When President Muhammadu Buhari put pen to paper on the two-decade-long debated Petroleum Industry Bill on August 16, it heaved a palpable sigh of relief, not just on local and foreign industry stakeholders, but also on academics and the wider Nigerian public.
The president can deservedly be commended as a hero of sorts for achieving what three previous presidents fell short of accomplishing.
Prior to signing the bill into law, there was so much expectation as to what the new law would result in. The PIA comprises a combination of 16 Nigerian petroleum laws that outline the framework to boost oil and gas output while enhancing the sectors’ attractiveness for international investment.
Basically, the PIA ensures an enabling environment for investors backed by a transparent and strengthened regulatory framework, which will present significant investment opportunities for both regional and international stakeholders.
At a time when the global energy sector is particularly competitive for foreign capital, the PIA serves to elevate Nigeria as an energy attraction on the global stage.
Enacting the Petroleum Industry Act lays the foundation for a stronger, efficient, and attractive energy industry in Nigeria. It also gives local stakeholders a legal stake in that wealth potential and shines a light on that hitherto caliginous area.
However imperfect the act may be, the relief for stakeholders is understandable. Nigeria had lost billions of dollars over the decade and half the PIB had been debated.
To put the loss into perspective, one industry watcher puts the loss at hundreds of billions of dollars over the past 18 years. According to him, it comes in lost opportunity costs, under-investments, infrastructure decay, loss of employment, and loss of tax revenue, all due to the failure of clear laws that govern this sector. He said the moment the PIB was put on the front burner investors became cautious and confused, making the bill a disservice to the country in terms of new investments.
The Nigeria Extractive Industry Transparency Initiative (NEITI) estimates that such delay has earned the country an estimated $200 billion loss of potential revenue.
NEITI stated then that: “There has been a steady decline (in oil production) from 2012 to 2016, with the sharpest drop occurring in 2015 and 2016. Similarly, total crude oil lifting in 2016 dropped by 112,280mbbls from 780,429mbbls in 2015 to 668,148mbbls in 2016, representing a 14.39 percent decrease.”
This equally had an impact on oil revenue with the NEITI stating that in 2012, $62.94 billion was earned but it dropped to $58.08 billion in 2013 and further to $54.56 billion; $24.79 billion and $17.05 billion in 2014, 2015, and 2016 respectively.
Needless to say, the many years of delay in the enactment of the PIA resulted in the flight of huge investments away from Nigerian oil and gas resources. For instance, foreign direct investment to West Africa, of which Nigeria constitutes the lion’s share of that market, was reported to have decreased by 21% to $11 billion in 2019. Moreover, the growing efforts of other oil and gas producing countries in Africa and beyond have had far-reaching implications for the ability of Nigeria to attract the required investment to fully unlock the benefits of the abundant oil and gas resources.
And the mere fact that in the month of August 2021, and some other months back Nigeria failed to meet her quota set by the Organisation of Petroleum Exporting Countries (OPEC), tells the whole story that the country lacks production capacity due to a lack of investment in the oil sector over the years.
On the flip side, when President Buhari signed the PIB into law on August 16, 2021, there was palpable fear that the price of PMS would shoot up to N230 since, according to government authorities, the landing cost of a liter of PMS was N216. That is because the PIA legally puts an end to subsidies. But that is not to be so, at least not before a lead time of up to 12 months. The law makes provision for that lead time. Fortunately, that 12 month period is in tandem with the long-expected date of commencement of operations of the Dangote Refinery. Otherwise, a rise in the price of fuel would spike inflation with the possibility of sparking social unrest.
So what has changed since August 16? Most of the provisions in the PIA have a transition time of 12 and 18 months.
The creation of a new upstream regulator, the Commission, largely replacing the DPR will take at least 12 months. The PIA reforms aim to follow international upstream norms, remove potential conflicts of interests, and introduce greater transparency and rule-based systems. It attempts to transition NNPC to be a commercial entity that is not dependent on government support.
The establishment of a new host community development trust structure that entails payment of a 3% levy and the creation of community trusts to initiate local projects, as well as the transfer of existing community projects is due to take effect within 12 months.
Companies must segregate their upstream, midstream, and downstream operations. Midstream and any downstream activities that were being carried out as part of upstream operations will require the grant of a new midstream/downstream license within 18 months.
NNPC is to be replaced by NNPC Limited (a new limited liability company) within 6 months from PIA enactment. NNPC Limited is to operate on a commercial basis without government funding and must publish annual reports and audited accounts. That is confusing, though, because the government owns all shares in NNPC Limited and controls the selection of its management team.
So, the passage of the bill into law is not yet eureka! There is a transition period of at least 12/18 months. The losses are not just going to end with the passing of the law. Nigeria has to implement the laws correctly. Government has to implement the contents of the bill correctly and regulate according to the law.
For the implementation aspect, The FG needs to be ready for and to develop the capacity within institutions to be able to undertake activities in the industry within the ambit of the PIA.
Another industry watcher says he doesn’t think the capacity is necessarily there right now.
Another aspect of implementation is attracting the right quality of investors into Nigeria. There has to be a proper means of engaging investors, guiding them through the opportunities all the way through the final investment decisions.
If these steps are taken to develop Nigeria’s implementation capacity, attract the right kind of investors, the country will start to see capital projects coming in and when these large-scale capital investments come in, consequently, we will start to see the economy transformed.
Nigeria must make this legislation work for Nigerian companies and foreign companies in the energy sector. The act will make the Nigerian energy sector competitive again and the rig counts go up. Nigeria will out-innovate, out-produce, and out-compete those who counted out its oil and natural gas industry.
Nigerians needed this act. At least, it gives an opportunity to try something different.
Until then, as is boldly written at the entry gate of the Massachusetts Institute of Technology in the USA, “Fail First, Fail Fast”, it is time to start doing things in the sector differently. It is better to have the law and cover its crevices than wait for a perfect law.
The law is not perfect, but it is better than the 1969 petroleum industry policy where companies flaring gas were penalized with a fine of N200.00. And it can always be amended, as demonstrated recently by President Buhari when he sent an amendment bill to the house.
