A new draft policy document by the Nigerian ministry of petroleum resources proposes a single regulatory agency for the oil and gas sector
| By Anayo Ezugwu | Nov 28, 2016 @ 01:00 GMT |
THE newly drafted national oil policy by the federal government is proposing the creation of a single regulatory agency known as Petroleum Regulatory Commission, PRC, to oversee the affairs and activities in the oil sector. This entails scrapping of all other regulators, such as the Nigerian National Petroleum Corporation, NNPC, Department of Petroleum Resources, DPR, and Petroleum Products Pricing Regulatory Agency, PPPRA.
According to the document released by the ministry of petroleum resources on its website, recently, the new regulator will take over the activities of the existing petroleum regulatory authorities and also cover some new regulatory activities not currently included. The document revealed that the existing institutional regulatory framework was weak, largely ineffective and inefficient, arising from a number of single-issue agencies; overlaps in regulation, gaps in regulation, mixture of policy, regulation and operations; and ineffective regulation.
“Although the agencies generally work well together, their roles, sometimes, overlap and there are significant information gaps within the government as, sometimes, one institution is unaware of what the other is doing. At the same time, policy making capacity has been weak, resulting in NNPC and its subsidiaries setting policy and regulation as well as conducting operations in the petroleum sector. The result is an ineffective and inefficient institutional environment in the petroleum sector in Nigeria,” the document said.
According to the draft policy, in order to reduce the inefficiencies in parastatals in the petroleum sector, the proposed single petroleum sector regulatory authority will operate under the policy supervision of the minister of petroleum resources. According to the document, the minister will set the policy for the PRC; ensure monitoring of the implementation of the policy and ensure monitoring of the performance of the authority.
“This does not mean that the regulatory authority will report to the ministry on a day to day basis. The new single regulatory authority will be an operationally independent regulatory institution. The minister’s involvement will be hands-off and just to ensure that the regulatory authority properly carries out its roles of implementing the policy,” it explained.
The document also considered a policy that would rule out the automatic renewal and extension of oil and gas licenses, while it has listed stringent conditions which would be met before these can be granted. This was also contained in the draft oil policy which indicated that the new oil and gas licensing processes would become more transparent in respect of allocations of oil blocs, mining licences and leases, while local communities would be able to compete in the bids.
According to the draft policy, licence renewals or extensions will now be based on progress made by licence holders in meeting their exploration or production targets. It stated that licence holders, who do not meet licence conditions, including oil production, gas flare down, gas supply obligations, will risk losing the licence.
In addition, the document is proposing a policy that would ensure that certain percentage of petroleum revenue is set aside for capital expenditure and for savings for future generations.
According to the document, under the new policy, the government will agree to a cap on the proportion of petroleum revenues that can be spent on recurrent expenditure, while setting aside a percentage of the petroleum revenue for capital expenditure items and savings for future generations. To give vent to this proposal, the document disclosed that appropriate legislation would be passed to back the policy.
The draft policy also stated that each of the country’s refineries will be given a transition period within which to become viable and profitable, adding, however, that the government intended to divest, sell off, concession or if necessary, close down any non-performing refinery that failed to make the transition.
“The aim is to make the NNPC refineries successful, high-volume, commercially viable enterprises. They will be encouraged to become so and will be supported as much as it is within the government’s ability to do so. Of the three NNPC refineries (Port Harcourt, Warri and Kaduna), Port Harcourt is expected to be the best placed to succeed. It has installed its independent gas-fired power supply; it has undertaken its own turnaround maintenance; it is close to jetties and the pipeline length from crude oil suppliers is short (less of a pipeline security risk); it is operationally ready to produce refined products to international standards, although the cost structure is still not right.
“Of the three, Kaduna is perhaps, the least ready currently because of its distance from crude oil supplies and reliance on a poorly maintained crude oil pipeline.”
Another measure planned under the new policy for the revitalisation of the refining sub-sector in Nigeria includes the return of storage depot assets to the refineries. “The storage depots were originally part of the refineries but had been subsequently transferred from the refineries to the Pipeline and Products Marketing Company, PPMC, (now Nigerian Petroleum Marketing Company, NPMC).
“This arrangement is not considered to have been successful. NPMC has failed to manage the depots effectively and the refineries have been denied an important part of their assets. The storage depots will, therefore, be returned to the refineries. In addition, the perimeter fence around the refineries will be set sufficiently far from the operations, including depots to ensure that proper security can be maintained. Everything inside the perimeter fence will belong to the refinery solely and will be on each refinery’s asset register.”
Again, the document noted that as part of their new independence, each of the refineries will be given commercial autonomy, meaning that they will be free to take crude oil from wherever and whoever they can. According to the draft, they are not constrained to take NNPC deliveries only as under the new policy, each refinery may choose to deal with any crude oil producer apart from NNPC or National Oil Company of Nigeria, NOCN.
“It should be commercially interesting for an International Oil Company, IOC, which has downstream operations in Nigeria, to have their own crude refined and sold in Nigeria, rather than exporting crude across the Atlantic and the refined product to be shipped back,” the document noted.