Curious gaps that may undermine PIB’s gains

• Why ‘NNPC Limited’ May Remain Loss Making Entity Despite Commercialisation 
• More Hostility Looms In Host Communities As Stakeholders List Implications 
• Concerns Over Environmental Justice, Human Rights, Gender-inequality

Last week’s passage of the Petroleum Industry Bill (PIB) by the National Assembly may appear a celebrated milestone after several attempts, but there are indications that inherent gaps in the legislation may frustrate projected gains, which industry operators and other stakeholders envisaged.

Energy experts, yesterday, raised serious concerns over the outlook of the document, especially as it relates to the country’s adamant stand on vigorously exploring hydrocarbon resources in the northern part of the country, and failing to enable the national oil company to transit to an energy company as is the case across the world.

While concerns also dog the host community segment of the bill, especially the many security crises and hostilities against operators, some activists also stressed that the bill is gender-biased.

Some stakeholders also noted that the progress recorded at the National Assembly could be eroded by the president, even though the bill is an executive document, adding that the implementation of the legislation if eventually passed, may also remain an obstacle as the country does not lack laws and policies, but their proper implementation.

The National Assembly, last Thursday, passed the over 20-year-old PIB. Unlike other versions of the document, which passed through the lower and upper chambers, the legislators have set aside 30 per cent of profits accruing from oil and gas operations by the Nigeria National Petroleum Corporation (NNPC) for oil exploration in the frontier basins. 

The nation’s frontier inland basins are basically in the North and include the Niger, Chad, Bida, Dahomey, Sokoto, and Benue basins. And for over 30 years, the country has reportedly spent over $3b in searching for oil in these basins without any meaningful result.

While the spending has been done secretly and never accounted for, legislating that 30 per cent of profit be set aside for further exploration of the basin means that even if there are viable businesses, which would have brought more returns to the country, such investments would remain elusive.

Apart from being seen as a political decision, the implication is also that lawmakers instead of introducing incentives that would encourage private investors to explore the basins, boxed NNPC’s spending, as the Chairman of the Senate Joint Committee that processed the bill, Sabo Nakudu said: “The Joint Committee’s recommendation recognises the need for the country to urgently, and aggressively explore and develop the country’s frontier basins to take advantage of the foreseeable threats to the funding of fossil fuel projects across the world due to speedy shift from fossil fuel to other alternative energy sources.”

Experts insisted that setting aside such funds for alternative energy projects would have had a futuristic investment outlook, which would have addressed the country’s energy challenges, limit investment risks, and address growing revenue pressure in the country.

At a time that other oil-producing countries and international players use earnings from the oil sector to transit from fossil fuels in line with global moves, the Columbia Centre on Sustainable Investment, a joint Centre of Columbia Law School and the Earth Institute, Columbia University had noted that the PIB may be short-sighted and lacking futuristic outlook that could stand the test of time, as the world transits to cleaner energy.

According to some stakeholders, setting aside the 30 per cent profit became compelling in order to ensure that the basins are explored, as the private sector saw no wisdom in investing in the basins. They also noted that it may be the best way to get the president to assent to the bill since he is the brain behind the continuous exploration of oil in the North.

After the passage of the bill by the immediate past NASS, President Muhammadu Buhari failed to give assent to the legislation. Consequently, most stakeholders are unexcited stressing that until Buhari assents to the bill, the current optimism trailing the passage may be misplaced.

Originally, stakeholders pushed for 10 per cent of revenue for host communities. But lawmakers in the current version passed only three per cent at the Senate and five per cent of the actual annual operating expenses of the preceding financial year (in upstream petroleum operations affecting the host communities) at the House of Representatives.  At three per cent, host communities will receive about $340m plus gas flaring penalties, as well as environmental remediation.

Speaking on the prevailing situation, especially that involving the NNPC, a loss-making entity of many years due to political interference and unsustainable clauses in extant acts, the Chairman of International Energy Services Limited (IESL), Dr. Diran Fawibe, noted that deciding how the NNPC spends the oil profit may spell doom, adding that political interference may persist even with the passage of the PIB.

He specifically noted that despite the move being aimed at ensuring transparency in investments in the frontier basins, it was worrisome to compel the national oil company to spend its money in a certain direction, despite the frontier basin being a drainpipe.

“Thirty per cent is a lot of money. Instead of spending it on alternative energy even in areas where the basins are located, which could have yielded more short-term returns in the face of revenue challenges, it is being legislated that the NNPC spends the money on the frontier basins where stakeholders have repeatedly expressed concerns.

“This could as well be money going down the drain because for many years exploration has been going on in these basins, and nothing tangible has come out of it,” he said.

Fawibe noted that while exploring for oil across the country is critical, compelling investment in areas that a company may not be willing to explore, and indeed determining the volume of such investment was not the way to go.
For the former president of the Movement for the Survival of Ogoni People (MOSOP), Ledum Mitee, setting aside 30 per cent for the development of the frontier basin remained illegal, unconstitutional and negates business sense. 

Being an outfit of the federation, Mitee said it was baseless for the parliament to legislate that funds from a state-owned company be spent on businesses that may never yield return.  

“I believe that it is illegal and unconstitutional. It does not make sense to set aside 30 per cent of NNPC profit, which is an outfit, supposedly owned by the federation for oil and gas exploration in the frontier basins.

Mitee couldn’t see any economic or business sense in exploiting oil in the South and taking the proceeds to execute exploration activities in the North that may not yield benefits, adding that it remained unacceptable to legislate such a plan into existence.

Mitee said that three per cent of host communities remained an indication that the lawmakers are insensitive to the plight of the host communities, and retrogression from the 10 per cent earlier proposed.

He said: “I think that apart from the fact that it is hopelessly inadequate, it is a retrogression. If by 2012, the recommendation was 10 per cent, and in 2021, you are reducing it to three per cent, that shows that you don’t care about the feelings of the people.”

The Executive Director, Centre for Transparency Advocacy (CTA), Faith Nwadishi, equally raised concern over gender balance, and host communities issues, noting that the development may affect projected objectives.

Nwadishi who, however, pointed out that the bill made room for contract transparency, disclosure, and outlaws gas flaring, added that blaming host communities for any kind of sabotage to oil facilities also falls below expectations.

“We noted that not a single word of gender was mentioned in the bill. However, the word women were mentioned once in relation to host communities’ needs assessment.  

“The first hurdle has been crossed, we expect the leadership of both arms of the National Assembly to quickly harmonise their versions of the passed bill and send same to the president for his assent,” Nwadishi said.

An energy expert, Madaki Ameh, who said that the bill has taken a long time at the parliament, warned that the initial optimism could wane, adding that proper implementation should be the primary focus and not the current euphoria. 

“There have been so many versions of the PIB in circulation over its long journey in the National Assembly, that the initial euphoria over its passage has largely waned. A true assessment of its effectiveness will depend on its implementation, something we are not so good at in this country,” he stated.

Without mincing word, a mineral/energy resource economist and former president of the Nigerian Association for Energy Economists (NAEE), Wunmi Iledare, noted that three or five per cent funding for the host communities is not adequate.

“Benefits for host communities are essential, but we must be prepared to call a spade a spade. Why can’t we also call on the state governments to surrender parts of the 13 per cent derivation fund to the host communities, and not just three or five per cent of profit or equity? Equity in business comes with a cost and … such equity can be expensive too.

“By the way, we must minimise the euphoria until the Buhari signs the bill after its harmonisation. I hope he does this time,” Iledare said.

The Executive Director, CISLAC, and Head, Transparency International Nigeria, Auwal Ibrahim Musa Rafsanjani, said providing a clear legal framework to regulate the oil and gas sector to provide some certainty, transparency and accountability was necessary for investments and maximisation of benefit for Nigerians.

“We are therefore encouraged by the action of the National Assembly, which we believe has rekindled the hope that this elusive and all-important law could see the light of day in the life of this administration,” Rafsanjani said.

“This will further assure Nigerians of the NASS commitment to ensure that the PIB is passed into law during this legislative session to end the 20-year wait for reforms, and clear policy and legislative direction for the oil and gas sector. We call on the president, upon receipt of the bill, to assent to it without further delay as a mark of integrity to fulfill a long-standing promise to Nigerians, demonstrate his commitment to sanitising the oil and gas sector, which is notorious for corruption and making a mark that will negate insinuations that his refusal to assent to the PIB will be linked to the aspiration of retaining discretionary powers for the office of the Minster of Petroleum Resources, which he currently occupies, to award oil licenses,” Rafsanjani said.

A professor of law and Director of, Institute for Oil, Gas, Energy, Environment and Sustainable Development (OGEES Institute), Afe Babalola University, Damilola  Olawuyi, said the PIB contains detailed provisions that would make for good governance and accountability, address matters of environmental justice among others.

According to him, the rotational fund may not grant environmental justice in pollution impacted communities, stressing that unless there is an anticipatory approach that integrates human rights impact assessment into project approval processes, so as to ensure that petroleum operations do not adversely impact the social, economic and political rights of local communities, the projected objective may remain elusive.

“I would therefore like to see the introduction of a detailed business and human rights regulation under the new law, which will clearly and comprehensively spell out what responsible business enterprises should do to anticipate, mitigate and redress human rights and environmental harm in their operations,” Olawuyi said.

He also faulted the establishment of “too many institutions as contemplated by the bill,” noting that it could result in procedural challenges and red-tape in decision-making processes. Olawuyi said: “The bill does not clearly articulate the need for greater gender equality and representation in the heavily male-dominated Nigerian oil and gas industry. Women in oil-producing communities whose lands are often targeted for petroleum operations face double vulnerabilities because their farmlands end up being massively affected. Secondly, they may not have the education to participate in decision-making processes.”  

An energy expert at PWC, Habeeb Jaiyeola, said that the passage of the bill remains a significant development in the Nigerian oil and gas sector, noting that it also signifies the focus of the Nigerian government in sanitising the sector and increasing investor confidence. 

“With the host community trust fund, we look forward to witnessing immense attention paid to the development of the host communities, which have largely been at the receiving end of the negative impact of oil and gas exploration and production activities. 

“More efficiency and effectiveness are also expected from government monitoring and regulatory activities, with reduced cost of governance related to the oil and gas sector,” Jaiyeola said.