Of recent, virtually every Nigerian has become an expert, of some sort, on issues concerning the petroleum industry. From motor parks to bars and restaurants, Nigerians cannot wait to vent their frustration about current events in the sector. The explanation for this is not lost – the Nigerian economy is regrettably largely dependent on this industry. The fortunes of the citizens are made or marred by its vagaries.
The petroleum sector is as complex as it is critical to the Nigerian economy. The Petroleum Industry Bill was first initiated in 2012; and it took a lot of political intrigues, over a period of 9 years, before its eventual passage in 2021. The long-awaited legislation was acclaimed to be a game-changer, to reposition and revolutionized the petroleum sector. How true has this been? What are the areas of concerns? How well can this legislation better this sector? These are germane issues we shall try to simplify here.
Significant Provisions of the PIA
It was said that the PIA, which provides for a new legal, regulatory and fiscal framework for the petroleum industry will overhaul and reform the petroleum industry – and facilitate Nigeria’s economic growth. Brief summaries of some of the significant changes brought by the Act are: -
·Change of the incorporated personality of the Nigerian National Petroleum Corporation (NNPC) to NNPC Limited – to be a commercial and profit-oriented limited liability company.
·Owing to the above, NNPC Ltd can no longer be one of the regulators of the petroleum industry. The Act streamlined the regulatory authorities for the petroleum industry into two institutions: the Nigerian Upstream Regulatory Commission (NURC) and the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA).
·The NMDPRA may apply backward integration policy in the downstream sector to encourage investment in local refining (Section 317 (8)). Backward integration policy is aimed at making investment directly in the raw materials or supply chains required to produce the finished goods.
·The NURC is to make provision for domestic crude supply obligations to encourage local refining of petroleum products (Section 109). Local refineries were to be the first recipients of crude produced by the government.
·Deregulation of the downstream petroleum sector by making the sale of wholesale and retail prices of petroleum products based on unrestricted free market pricing condition (Section 205 (1)).
The Perceived Gains
· Attraction of Investments in the petroleum industry
The Act aims to encourage investment and competition in the sector. Optimists opine that the PIA will facilitate Nigeria’s economic development by attracting local and foreign investors. There has been a slew of construction of privately-owned refineries, such as Waltersmith, Azikel, AIPCC Energy (Edo), Duport, Alexis, Atlantic International, and, of course Dangote refineries, as a testament to this.
· “Unhindered” supply and availability of petroleum products
With the goal of deregulation of the downstream sector, the era of petroleum products’ scarcity ought to be a thing of the past. NNPC Ltd is only to be taken as one of the players in the industry. However, NNPC Ltd may act as “supplier of last resort” for security reasons to ensure adequate supply and distribution of petroleum products (Section 64 (m)).Further, upon request by the federal government, the corporation can act as a supplier to ensure adequate distribution of Premium Motor Spirit (PMS), for a period not exceeding six months.
· Efficient institutional governance
With the unbundling of the upstream, midstream and downstream sectors into two institutions and the corporate recalibration of the NNPC Ltd, it is expected that there should be efficiency in the governance of the industry by the new institutions.
·Settlement of host communities for peaceful atmosphere for investment and operations
The Act created the Host Community’s Development Trust Fund, into which holders of petroleum licenses and leases and other joint venture partners were to contribute 3% of their actual operating expenditure, for the benefits and development of host communities. This is intentioned to douse tension in these regions. The Trust Fund is tax exempted and contributions made to it are tax deductible.
Areas of Concerns
· Deregulation of the downstream petroleum sector
With the downturn in the economy, the government has been hesitant to totally deregulate the downstream petroleum sector, with the result that the market is yet opened for the investment and competition deregulation was to bring. On the other hand, the citizens have been subjected to extreme pains by the partial removal of petroleum subsidy. Is this a necessary bitter pill for the betterment of the nation?
· Domestic Crude Supply Obligations
The government has been unable to fully fulfill this statutory responsibility of supplying local refineries with crude produced. The government has laid the blame on maze of factors, including arrangement with joint venture partners, the crude to debt obligations of the previous administrations, the meagre crude at its disposal, and so on.
· The hegemony of NNPC Ltd
Given the re-organization of NNPC as a limited liability company, the corporation is expected to be one of the players in the market, and not a monopoly – the present sole supplier of petroleum products. The Act only permitted the corporation to be a supplier of PMS, as a last resort, for security reasons or in other cases, for a period not exceeding six months. NNPC Ltd has been acting in breach of the provision of law, understandably, because the regime of subsidy has not totally ended, even if subsidy has been redesignated as “under recoveries.”
Which Way Forward? Connecting the Dots.
The provisions of the PIA are clear and unequivocal. However, for various reasons, there has not been full compliance. The petroleum industry is intricate yet central to the indices of economic development of Nigeria. In recent times, matters of the deregulation and removal of subsidy is perhaps the most topical subject of discourse in Nigeria. There has been calls, from various quarters, of the need for its total removal, to save the economy from impending collapse. Subsidy has been described as a “noose around the economic jugular of (our) Nation.” The moot question remains: is the liberalization of the downstream sector, including the removal of petroleum subsidies a deadly or bitter pill? Time will tell.
