After nine years of disagreement and delay, Nigeria’s Petroleum Industry Bill (PIB) could finally become law this year, albeit in a piecemeal fashion.
The government’s ability to pass the new legislation and introduce desperately needed reforms will be perhaps the biggest economic test of President Muhammadu Buhari’s time in office. The PIB was originally drafted by the government of President Olusegun Obasanjo in 2008 as a way of combining oil sector reforms, some of which had been under consideration years previously.
Changes were required in the upstream investment regime, sector regulation, fuel marketing, gas-to-power sector and many other parts of the industry. As one part influenced the others, it was felt – fairly reasonably –that wide reaching legislation was the best option.
However, different political interests opposed different parts of the bill and so it quickly became mired in parliamentary infighting. When Buhari took power, three presidents after parliment first looked at the bill, it has remained in stasis and badly needed reforms have still not been enacted. The long delays created huge uncertainty in the investment environment.
Far from producing the 4m barrels a day (b/d) that the Obasanjo government had intended, Nigeria now struggles to produce 1.8m b/d. It even produced less than Angola last year, although violence and oil theft in the Niger Delta and the Nigerian National Petroleum Corporation’s (NNPC) inability to come up with its share of joint venture investment have also played a role.
There is now new hope for the PIB. It is being broken up and each piece passed individually, with the Petroleum Industry Governance Bill (PIGB) first to be considered. In November, the Senate approved it after a second reading and parliamentary committees are now preparing their final reports before the third and final reading. The man entrusted with oil industry reform, the Minister of State for Petroleum Resources, Ibe Kachikwu, told the nation: “In 2017 we are going to be running with rocket pace. First of all, we are going to firm up our policies, gazette all our oil and gas policies and then pass the PIB.”
The centrepiece of the new bill is the break-up of the NNPC, which has long been considered unwieldy, ineffective and ripe for unbundling. Its responsibilities will be transferred to three new organisations: the Nigeria Petroleum Regulatory Commission (NRPC), which will obviously regulate the sector; the National Petroleum Company (NPC); and the Nigeria Petroleum Assets Management Company (NPAMC), which will take over the NNPC’s upstream assets. The government wants both the NPC and NPAMC to be allowed to market oil in order to encourage competition.
An annual report on all petroleum revenue payments made to the government is to be published by the NPC, in an effort to make state oil finances more transparent. There will also be an initial public offering of at least 40% in the NPC. Listed companies are held to higher accounting standards than parastatals.
The next hurdle will be how the government decides to change the relationship between upstream firms and the state. The NNPC has been unable to provide its share of joint venture investment over many years but Kachikwu says that he wants to reduce the strain on the government from its funding obligations while also kick starting upstream investment. This difficult balancing act will require totally new terms of investment.
The regulatory environment needs to improve for both Niger Delta and deepwater production. International oil firms have pulled out of the Delta in the recent years in response to regulatory uncertainty and criminal activity. It was therefore hoped that deepwater projects would drive growth in the sector but many have been shelved because of low oil prices. The development of ExxonMobil’s Bosi project and Shell’s Bonga South West-Aparo, among others, will lead to a 40% fall in capital expenditure between 2015 and 2025, according to recent research by oil industry consultants Wood Mackenzie.