Nigeria’s oil reform bill PIB near enactment despite stakeholder concerns

Nigeria’s Senate and House of Representatives passed a Petroleum Industry Bill (PIB) on 1 July. The bill would change the legal structure of the Nigerian National Petroleum Corporation (NNPC), adjust the fiscal framework and reconfigure the regulatory system. For example, it would create a new upstream regulator and another one for midstream and downstream. The bill would also introduce the use of trusts to promote host community development. However, the nature of proposed reforms could leave operators more vulnerable to host community unrest and arbitrary regulation.

Significance – Legal protections and resource allocation

The PIB ultimately cements the president’s control of the oil and gas industry. It would empower the president to fully appoint the NNPC board despite its incorporation as a limited liability company. The president would also be able to unilaterally remove board members of the industry regulators without parliamentary approval. Further, the governing officials of those regulators would be answerable to the oil minister, who could also be the president as is currently the case. Both public and private stakeholders have voiced concerns about provisions that could hamper effectiveness and cooperation within the operating environment.

The Oil Producers Trade Section (OPTS), composed of Nigeria’s domestic and foreign oil exploration and production companies,has objected to sections possibly allowing regulators to assume judicial powers and undermine corporate rights. For instance, a regulator could arbitrarily shut a firm’s premises if it determines that there has been an infraction, and it may compel a firm to provide any data related to its operations even if the data is proprietary or requires protection. Oil firms also say proposed gas pricing regulation does not reflect local market factors, and they are concerned that the regime may also be unilaterally changed without a clear path for transitioning to a market-based framework. Overall, the industry view is that the PIB drafters did not sufficiently clarify how the sweeping structural changes would be implemented within a specified timeframe such that administrative transition is efficient.

Political representatives and civil society in the oil producing regions have also voiced objections. In 2016, militant attacks on oil facilities in the Niger Delta nearly cut the county’s total output in half. A key mediator between the militants and the government was a group of local leaders named Pan Niger Delta Forum (PANDEF). PANDEF now rejects proposals in this PIB that would require oil firms to set up and run a trust for each host community where they operate. Each trust would be funded with 3% of the firm’s operating expenditure in the affected community. But PANDEF and all 17 state governors in the country’s south want a greater share for host communities. The governors also oppose the exclusion of state and local governments from NNPC’s proposed ownership structure. In fact, the bill seems to sideline state and local authorities of the oil-producing region. A version of the bill being considered at the start of this year assigned no role to them in managing industry-host community relations.

Outlook – Reform and the political cycle

Both houses of parliament are now harmonising their versions of the bill and next it will be sent back to President Muhammadu Buhari for assent. An enactment seems imminent despite stakeholder concerns. Looking forward, we anticipate continued political interference with regulators that may impinge on the quality of decision-making. The law would set the tone for arbitrary regulatory action that may be disruptive in nature, and its arrangements would also leave operators exposed to host community unrest. But in the long term, more favourable amendments may be considered should authorities respond to practical feedback and fine-tune the legislation through more robust cooperation with stakeholders. Such a scenario would depend on the political climate following the 2023 elections.

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*Image credit: warner, @warnerl

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