‘Non-passage of PIB into law hurting the economy’
The Petroleum Industry Bill (PIB) has been on the table in the National Assembly for about 20 years. The Bill was introduced with expectation for passage into law in few years or within the life of an Assembly, which is four years to replace the Petroleum Act (1969). The bill has become the most elongated bill on the legislative table.
Having been regarded as an omnibus document that would be difficult to be passed into law in the state it was presented to the legislators, the 8th National Assembly 2015-2019, unbundled the bill into four major parts – Petroleum Industry Governance Bill (PIGB), Petroleum Industry Administrative Bill (PIAB), Petroleum Host and Impacted Community Bill (PHIB) and Petroleum Industry Fiscal Bill (PIFB).
The essence of the unbundling was to enable the lawmakers to legislate on the less contentious parts and pass them into law.
In January 2018, the Petroleum Industry Governance Bill has been passed by the House of Representatives and the Senate and up until now, the PIGB has not got presidential assent.
The 8th Assembly legislators were of the view that with PIGB passed into law, the governance framework would set the right and stable ground rules for investors and companies operating in the oil and gas industry but that could not be.
Will the current 9th Assembly achieve what their predecessors couldn’t achieve? The Minister of State for Petroleum Resources, Chief Timipre Sylva, had assured Nigerians that the entire gamut of the PIB will be passed into law before the end of 2020.
Oil and gas industry operators had over the years stressed the need for a new set law to govern the industry as the Petroleum Act doesn’t fully meet current realities of the industry especially as many countries have discovered oil as well as the production of shale oil.
Therefore, Nigeria and other old oil-producing nations aren’t the beautiful brides they used to be in the past.
Besides, the world is gradually moving away from fossil fuels and energy, and if Nigeria doesn’t make the most value of its hydrocarbon resources, the world will leave it behind with its huge oil and gas reserves, industry operators have said.
To optimise the value of its hydrocarbon resources, the Federal Government should expedite passage of PIB into law for investment direction and investors’ confidence, among others.
They noted that with experience derived from the COVID-19 pandemic, the Federal Government should strategically position its oil and gas industry to be locally controlled with value creation from the industry retained in-country for multiple benefits to the economy and Nigerians.
To achieve this, the PIB must be passed to create the governance framework and structure, among others.
To the Secretary-General of African Petroleum Producers’ Organisation (APPO), Dr Omar Farouk, “the long delay in the passage of the PIB has created an environment of very deep uncertainty making it difficult for investors to invest in the industry.
This is because, an investor should want to have an idea of returns on investment before investing, know what the terms are, or know whether the terms will be changed soon.
“When this delay started about 20 years ago, the thinking was that within a few years, the bill would be passed but it kept on lingering till now.
Therefore, no investor would come and put his money in a system where there is uncertainty as to what the returns on investment are going be.
To that extent, it affected the inflow of investment into the industry. It is not just about foreign direct investment but including domestic, because people are unsure whether if they put dollars there today, tomorrow government will come up with a different formula of profit sharing or taxes, among others.
“Also, investors’ were unsure whether if they go to financial institutions or to any lender to borrow money, say like $1 billion to invest in the industry with the expectation to recoup the investment, say in 10 years, and they are sure of the stability of the terms and environment, they will go ahead to borrow and make the investment.
But if they are unsure of the terms, whether they would be able to recoup their investments say in 10 years, 20 years or 30 years, they wouldn’t want to invest until they are sure what the details are. That has affected investment.
“On what the impact of PIB will be on the industry if it is passed before the end of the year or by the first quarter of 2021, I think there will be greater certainty even if at the end of the day government takes much higher taxes than the industry players expected, at least, it will give them that confidence.
So if they are investing, they will be sure of their returns on investment even if they are small. It will enable them to plan on the period of recouping the investment and returns on investment. The passage of PIB into law will bring a lot of certainties and that will make investors invest in the industry.”
Oil services’ view
For the Group Chief Executive Officer of Oildata Group, Mr. Emeka Ene, who was a former President of Society of Petroleum Engineers, Nigeria Council and former Chairman of Petroleum Technology Association of Nigeria (PETAN), to answer how the non-passage of the PIB into law has affected Nigerian oil and gas industry, we have to put in in historical context.
“Remember that the legislations and policies we are using today in the industry were written over 50 years ago (the Petroleum Act).
The problem is not with the Act but the reality is that the oil industry was different in 1958 or 60s and 70s when this law or Act was passed.
What has happened is that there was attrition in terms of value erosion on the part of Nigeria as a nation and within the context of the oil and gas industry because we are working with outdated legislation.
So, at the end of the day, the country is losing for every minute, hour, day, month or year the non-passage of substantive Act governing the oil industry subsists.
The second context is the context of COVID-19, the fact is we are actually in a new era. We may not have realized that but what we have done is that we have accelerated the era of alternative and renewable energy and what that means is that fossil fuel and fossil energy will always be with us but they are dated and the value we will derive from it is almost down and finished.
“So PIB provides governance and governance means a framework for which investments can be attracted. I think to a large extent if somebody wants to invest in the oil industry and understands that oil industry takes 10 years to 20 years to mature, that is, if you have a field, by the time you go to exploration, discovery, appraisal, development and abandonment, 20 years have passed.
So you recognise that it is important to attract that kind of investment you need to have a governance framework that will last the test of time. So the delay in passing the PIB is hurting the industry.
However, that is not to say there are no challenges in passing the PIB within the context of the Nigerian nation. Oil and gas have become a sensitive issue because it attracts a portion of the revenue the Federal, State and Local Governments divide.
It drives the economy of the country for generating foreign exchange, although, about the GDP, it is small comparatively.
But the reality is that the Bill is seen to be complicated due to the fiscals, taxes and others because of complex feature the Nigerian society.
We need to appreciate that too. However, we have to decide as a nation, if we want to sustain oil and gas over time and get the best value from it.
That is If we want to sustain oil and gas and get the best value from it, we need to put in place governance framework on which people can use to invest.”
Nigerian Gas Association’s view
The President of Nigerian Gas Association (NGA) Mrs. Audrey Joe-Ezigbo, who also is the Deputy Managing Director and Co-Founder of Falcon Corporation, said: “I believe a good starting point in responding to this question is to look at the things that the PIB was supposed to address in the first place.
Key among these was the repositioning of Nigeria’s gas industry to ensure longer-term sustainability. It was supposed to help ensure the monetization of our gas reserves and to fast-track, the elimination of gas flaring.
The PIB was intended to stimulate increased domestic gas utilization and engender the adequacy of gas supply for power generation.
A critical lever in the PIB was to ensure a fair and transparent fiscal regime, and an attendant competitive commercially viable and attractive business landscape, backed by regulatory efficiency, transparency, and accountability, among others.
“So when you look at these variables, the question is not so much how has the non-passage of the PIB affected the Nigerian gas industry as it is, how hasn’t it affected it, given that we have not made sufficient progress across those various metrics.
When we look at the key challenges that have plagued and continue to plague our gas industry today, the things that stand out include the gross inadequacy of gas infrastructure and investments in the gas industry over the years.
We are a nation with 213.16trillion cubic feet (Tcf) of natural gas as at today, with another over 600Tcf unproven reserves, yet our production levels are still below two billion cubic feet (Bcf) per day with the bulk of this going to the export market, and then on the domestic front to the power sector.
What this means also is that in not being able to optimise our gas potentials, we also miss out on the otherwise attendant multiplier effects – from employment generation, industrialisation, local content capacity development, enhanced food production and security, revenue diversification and economic balancing, energy availability and sufficiency, among others.”