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FG unbundles PIB, new draft splits NNPC

By on December 9, 2015

The federal government is breaking up the Petroleum Industry Bill (PIB) that has been stuck in parliament for years, replacing it first with a law to overhaul the state sector which aims to close loopholes that create avenues for rent seeking, according to a draft seen by Reuters.

Under the draft legislation, the state oil giant the Nigerian National Petroleum Corporation (NNPC) will be split in two – rather than a series of units as envisaged by the stalled 2012 bill – including a National Oil Company that will be run on commercial lines and partly privatised.

Africa’s biggest oil producer has been trying to pass a new oil law for eight years but lawmakers have never agreed on every aspect of the 200-page PIB.

In November, the Minister of State for Petroleum Resource and Group Managing Director of NNPC, Dr. Ibe Kachikwu said the government was working on a new PIB that would probably be passed in sections, particularly the thorny issue of a new tax regime that has been criticised by major international oil firms.

The inability to pass a law and uncertainty around taxation has stunted investment in the West African nation, particularly in deep-water oil and gas fields. Now the government hopes that by submitting a series of bills, individually more modest in scope than the 2012 PIB, it will have a better chance of winning parliamentary approval and reforming the sector.

The first new bill, drafted by the Senate and overseen by the oil ministry, is entitled “Petroleum Industry Governance and Institutional Framework Bill 2015” and aims to create “commercially oriented and profit driven petroleum entities”. It is expected to be presented to senators this week.

The bill repeals the act that created NNPC that contained legal gray areas that allowed mismanagement to go unchecked and billions of dollars in revenues to go seemingly unaccounted for as operating costs rocketed.

Some noticeably problematic amendments are absent from this bill, such as allowing the oil minister to decide what to do with any surplus or allowing the Nigerian president to allocate oil blocks for exploration.

But it remains to be seen whether further amendments to the bill or later decisions will reconcile the conflict between what the new state oil companies need to run and what they should remit to the treasury.

“The bill leaves open lots of questions around what roles the new national oil companies will play in the sector, and how they will receive and manage money,” Aaron Sayne, a US lawyer who focuses on the Nigerian energy sector, said.
“But one can sense more strategic thinking behind it than in past drafts, and the bill does a better job than its predecessors of saying who will take key decisions after it becomes law.”

Under the Nigerian constitution, NNPC is supposed to hand over its revenues to the federal government, which then returns what the firm needs to operate based on a budget approved by parliament. However, the act establishing the state firm allows it to cover costs before remitting funds, in effect enabling it to do what it wants with the cash.

Shortly after taking office in May, President Muhammadu Buhari described state coffers as “virtually empty” despite years of record high oil prices that lasted until mid-2014. Oil sales account for 70 percent of government revenues.

The institutional changes in the new draft have been greatly simplified from the 2012 PIB that created many new regulators and broke up the oil company into separate downstream (refining and retail), upstream oil and gas companies.

Instead, NNPC will be split into two: the Nigeria Petroleum Assets Management Co (NPAM) and a National Oil Company (NOC).
The NOC will be an “integrated oil and gas company operating as a fully commercial entity”, the document states, and will run like a private company.

The onus will be on its board to make profits and raise its own funding. The NOC will keep its revenues, deduct costs directly and pay dividends to the government, although the bill does not elaborate on the details.

In theory, trimming NNPC down into two leaner companies could solve a chronic funding problem. Part of Nigeria’s oil output comes from joint ventures with foreign and local companies in which NNPC holds the majority stake. However, NNPC is always behind on covering its share of costs owing to the slow pace of government approvals.

To start off, the NOC will receive about $5 billion, or at least the five-year average of the amount of money NNPC had to put into joint venture operations. In October, NNPC estimated it owed around $6 billion to oil companies.

The new NOC will also be partially privatised. At least 30 per cent of NOC shares will be divested within six years of its incorporation.
NPAM is expected to manage assets “where the government is not obligated to provide any upfront funding”. These include oil licenses covered by production-sharing agreements in which independent oil companies cover operating costs and pay tax and royalties on output.

Compared with previous PIB drafts, the law curtails ministerial powers as board appointments are made by the Nigerian president and confirmed by the Senate.

If passed, the law would also create a Nigeria Petroleum Regulatory Commission (NPRC) to oversee everything from oil licensing bid rounds to fuel prices. Previously, regulation was split between many bodies with ill-defined roles, leading NNPC to act in part as its own watchdog in a conflict of interest.

A Special Investigation Unit would also be set up under the NPRC with the powers to seize items and make arrests without a warrant.

 

[ThisDay]