It gives me great pleasure to be invited to the Public hearing on the Petroleum Industry Bill. While I recognize the monumental impact of this forum on our oil and gas industry and the nation at large, let me use this opportunity to again thank the Senate Joint Committee on their effort to expedite the passage of the Petroleum Industry Bill.
The PIB is based on the Report of the Oil and Gas Reform Implementation Committee (OGIC) set up by the Federal Government in year 2000 to carry out a comprehensive reform of the oil industry. This historic amalgamation of 26 existing laws in Oil and Gas sector has taken over 12 years to re-define and re-align. The PIB in essence is a reform legislation which aims to put in place a robust legislation that establishes clear rules, procedures and institutions for the administration of the petroleum industry in Nigeria.
It is not humanly possible to create a perfect bill. Accordingly it is important to build in flexibility through regulations
OBJECTIVES OF THE PIB
The PIB seeks to establish a Legal, Fiscal and regulatory Framework that will revolutionalize the Petroleum Industry in Nigeria. It tends to create a standard business practice, protect health, safety and environment in the course of Petroleum Exploration and enhance exploration and exploitation of petroleum in Nigeria. The objectives of the Bill include but not limited to the following:
a) To bring about transparency and Accountability
b) To establish flexible and competitive fiscal framework
c) To promote exploration and exploitation of Petroleum Resources
d) To increase gas supply for domestic utilization and industrialization
e) To create efficient and effective regulatory institutions
f) To promote Nigerianization in the Oil and Gas industry
One of the immediate benefits will be a clear, transparent and accountable framework on which to base the development and revenue derivation for our deep and ultra-deep offshore blocks from where our long-term additional reserves and national revenues must come.
CORE RECOMMENDATIONS OF THE PIB
a) Institutional Reorganization
– Creation of National Oil Company that would encourage indigenous operational development
– Establishment of Gas Market and Gas Infrastructure Development Company
– Creation of Asset Management Company
– Establishment of Upstream Petroleum Inspectorate
– Establishment of Downstream Petroleum Regulatory Agency
– Establishment of the National Frontier Exploration Services (NFES)
– Establishment of petroleum Host Community Fund
– Establishment of Petroleum Technical Bureau in the office of the Minister of Petroleum Resources
b) Flexible Fiscal measures: the PIB establishes a Fiscal policy framework that will attract investment and allow for production based taxation.
c) Robust Regulatory Framework that bothers on operations, health, safety and environment in the oil and gas industry.
AREAS OF CONCERN
I have been following various public discussion on the Petroleum Industry Bill and the concerns expressed regarding some provisions viz;
– Powers of the Honorable Minister of Petroleum Resources,
– Establishment of the Petroleum Host Communities Funds;
– Establishment of several new institutions, including, the Frontier Exploration Services
– Fiscal Regime.
There has been local and international concern that the bill confers enormous powers on the President and the Minister of Petroleum Resources which will apparently affect transparency, accountability and could compromise the due process which the reform bill seeks to enthrone.
Whilst we take best practices from other developed regions we shall also work within the understanding of our own socio-economic and social-cultural norms, and create entities and policies that will work and are not destined to fail from the get-go.
But contrary to the impression that the Petroleum Industry Bill (PIB) granted enormous powers to the Minister of Petroleum Resources, it should however be noted that the powers vested on the Minister by the bill are no different from those vested on the Minister’s counterparts by the petroleum laws of the United Kingdom, Malaysia and Norway. In fact, the powers granted the Nigerian Minister by the PIB is less than those of his/her counterparts in the laws of advanced petroleum producing countries.
To check excesses and abuse of powers, the PIB also empowers the Minister to delegate some of her powers, which is a vital ingredient of democracy. Section 6(2) of the PIB empowers the Minister of Petroleum to delegate in writing to any person or institution any power or function conferred on him by or under this Act except the power to make orders and regulations.
In respect of the multi-faceted Regulatory bodies provided for in the PIB, this is basically as a result of the complex nature of the industry. An unwieldy, mammoth entity that hosts two complete separately run organizations is not a mode of efficiency or efficacy. Therefore the need for a disaggregated regulatory system that is robust and can speedily respond to the variety of issues that may arise from time to time.
On the issue of the Host communities, it should be noted that it was established to mitigate the human and environmental conditions in the region and to assuaging the feelings of the host communities towards oil and gas operating companies. The provision may be seen as creating additional institution for allocating fund to the region but will engender direct impact on the communities concerned. The outcome of course is to bring the current spate of pipeline vandalization and crude theft to the barest minimum.
The PIB establishes a flexible fiscal regime that will increase government take and yet encourage investment in the sector, it allows for production based incentive system which in the long run will accommodate every player in the industry. The PIB proposes the volume based royalty – sliding scale between 5% and 22% depending on production volumes and location e.g. frontier acreages, onshore and deep water. The price based royalty – sliding scale between 0% and 21% starting at 50 USD/bbl. The PIB provides for a two-tier taxation system. These taxes are company income Tax (CIT) and Nigerian Hydrocarbon Tax (NHT).
By the time the PIB is fully articulated and implemented the current President and Minister of Petroleum Resources will no longer be in office. This is a bill that will take the 5 years and beyond to be fully up and operational. (Recall, the proposed transition period after the passage of the bill is at least 3 years.) Note, there are over 80 regulations to be made for this bill to be operational.
For example, the process of full implementation of the Power Sector Reform Act of 2005 is still in progress.
Therefore, the responsibility for the exercise of the powers contained in the Bill will ultimately rest on the administration in place at such time as it comes into full operation (5-7 years). It is therefore critically important that this Bill sufficiently empowers any administration to act in the best interest of the Nigerian people.
Finally, let me conclude by reiterating that this bill, if passed, is a win-win situation for all stakeholders and will revolutionized the oil and gas industry which would further enhance the sector contribution to the country’s GDP. As sponsors of the bill we consider its passing to be beyond politics. We are therefore open to working with the National Assembly and all stakeholders to arrive at a legislative conclusion that is beneficial to all.
I wish this forum a successful deliberation.
Thank you and God bless.
Information from Nigerian Voice was used in this report.