The Nigerian Senate in May 2017 passed the first tranche of the much-anticipated Petroleum Industry Bill (PIB), representing a historic move toward the enhancement of the country’s oil and gas sector.
Nigeria has long struggled to diversify its mono-economy, as the oil and gas sector still represents about 35% of GDP and over 90% of exports.
In light of the plunge in commodity prices in 2014, Nigeria and other oil-dependent economies have embarked on an aggressive diversification drive; however, despite these efforts, most Nigerians have also resigned themselves to the fact that the oil and gas industry is—and will be for many years to come—its growth pillar and driving force, with some arguing that Nigeria needs the revenues from its extractive industry in order to develop other sectors.
Whether Nigeria’s oil revenues are necessary for economic diversification is debatable, but what is sure is that this economic diversification will not happen overnight.
Therefore, any way of maximizing revenues from oil in the meantime while adapting to the new normal of oil prices betweenUSD50-60 a barrel will indeed be welcomed by the country’s oil and non-oil businesses, policy makers, and people.
A historic move in this regard was made in May 2017 when the Senate, after 17 years of consideration, finally passed the Petroleum Industry Governance Bill (PIGB), which constitutes the first part of the Petroleum Industry Bill (PIB).
In October 2015, the Minister of State for Petroleum Resources, Emmanuel Ibe Kachikwu, stated that the country was losing NGN3 trillion (approximately USD15 billion as of mid-2015) due to the non-enactment of the bill.
To address this, the government launched the bill, which was split into four parts: the PIGB, fiscal regime bill, upstream and midstream administration bill, and petroleum revenue bill.
The main objectives of PIGB are to create governing institutions with clear and separate roles; to establish a framework for the creation of commercially viable oil and gas entities; to ensure accountability and transparency in the oil and gas industry; and to create a more favourable business environment for oil and gas operators.
Many are the benefits the bill is set to bring to the country if it scales through the House of Representatives and, subsequently, signed by the President into law.
The execution of the bill will enhance exploration of petroleum resources; it will optimize domestic gas supplies with positive impacts on power generation and industrial development, will establish a clearer regulatory framework and, therefore,encourage investments into the Nigerian oil and gas sector, and will increase government oil revenues and promote the development of local content in Nigeria’s extractive industries.
An important measure proposed by the bill is the reduction of the control that the President and the State Minister of Petroleum Resources can exercise on the oil and gas industry. As for the role of the State Minister for Petroleum Resources, the bill reduces his/her powers, as he/she will no longer be able to grant, amend, extend, or revoke any license.
The duty will, henceforth, be assigned to the National Petroleum Regulatory Commission, which will act as a one-stop regulator. A significant reduction of powersalso applies to the President, who in Nigeria is controversially also the Federal Minister of Petroleum.
Furthermore, the bill will help to reduce corruption. Bukola Saraki, the President of the Senate, explained how corruption practices within the oil and gas industry would be reduced to the bare minimum, “The bill will stimulate the oil and gas industry; it will reduce the area of corruption and inefficiency in the oil and gas sector.”
Another crucial step forward is the bill’s vision of the gradual privatization of the petroleum industry. PIGB requires the government to privatize up to 40% of assets of the newly-established National Petroleum Company (NPC) within 10 years from the incorporation of the new commission.
Also, the government must give up at least 10% of its shares within the first five years, and a further 30% over the next five years. The divestment is required to be conducted in a transparent manner and can include the sale or transfer of shares to institutional or strategic investors.
This means that citizens can also own a stake in the national oil company subject to any terms put forward for the privatization exercise. On the passage of the bill, back in May 2017, the Chairman of the Senate Committee on Gas, Akpan Bassey said, “It will create the right signal to international community that Nigeria is ready for business.”
Ladi Bada, Managing Director of Shoreline Resources, told TBY: “Passing such a bill is vital because it will give investors confidence. If investors know the terms under which they will invest, it is easier to put money down because they know the terms will not change overnight.
We will not see the effects immediately; however, we expect that in a few months’ time, once people digest the new legislation and start making important investment decisions, we will see increased exploration activities moving forward.”
The senate, by as soon as 2018, is expected to then pass the second tranche of the bill, which regulates taxation in the sector.
It is interesting to consider where Nigeria’s oil and gas would be today if the passage of the bill had been implemented during the golden times of USD100 per barrel.
Nevertheless, history is not made of “what ifs” but rather pivotal changes, such as the much-anticipated PIGB. Nigeria can only look ahead to the full implementation of the remaining three bills and inflows of investments, working toward transparency, efficiency and competitiveness of its oil and gas industry, which today still is the bedrock of the country’s economy.
