (Settlors) or oil exploration companies (OECs). This levy is payable to the Trust Fund for communities in which they carry out their operations. The decision to opt for the operational expenses of settlor companies’ immediately preceding financial year is designed to be an unavoidable levy on the OECs, as it isn’t susceptible to the volatility of profits declared, but rather the total cost of operations for the just concluded financial year. Host Communities would ideally also include all other communities appurtenant, in which adjoining pipelines are run through and across. Section 242 emphatically empowers the settlor to oversee the overall running of the Board of Trustees and its functions. The funds realized are aimed at the overall development and empowerment of the Host Communities.
The Frontier Exploration Fund: Surplusage & Misplaced Priorities
In a nation where production levels are operating at less than 20% of its true and optimal potential; where foreign exchange is cleared up to fund importation of refined crude products. A nation that possesses the Old Port Harcourt, Warri, New Port Harcourt and Kaduna Refineries, all of which are dilapidated and in age-long need for Turn-Around Maintenance (TAM); trace oil and gas profits should be invested towards strengthening our current infrastructure by the resuscitation of our defunct refineries.
Excessive Autonomy of Settlors in Host Communities’ Development
Section 242 outlines the various powers the settlor company (Oil Exploration Company) has in determining the administration of the Board of Trustees, the influence it wields in the composition of the Board of Trustees, inasmuch the power to determine their liabilities in that they define who qualifies as a Host Community (Section 318). Relative indigenous under-representation remains an issue, as well.
Potentially Controversial Provisions of Section 257 (2) of the PIA on Host Communities
The Act prescribes for deductions from the payment for Host Community Development, but does not take into account the need for more specifics in atypical circumstances. For instance, where a Host Community’s developmental dues are deducted from, to the fiscal extent of the damage done, say for pipeline vandalism, whence such sabotage is carried out in the Host Community but by a member or members of another community.
Inadequate Provisions in duly check-mating Oil Bunkering, Theft & Pipeline Vandalism
The Act doesn’t prescribe the adequate degree of sanctions for all parties involved (include patronizers of such illegal proceeds). Punitive measures that are commensurate to the scope of damage done to the sector socially and economically by carrying out such heinous activities.
Legislative Provisions for the Promotion of Modular Refineries
More can be done to encourage increased indigenous participation in the sector as well as for the creation of profitable jobs at the grassroots, by removing the associated bottle-necks akin to setting up modular refineries in Nigeria. Where such refineries are well established and functioning optimally, domestic demand for finished crude products such as petroleum, will be effectively satisfied, causing a shift of focus by the more complex refineries in generating much-needed foreign exchange in the global oil & gas markets.
Prescription of Heavier Penalties for Gas Flaring on International Oil Companies (IOCs)
The prescription for a meagre charge of $3.50 per 1,000 standard cubic feet (SCF) of gas flared presents a cheaper option for IOCs to flare gas indiscriminately as waste product, to the detriment of the atmosphere and the ecosystem; by paying the tax-deductible “charge” for such gas flaring. Heavier fines should be meted out to serve as deterrence and not incentives.
Provision of Enabling Laws to promote less arduous processes for Legislative Amendments
Needless say, that the journey of the passing of the PIA to law was a harrowing one and such basis for the enactment of much-needed laws and legislative amendments, going forward, would be advisable to be less bureaucratic, as such can greatly hamper the advancement of regulations to match the speed of time.
Provision of Enabling Laws to Prepare Groundwork for an Eventual Transition to Clean Energy
We cannot bask too long in the cloned euphoria of this long-awaited breakthrough in curing our energy sector, as so many other countries moved on from over-reliance on the use of carbon fuels whilst further investing in sustainable structures and systems for a paradigm shift to the usage of cleaner and greener energy, a long time ago. We can only play catch up in this regard to be able to match global expectations & international standards. One of such is the ECOWAS Renewable Energy Policy for its target year, 2030.
To say that the energy sector of Nigeria is several decades behind the rest of the new and advanced world is a harsh but fair assessment of it. It is a process that Nigeria as a polity must pass through, as no nation in its developmental evolution skipped past any phase. We must then wake up to the reality, rise to the occasion, that there is so much more to be done. A step backwards to our origins, to reassess, a back-to-the-drawing-board approach, to engage all relevant stakeholders in resuscitating our energy sector is of huge importance. All of this must be done with an eye on the future that is, a clean and eco-friendly energy economy.
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Ezedike Chuka P. is a brilliant young lawyer with a passion piqued in energy and corporate law. He writes on various topics of national interests, he is also very well acclimated with dispute resolution techniques, with particular interests in negotiation and mediation. He looks to take up legal consultancy and advisory roles in the future. He can be reached firstname.lastname@example.org