After more than two decades in the works, President
Muhammadu Buhari on Monday assented to the Petroleum Industry Bill (PIB).
While many stakeholders in the oil and gas sector applauded
the landmark law guiding the country’s oil sector, some believed it is a law
made for yesterday.
This is because global communities, including international
oil companies (IOCs), are looking for alternatives to fossil fuel.
Apart from the goodies in the new law, there are also
concerns on 3 percent annual allocation for host communities from operators’
yearly operating expenditure. Also is the dedicated 30 percent frontier exploration
funds to take care of exploration and development activities of oil
discoveries.
Despite all these, Nigerians can jubilate for one thing —
the country now has a legal framework to hold the state-owned oil company and
other regulators accountable to.
It is also expected that the Petroleum Industry Act (PIA)
would align activities in the oil and gas sector with the global best practices
and ensure the state-owned oil firm operates effectively and efficiently.
Here are some of the activities governing the operations of
the new Petroleum Act.
COMMERCIALISATION OF
NNPC
The new legislation established the Nigerian National
Petroleum Company Limited (NNPC Limited). The NNPC limited will be an offshoot
of the current NNPC — incorporated under the Companies and Allied Matters Act.
The law stipulates that the incorporation of NNPC into a
limited liability company will be done within six months after the president’s
assent.
By incorporation, the new company will run as a commercial
entity while the federal government still owns all shares, held by the ministry
of finance and petroleum resources on its behalf.
This is against the submission of southern governors who
requested that the ownership of NNPC limited be in the trust of Nigeria
Sovereign Investment Authority (NSIA) instead of the federal ministry of
finance.
Before the law, NNPC has consistently been operated as a
loss-making venture, and the government ensure consistent running every year.
In its 2019 financial statement, auditors had expressed
concerns over the NNPC’s sustainability plan given a compounded N4.4 trillion
(about $11 billion) liability margin over its assets.
AUDITING OF NNPC
LIMITED BOOKS /SALE OF SHARES
The law provides for an annual auditor of NNPC limited by an
independent, competent, experienced and qualified auditor.
According to the law, the offering of any shares of NNPC
limited will be considered and approved by the federal executive council and
the national economic council on behalf of the federation.
PRINCIPLES OF FEDERAL
CHARACTER IN NNPC LIMITED BOARD APPOINTMENT
The president will appoint a board for the NNPC limited. The
board composition includes a chief executive officer, chief financial officer,
and representatives from the ministry of finance and petroleum. The board will
also have six non-executive members with at least 15 years post-qualification
experience in the petroleum or relevant sector from each geopolitical zone.
Section 57 of the Act provides for NNPC limited to absorb
the employees of NNPC and its subsidiaries on terms and conditions not less
favourable than that enjoyed before the transfer of the service, including
entitlements and pension.
NIGERIA TO PAY COST
OF WINDING DOWN ASSETS
Section 8 of the Act states that any debt relating to NNPC
under joint venture agreements would become the debt of NNPC limited and all
assets transferred to it. According to the new law, the federal government would
be responsible for the cost of winding down the assets, interests and
liabilities of NNPC.
TWO REGULATORY
AGENCIES
The law provides for two regulatory agencies in the oil and
gas sector – the Nigerian Upstream Regulatory Commission (Commission) and the
Nigerian Midstream and Downstream Petroleum Regulatory Authority (Authority).
The Commission has the power to acquire, hold and dispose of
property — responsible for the technical and commercial regulation of upstream
petroleum operations.
It would also administer acreage for upstream petroleum
operations in Nigeria, including the grant of licences and leases.
The Authority, on the other side, take care of the aspect of
the midstream and downstream sector, including granting of individual licences
or permits, while the minister of petroleum caters for the establishment of
refineries on its recommendation.
HOST COMMUNITY
DEVELOPMENT TRUSTS
The law provides for host communities’ development trusts to
foster sustainable prosperity, enhance peace, and cordial relationship between
licensees and lessees, and the communities.
The fund is expected to be incorporated within 12 months
after the commencement date for new or existing oil mining leases.
Section 240 (2) of the law states that each settlor (operator)
provides an annual contribution to the host communities’ development trust
fund, — a 3 percent of its actual annual operating expenditure.
It further stated that each community could also receive
donations, gifts, grants or honoraria.
The profit and interest accruing from the reserve fund are
also for the host community.
FISCAL FRAMEWORK
The law also made provisions for fiscal frameworks based on
core principles of clarity, dynamism and fiscal rules.
The fiscal rules assigned the collection of petroleum
industry revenue to Federal Inland Revenue Service (FIRS) and the Commission.
These payments include taxes, royalties, production shares,
profit shares, signature and production bonuses, renewal bonuses, rents, fees,
fines, and other levies due to grant, assignment, termination and breaches of
licences leases and permits.
It assigned FIRS to collection and enforcement of
hydrocarbon tax, companies income tax and tertiary education tax.
The Commission would be responsible for the enforcement and
collection of royalties, signature bonuses, rents and related payments, while
the Authority takes charge of gas flare penalties arising from midstream
operations.
culled: TheCable
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