Nigeria’s Petroleum Industry Bill goes Back to the Drawing Board

Nigeria has been trying to enact a petroleum industry bill (PIB) for nearly 20 years, but authorities haven’t found the political will to see it through, because proposed reforms will mean less state control and will threaten the political structure. But a drive by the current administration to find a solution to Nigeria’s waning oil receipts could be the impetus that gets the bill over the line, but with the new bill being drafted ‘from scratch’, what can we be certain of?

Situation Report

Money Talks

President Muhammadu Buhari’s office and parliament are working closely on a new PIB, according to official statements made this month. Senate President Ahmed Lawan said the new version is being prepared from scratch and the deputy oil minister Timipre Sylva told delegates at a conference in Abuja that a draft will be ready by mid-year.

This promise followed a recent oil sector legislative change which was enacted swiftly. Last November, the Deep Offshore and Inland Basin Production Sharing Contracts Act was amended to raise royalties and allow the government to renegotiate production sharing contracts every eight years.[1]The law was passed within four weeks, which, when compared to the lethargic pace of reforms around other pieces of proposed legislation (the Governance Reform Bill, for instance), clearly emphasises where the authorities’ priorities lie.  

The state of the government’s balance sheet has no doubt been the inspiration behind this renewed zeal to stop the petrodollar haemorrhage. Oil receipts have been flat for about 10 years, hovering around NGN1.5 billion-NGN2 billion (USD 4.1m - USD5.5m). Last quarter, oil receipts fell below budget by more than 35%.[2]

Slow (or no) Motion

The PIB had been stuck in parliament for over a decade until legislators innovated by splitting it into four bills to simplify the process in 2017—a move which had traction in parliament but not at the presidency. [3]

Focusing on the first bill, its remit was governance and was passed by parliament to create an independent regulator, break up the Nigerian National Petroleum Company (NNPC) into three firms and require the state to partly divest of these firms. That would effectively have whittled down the president’s and the oil minister’s control over oil resources such as licenses and contracts. However, President Muhammadu Buhari, who also appointed himself oil minister, ultimately declined to sign the bill with those implications in view.[4]

The origin of the NNPC speaks to its role in Nigeria’s political structure. Amid an oil boom, the state firm was created in 1977 when the government tried to consolidate control by merging the federal oil ministry with the Nigerian National Oil Company (NNOC). The NNPC assumed sweeping powers over all parts of the industry, from exploration to marketing. 

The federal ministry was separated from NNPC in 1985, but the NNPC has remained the chief organ by which the government controls and dispenses oil resources, often opaquely. In 2014 the then Central Bank Governor Sanusi Lamido Sanusi alleged that USD20 billion was missing from the NNPC’s accounts. In 2018, the NNPC spent nearly USD2 billion (more than the health and education budgets combined) on fuel subsidies without federal appropriation and without any public accounting. When the then deputy oil minister Emmanuel Kachikwu tried to introduce reforms, he clashed with the NNPC MD Maikantu Baru, a Buhari ally. Buhari didn’t reappoint Kachikwu after he won a second presidential term last year. 

Outlook

Nigeria may finally enact a PIB in the medium term given the parliament is currently led by the president’s loyal associates. Cooperation between both the executive and the legislature has been smooth since the ruling All Progressives Congress broadened its majority in parliament last year. Even so, the composition of a new law will reflect the political priority of state control and revenue extraction more than a desire to strengthen governance and the competiveness of the fiscal regime. This means that the NNPC’s autonomy will likely be protected and government powers largely preserved in the event of new legislation. 

The NNPC remains critical to Nigeria’s current federal makeup, in which states are largely unable to generate enough internal revenue and so are perpetually reliant on monthly allocations from a strong central government. Any attempt to reduce the central government’s powers to dispense resources or cede some of those powers to private or subnational actors, is a direct threat to the country’s political structure and is unlikely to happen in the foreseeable future.

[1]Deep Offshore and Inland Basin Production Sharing Contracts Act

[2]https://www.cbn.gov.ng/Out/2020/RSD/CBN%20ECONOMIC%20REPORT%20FOURTH%20QUARTER%202019%20Final.pdf

[3]Petroleum Industry Governance Bill, Petroleum Industry Administration Bill, Petroleum Industry Host Community Bill and Petroleum Industry Fiscal Bill. 

[4]https://uk.reuters.com/article/nigeria-oil/update-1-nigerias-presidency-rebuffs-landmark-oil-reform-bill-in-current-form-idUKL3N1VJ55M