PIB: Making Nigerian Oil Work for the Citizens

When CISLAC mobilized and coordinated other Civil Society Organizations working on Extractive Revenue Transparency, Accountability and Good Governance in Nigeria to submit a memorandum to the House of Representatives outlining its views on recommendations on the Petroleum Industry on the 28th of July 2009, the effort is to strengthen and make the bill an instrument for rapid National development. The memorandum outlined positive sections of the Bill and the section that needs to be reviewed to ensure that the new legislation helps Nigeria to evolve a more responsive, functional Petrol Energy Industry.
 
The Petroleum Industry Bill (PIB) was introduced by this administration under the Leadership of Late President Umaru Musa Yar’adua to holistically reform the Oil and Gas Industry with a view to improving that sector. The bill propose to bring the entire Oil and Gas Industry under one legal frame work by repealing existing laws governing the administration of the Industry in the country.
This reform process is informed by the fact that Petroleum Legislation and especially, the fiscal regimes in the industry are no longer in tune with current realities in the country or in accord with International best practices.
 
The Bill seeks to create a much more transparent administrative system where all interested parties could assess information and indicate interest on a given venture/projects in the Oil and Gas industry. It also attempts to amend aspects of the Petroleum Profit Tax Administration (PPTA), which treat information relating to the chargeable profits of companies as confidential and secret. The Bill sets clear procedures for the bidding processes and the retention of licenses and leases which are not the case in the present laws. It further simplifies collection of petroleum revenues by emphasizing rents and royalties rather than taxes.
 
More importantly, the PIB will encourage the development of small fields with significant low tax incentives of 5% royalty, based on daily oil production. This provision is a deliberate effort to encourage Nigerian entrepreneurs to partake in the Oil and Gas business. In addition, the local content provision has been incorporated into the new law which would require all projects and procurements in the industry to have Nigerian content. By this, the purchase of local goods and services in the industry will receive a significant boost. In support of this, the PIB makes only 80 percent of foreign costs deductible for Nigerian Hydrocarbon Tax purposes. The deregulation of the downstream sector coming alongside the reform is also expected to stimulate economic activities in the country as new areas of local entrepreneurship skills will be promoted to enhance the operation and management of the downstream sector. Another significant element of the Bill is the provision of incentives to promote domestic gas utilization in Nigeria. This is consistent with the National Gas Master Plan. Article 282, 335, 404 – 410 of the Master Plan highlights the significance of encouraging the use of gas in the domestic market as well as ending gas flaring.
 
Other provisions of the Bill that improves on existing laws include; a clear statement of the fundamental objectives of the Bill, which vests ownership of petroleum resources within Nigeria, its territorial waters, the continental shelf, the Exclusive Economic Zone and the extended continental shelf in the sovereign state of Nigeria for and on behalf of the people of Nigeria. The Bill is also very gender sensitive in its language, in addition to providing for consumer protection (s.386), and greater service to customers (s. 387)
 
In the light of the above, the CSOs realize that there are some fault lines and weaknesses which if not corrected will undermine its effectiveness and implement ability. The main purpose of the Bill is to reduce complexity and inaccessibility, yet it went on to create nine regulatory authorities for the Nigerian petroleum industry including the National Petroleum Directorate (s. 12); Nigerian Petroleum Inspectorate (s.37); Petroleum Products Regulatory Authority; National Petroleum Assets Management Agency (s. 113); Nigerian Petroleum Research Centre (s.148); National Frontier Exploration Service (s.174); Petroleum Technology Development Fund (s. 223) and Petroleum Equalization Fund (s.199). In fact, some of the bodies are mere replicas of others. For instance, it is difficult to fathom what the National Petroleum Directorate (NPD), will be doing with the creation of the Ministry of Petroleum Resources. Indeed section 13(s) of the Bill provides that the National Petroleum Directorate shall ‘promote compliance with all legislation by all participants and stakeholders in the industry’ which is exactly the function of the Nigerian Petroleum Inspectorate under the Ministry. Also, with the proposed Petroleum University, it is difficult to see the necessity for the Nigerian Petroleum Research Centre. Moreover, the Ministries of Finance and Petroleum Resources can easily undertake the functions of the National Petroleum Assets Management Agency and the National Frontier Exploration Service respectively. On the whole NASS needs to spend some time streamlining these Directorates. On a technical note, if recommendations of CSOs are reflected in the Bill half of its present length will be eliminated.
 
On the funding of the directorate, Section 28 of the Bill provides for a portion of the ‘fiscalized’ crude Oil and Gas to be paid into an account and shared among the proposed Petroleum Directorates for the purpose of funding their operations. This provision is clearly unconstitutional because such revenue accrues directly to the Federation Account and any such diversion will lead to litigation and National uproar.
 
On power to accept gift and grant, Sections 30, 56, 94, 166, 193, 238, etc.,the provisions empowering management and staff of Petroleum Directorates to accept gifts/grants – whether for staff or institutional use – has the tendency to breed corruption and raises serious ethical concerns. Given the wide spread and deep foundations of corruption in Nigeria, such provisions should be expunged to remove the potential for its abuse.
 
On the composition of the Governing Board, the Bill provides for the Minister, Directors of the Petroleum Directorates and the Director General to compose the Governing Board of the Nigeria National Petroleum Company Limited. It is the view of CSOs that this is unacceptable as it excludes broad stakeholders in the petroleum industry. The Bill needs to be amended to include representatives of the private sector, civil society, labor, professional groups, media and oil host communities.
 
Also on restriction on Legal proceedings (SECTION 61(2), the Bill provides a maximum of twelve months for suits – whether civil or criminal to be instituted against any of the Inspectorates, a member of the governing board or an employee of the Inspectorates. This is clearly unrealistic given the complexity and expensive nature of court processes. Civil society wants an extension of this provision to six years to align with existing law on petroleum profit tax.
 
Dispute resolution is also considered as the Bill stipulates that disputes relating to any of Petroleum Directorates cannot be referred to arbitrators, unless complaining parties have attempted to negotiate with the Directorate concerned. While it is understandable that there is the need to prevent needless recourse to courts with the attendant acrimony and delay in a critical industry of this nature, this provision can only empower the Directorates to ignore complaints and use bureaucratic tactics to delay legal challenges. Civil society proposes that while parties should be encouraged to use conciliation and arbitration services before having recourse to the courts, the rights of aggrieved parties to seek the best means of getting justice at any time should be guaranteed.
 
On the touchy issue of privatisation of NNPC (SECTION 136), the Bill proposes to replace the Nigeria National Petroleum Corporation with the Nigeria National Petroleum Company Limited. It provides that at inception, ownership of the Company shall be vested in the Federal Government, but government is to sell its shares to members of the public after two years of the company’s incorporation. This is clearly a sneaky way to finally privatize the Nigeria oil industry. This privatization is not even being done in accordance with existing privatization legislation. The reason for using this procedure is unclear, but raises concern as to government’s intensions particularly as the petroleum industry is one of the commanding heights of the economy which section 16 of the Constitution mandates government to control on behalf of the Nigeria people.
 
There is a provision on joint ventures, (Sections 246, 253, 254, & 408), relating to the incorporation of Joint Ventures as Limited liability companies to the effect that the Boards of the companies shall be accountable to shareholders, act in good faith, treat shareholders equally et cetera (s. 252) and the specified functions of the Board and the rights of shareholders in sections 253 and 254 respectively, are redundant as the same provisions are already covered under the Companies and Allied Matters Act. These sections should therefore be expunged.
 
In addition to the provisions in the Bill on fees, rents and royalties (Section 279), Civil Society recommends that the Federal Inland Revenue Service (FIRS) and Ministry of Finance should published regularly payments by oil companies to the Nigerian government. Civil society also recommends 30% of royalties collected by the Federal Government from oil companies to be paid to oil producing communities, according to the quantity of oil produced in each of the communities.
 
On redundancy, Section 408 dealing with prohibition of forced labor, child labor and the upholding of the right to collective bargaining are matters that have been adequately dealt with in our Labor Statutes. Repeating them in the Bill serves no purpose.
 
On the controversial metering, the Bill does not sufficiently address the issue of metering, which as has already been identified in the 1999-2004 NEITI Audit, leads to huge losses of revenue by Nigeria from oil production.
 
The Bill makes copious references to the Local Content Law and proposes to “promote and encourage the involvement of indigenous companies and manpower and the use of locally produced goods and services in all areas of the petroleum industry”. However, the Local Content Bill was passed by the National Assembly without taking into consideration the CSOs’ recommendations especially a situation where products are still processed in foreign lands and the operators of local contents are still the same companies in disguise. Civil society urges NASS to consider the Local Content Bill side-by-side with the Petroleum Industry Bill. The Bill should also provide penalties for violation of the local content provision.
 
The Bill has no provision for corporate social responsibility. Civil society strongly recommends that the corporate social responsibility of the oil industry should be explicitly provided for and oil companies seeking any form of license to work in the petroleum industry must be requested to articulate a Corporate Social Responsibility with which they will be held accountable.
 
The Bill requires companies to submit environmental programs to the Petroleum Inspectorate for approval, but does not provide clear standards that they must seek, or guidance on most of the key environmental goals they should pursue. Instead of leaving these important matters to companies, the Bill should provide more guidance on the environmental standard that are required. Also the Bill inexplicably and inexcusably excludes the communities that bear the brunt of environmental degradation from having a say on environmental issues. Modern global thinking on environmental protection recognizes the rights of communities to review environmental plans of project that will affect them. This aspect of the Bill needs to be reworked to align it with interests of the oil-bearing communities. Also, considering that there is currently a bill on Prohibition of Gas Flaring (2009) before the National Assembly, Civil society recommends that the Petroleum Industry Bill should be considered side-by-side with that Bill, and that the penalties for violation of health, safety and environmental rules (including environmental remediation) should be stiff enough to discourage impunity. Adherence to environmental regulations should be further strengthened in the Bill by providing for regular environment audits and certification. The provision in the Bill for States and Local Governments in the oil producing areas to pay 1% and 0.5% of their annual derivation allocation into a Remediation Fund under the custody of the Petroleum Inspectorate to restore the environment in cases of damage caused to the environment as a result of sabotage (s. 286) should be expunged from the Bill because majority of oil spillage is not as a result of sabotage, but as a result of equipment failure.
 
The Fiscal Provision identifies and prepares for goals related to economic needs therefore, we propose among other recommendations that these provisions under Part VIII should be aligned to existing provisions in the Fiscal
Responsibility Act 2007 and other relevant laws.
 
The civil society organizations are concerned that a situation where oil companies start organizing retreat for members of the National Assembly to discuss the PIB shows frantic efforts by the oil companies to influence the decision of these lawmakers. Candidly, this is not in the interest of Nigerians.
 
Since July 2009 to July 2010, is one year now which is enough period for the House members to deliberate and pass this Bill yet they seem to be reluctant about this very vital issue which is of immense advantage to our great country.
 
We therefore urge the National Assembly to take urgent steps to pass the Bill before the year runs out because party primary elections are around the corner. A positive step taken in the right direction today would make history by saving the extractive sector from corruption and inefficiency.
 
The Petroleum Industry Bill is a major attempt to reorganize the Nigerian oil industry for rapid and robust National development. As agents of positive change; it is our duty to prove to the rest of the world that the Nigerian Oil Must Work for Us. This is “A Turning Point for Mankind’’ To achieve this, the Bill must Mirror global best practices and address major concerns of Nigerians. The Civil society believes strongly, that if its recommendations are reflected in the final Petroleum Industry Act, Nigeria will reap more revenue and other benefits from the industry and end the crisis in the Niger Delta.
 
 
Auwal Ibrahim Musa (Rafsanjani)
Executive Director
CISLAC

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