Economic development prospect under PIA

Heineken Lokpobiri

President Bola Tinubu promised to modernise the operational, regulatory, and institutional frameworks of the petroleum industry. Under the Renewed Hope Agenda of the ruling party, the President indicated he would enforce a master plan for the petroleum industry based on resource governance principles of transparency and accountability, expand the revenue earnings of Nigeria, and promote gas utilisation and energy transition to drive the economic development of the country.

The Petroleum Industry Act 2021 was signed into law at the eleventh hour of the previous administration; hence its effective implementation falls on the current Tinubu administration. The PIA was enacted to provide a legal, governance, regulatory and fiscal framework for the petroleum industry.

The PIA empowers the Minister of Petroleum Resources to formulate, monitor and administer government policy in the petroleum industry; and to exercise general supervision over the affairs and operations of the industry. However, in a radical departure from the old legal regime under which the minister had exclusive powers to administer the operations of the industry, the PIA established two institutional bodies: the Nigerian Upstream Petroleum Regulatory Commission and the Nigerian Midstream and Downstream Petroleum Regulatory Authority.

On the one hand, the NUPRC is empowered to regulate upstream petroleum operations, including technical, operational, and commercial activities in the upstream sector. On the other hand, the NMDPRA is empowered to regulate midstream and downstream petroleum operations, including technical, operational, and commercial activities in the petroleum industry.

The PIA vests on the NMDPRA the powers to grant and revoke all licences, permits and authorisations for midstream and downstream petroleum operations. Therefore, in terms of governance and institutions in the petroleum industry, the PIA has introduced new provisions that unbundle the operations in the petroleum industry into upstream, midstream, and downstream subsectors, including the administration and regulation of the industry among independent and specialised institutions.

The PIA now requires that a company which intends to engage in the upstream, midstream, and downstream subsectors must register and use a separate corporate entity in each of the subsectors. The unbundling of downstream operations by differentiating and introducing the midstream subsector is in line with industry best practices globally, and it supports the PIA’s requirement for a separate corporate entity in each of the three subsectors.

The old practice where one company could be used to perform different operations across the three subsectors enabled fraudulent corporate accounting to undermine tax, royalties, and other statutory payments which constitute revenues that are due to the government from the petroleum industry.

In new ways, the PIA provisions are also aimed at creating a framework to support the development of host communities; providing social and economic benefits from petroleum operations to such communities; and enhancing peaceful and harmonious coexistence between corporate licensees or lessees of petroleum operations and host communities.

The development of host communities under the PIA is anchored on the creation of host communities’ trust fund and the creation of the Environmental Remediation Fund. The company carrying out petroleum operations in a host community is required by the PIA to undertake a needs assessment that will transform into the community’s development plan for the purpose of determining the projects to be undertaken by the host community’s development trust.

Besides the provisions for the social and economic development of host communities, the PIA imposes an obligation and liability on host communities to protect the facilities and infrastructure for the exploration, drilling, refining, storage, and transportation of petroleum and petroleum products. According to the PIA, if any act of vandalism, sabotage or other civil unrest causes damage to petroleum and designated facilities or disrupts production activities within the host communities, the community shall forfeit its entitlement under the provisions of the PIA to the extent of the costs of repairs of the damage that resulted from the activity. For the first time, oil-bearing communities are conferred with benefits and as well as attached with obligations under the PIA.

The PIA introduced a new petroleum industry fiscal framework that includes the creation of hydrocarbon tax and related deductions; identification of persons and companies that are chargeable; procedure for appeals to the tax tribunal; application of companies’ income tax to petroleum operations; and offences and applicable penalties.

The objectives of the new fiscal regime include the need to establish a progressive fiscal framework that encourages investment in the Nigerian petroleum industry, provides a regime that is based on the principles of transparency and accountability, simplifies the administration of petroleum tax; and promotes equitable participation in the petroleum industry fiscal regime.

Some of the notable provisions of the PIA introduced to apply to the petroleum industry for the first time since petroleum operations started in the country about half of a century ago include the bifurcation of administrative and regulatory powers of the Minister of Petroleum Resources which has been now devolved to the Nigerian Upstream Regulatory Commission, and the Nigerian Midstream and Downstream Regulatory Authority.

The PIA deregulated the upstream, midstream, and downstream subsectors of the Nigerian petroleum industry, allowing prices, including the pump price of petroleum products, to be determined by market forces, e.g., the removal of fuel subsidy. The PIA requires companies operating in upstream, midstream, and downstream subsectors to register and use separate corporate entities in the different streams of operations.

Also. there is now a requirement for the establishment of a Trust Fund by operating companies toward the development of oil-bearing and host communities in order to ensure peaceful and harmonious coexistence between operating companies and host communities.

There are now provisions that impose legal obligations and liability on host communities for the protection of petroleum facilities and infrastructures of the government and the operating companies. There are also provisions on the assessment, collection, and enforcement of hydrocarbon tax, and methodologies for determining fair pricing, tariffs, and royalties for petroleum and petroleum products.

There are provisions on incentives for investment in natural gas operations such as tax holidays of up to 10 years, including in midstream gas operations, and incentives for investment in energy transition.

There is the introduction of the National Strategic Stock which requires the designation of locations across the country where petroleum products can be stocked, including the requirement of operating companies to maintain an amount of stock at all times. There is a requirement for operating companies to make financial contributions to an environmental remediation fund toward the rehabilitation and management of the environmental impact of petroleum operations.

The Renewed Hope Agenda of the Tinubu presidency expresses the principles of transparency and accountability in the management of Nigeria’s natural resources and reducing corruption and the perception of corruption in the petroleum industry. Significantly, the programmes for the petroleum industry under the Renewed Hope Agenda find statutory backing and support within the provisions of the PIA.

• Lokpobiri is the Minister of State for Petroleum Resources