AN OVERVIEW OF THE OIL & GAS INDUSTRY IN NIGERIA AND THE PETROLEUM INDUSTRY BILL (II)

By Suraj ‘Jarus’  Oyewale, ACA

Tax Accountant @ an Oil & Gas Company

Founder, JarusHub Career Portal

Being a paper presented at the 1st Public Discussion Forum organized by the Economic Insight, the press arm of the Economics Students Association of the Obafemi Awolowo University, Ile-Ife, Nigeria

Saturday, March 29, 2014

THEME: THE NIGERIAN PETROLEUM INDUSTRY BILL (PIB): FRAMEWORK FOR ECONOMIC EMANCIPATION OR POLITY DESTABILIZATION?

Continued from part 1

THE PETROLEUM INDUSTRY BILL – A BACKGROUND

Shortly after President OlusegunObasanjo assumed office in his first term, he set up a committee, called the Oil and Gas Industry Committee (OGIC), with a mandate to take a comprehensive look at Nigeria’s oil and gas sector and offer better ways of managing the industry. Obviously, many of the laws and regulations guiding the industry had been around for long, some far back 1950’s, and although they had undergone amendments, the federal government considered it necessary to take an holistic review of the industry with a review to getting the best of it by all stakeholders. The OGIC was led by Mr. RilwanuLukman, veteran petroleum engineer and former Secretary-General of OPEC, and had other oil industry eggheads. The committee submitted its report, and its recommendations formed the basis of Petroleum Industry Bill, which has since been subjected to further reviews and adjustments.

OBJECTIVES OF THE PIB

The Bill seeks to achieve:

• A conducive business environment for petroleum operations
• Enhanced exploitation and exploration of petroleum resources in Nigeria for the benefit of Nigerians
• Optimize domestic gas supplies, especially for power generation and industrial development
• Encourages investment in Nigerian petroleum industry
• Optimizing government revenue
• Establish profit-driven oil entities
•  Deregulate and liberalize the downstream petroleum sector
• Create efficient and effective regulatory agencies
• Promote the development of Nigerian content in the oil industry
• Protect health, safety and the environment in petroleum operations

KEY IMPLICATIONS/OBJECTIVES TO NOTE FROM THE ABOVE

• More jobs for Nigerians – as it will become illegal to employ foreigners for certain skills that can be sourced locally
• Where such skills are sourced from abroad due to unavailability locally, a local understudying the expat is a requirement
• The above is applicable not only to skill, but to materials sourcing
• The above means more jobs for Nigerian local contractors, especially those from the oil producing regions
• Gas is still under-focused in Nigeria and the potential from this source of energy lays untapped. PIB seeks to maximize
• If well explored, this will boost power supply in Nigeria
• Government revenue from oil industry will increase. This means more funds in the hands of government to engage in developmental activities, ideally
• The downstream sector becomes fully deregulated. In other words, subsidy will fully go.
• Subsidy removal is not totally bad, if there are no distortions to market – this is my personal opinion as an economist (well, accountant with academic training in economics)
• Environmental protection – what SaroWiwa and co fought for, and the initial grudge of the Niger Delta militancy – will be addressed

WHO OWNS THE OIL?

The PIB vests ownership and management of all petroleum resources, offshore or onshore, in the Federal Government of Nigeria, which manage on behalf of all Nigerians. This means irrespective of where the oil is found, it belongs to the government of Nigeria. Of course, equity calls for special consideration for localities where the resources are mined. This is taken care of by the Revenue sharing laws and other provisions of this Bill like the Host Community Fund.

NOTABLE AGENCIES THAT WILL BE ESTABLISHED OR RESTRUCTURED BY PIB

• PETROLEUM TECHNICAL BUREAU (PTB): This will be a special unit under the office of the Minister of Petroleum. It will be peopled by professionals from both the upstream and downstream sectors and charged with the responsibility of rendering professional support to the minister

• UPSTREAM PETROLEUM INSPECTORATE (UPI): The UPI will regulate technical and commercial activities in the upstream sector. It will be responsible for issuing licences and permit. Representatives on Federal Mistry of Finance, NUPENG, PENGASSANetc will part of UPI board, in addition to other professionals appointed by the president. The UPI is not profit-driven, it will therefore not pay income tax

• DOWNSTREAM PETROLEUM REGULATORY AGENCY (DPRA): This is to be the downstream industry, what the UPI is to the upstream industry. So if you want to set up a filling station, for instance, you approach DPRA. Note that the Directorate of Petroleum Resources (DPR) currently does what UPI and DPRA will be doing. In other words, PIB unbundles DPR into UPI and DPRA

• THE PETROLEUM TECHNOLOGY DEVELOPMENT FUND (PTDF):  The PTDF will continue to exist.  The objective of the PTDF is to develop and train manpower necessary to service the petroleum industry in Nigeria. The body gives scholarships to Nigerians, sponsors and support researches etc

• THE PETROLEUM EQUALIZATION FUND (PTF): The PTF continues to exist under the regime PIB seeks to introduce. The PEF is responsible for accounting for the ‘subsidy’ – the leverage given to Nigerians by making oil marketers sell at prices below market price i.e equalizing.  But what is unclear to me is how this will continue to exist when subsidy will be totally removed. But my guess is the continuous existence will be to take care of the backlogs in the equalization funds or  to continue its function until after final subsidy is finally removed

• THE PETROLEUM HOST COMMUNITIES FUND (PHCF):  Host communities are communities where petroleum resources are found i.e the Niger Delta and other areas it will be found in the future.  I will discuss this later.

• THE NATIONAL PETROLEUM ASSETS MANAGEMENT CORPORATION (NAPEMC):  The NAPEMC will be responsible for managing government investments in the upstream industry. It will have subsidiaries to carry out different aspects of these activities. It will take over assets and liabilities of NNPC, will be incorporated and fully profit-driven. It is not a regulatory entity. NNPC employees shall be transferred to this entity.

• THE NATIONAL OIL COMPANY (NOC):  This will also be an offshoot of NNPC, but unlike NAPEMC which will be a limited liability company, the NOC will be listed on the Stock Exchange, meaning you and I can buy its shares. Up to 30% of its  share will be available for grabs by the public. Certain employees, assets and liabilities of NNPC will also be transferred to the NOC.

• THE NATIONAL GAS COMPANY (NGC):  This will also be listed as a PLC and certain employees, assets and liabilities of NNPC will be transferred to it.

Continues in part 3