Operators in the oil and gas industry are shocked that President Muhammadu Buhari failed to sign the Petroleum Industry Governance Bill, noting that his action will have negative impact on the economy

By Anayo Ezugwu

Operators in the oil and gas sector were shocked when the news broke that President Muhammadu Buhari has declined assent to the Petroleum Industry Governance Bill, PIGB, on Wednesday, August 29.  The rejection of the bill has generated a lot of criticisms with industry experts expressing doubt about the PIGB becoming a law in the current administration. They are also of the view that  the development will have a negative impact on the economy.

Bayo Rotimi, financial consultant, said the refusal to assent the PIGB would continue to affect Nigeria’s economy already seen in the drop in oil production in the second quarter of 2018 from 2 million barrels per day to 1.84 million.

He noted that the bill has been hanging after it was initiated 18 years ago. “There are three other bills that have not been passed by the National Assembly. Shell recently said that there cannot be increase in new investment in this sector until they lockdown this very critical piece of legislation that will unbundle the NNPC. Our economy clearly is still over dependent on oil. Between the first and the second quarter, GDP growth in the oil sector actually declined by 18.71 percent. Crude oil production dropped from 2 million barrels per day in the first quarter to 1.84 million barrels per day in the second quarter.

“This means that we essentially lost 160,000 barrels per day on the average over a 90-day period. If you monetise that, it will translate to $1.1 billion worth of revenue that we lost. So you could see why we need this bill to stimulate growth because oil is the principal driver of our economy. So these are the results of us not doing the right things at the right time. One of the ways forward is that we must get the regulatory framework right. If the framework is not sorted out then it will be very difficult for investors to come into the sector,” he said.

Similarly, Funso Lawal, oil and gas lawyer, said the PIGB has become a problem to the oil and gas industry in Nigeria.  “I won’t say I’m disappointed but we have been on this for 17 years to get the PIB in place, now the PIGB. It has become the elephant in the room. It has become a problem for our sector. You know the oil and gas business is an international business so it is not giving us good optics internationally.

“For me I think we are at the last mile with the PIGB. I think what the presidency has done is to highlight areas they wanted the National Assembly to attend to. I think the ball is now on the executive’s court to give counter proposal to the National Assembly in terms of what it wants to see.

“I’m expecting an alignment with regard to the issues the Petroleum Regulatory Commission, PRC, should take. When I look at what the role of the PRC, I see an agency that would replace the DPR, to handle licensing rounds for the disposal of oil and gas assets. Those transactions are quite sizable. When you are having licensing round or selling oil blocks of the country, you get signature bonuses and this could go as high as $2 billion.

“These are services to be provided by the proposed PRC in the sense that they will handle the sales of assets. And from the PIGB, they are to take 10 percent of their generated revenue because from disposals of those assets revenues are generated. And if they are to take 10 percent as proposed by the bill, I think it is a lot of money. I think there should be an ailment between the executive and the legislature on this. I think the issues we are to deal with today are little compared to where we are coming from,” he said.

Bala Zakka, petroleum expert, who is not surprised that the president didn’t assent to the PIGB, said as far as the oil and gas industry is concerned, there is every reason to say that the inability of Nigeria to pass the PIB into law is an indication and demonstration of unseriousness.

According to him, there is a justification to conclude also that Nigeria does not know the benefits that will accrue to the country by passing the PIGB. “If we want a good job done on the entire PIB, then this 8th National Assembly cannot meet up. As you can see, only the PIGB has been sent to the president for assent. There are three other bills and the fiscal regime bill and the host community bill are even more contentious. So, if you have those three bills waiting, that means they have only done 25 percent.

“And most of the National Assembly members are fighting for their political survival in their respective constituencies, and we are already in the heat of the campaigns before the elections. So, there is the likelihood that nothing will be achieved. It is very clear that the PIB will outlive the 8th National Assembly,” he said.

This notwithstanding, the federal government has justified the actions of the president in not signing the bill. Ita Enang, senior special assistant to the president on National Assembly Matters, identified the provision of the PIGB permitting the PRC to retain as much as 10 percent of the revenue generated as one of the reasons Buhari declined assent to the bill.

The president’s position is that the provision unduly increased the funds accruing to the commission to the detriment of the revenue available to the federal, states, Federal Capital Territory and local governments in the country.

“Expanding the scope of Petroleum Equalisation Fund and some provisions in divergence from this administration’s policy and indeed conflicting provisions on independent petroleum equalisation fund; some legislative drafting concerns which if assented to in the form presented will create ambiguity and conflict in interpretation of other issues therein contained,” he said.

The PIGB, which seeks to change the organisational structure and fiscal terms governing the industry, had suffered setbacks in the sixth and seventh National Assembly. To fast-track its passage into law, the current National Assembly decided to split the bill into four parts – the PIGB; Petroleum Industry Administration Bill, PIAB; Petroleum Industry Fiscal Bill, PIFB; and Petroleum Host Community Bill, PHCB.

The objectives of the PIGB include transforming the administration of the upstream, midstream and downstream sectors of the Nigerian petroleum industry. The bill creates a framework that will free up acreages that are not being developed by current license and lease holders, thereby creating opportunities for new investors.

This will bring substantial new investment to the nation’s oil and gas industry; while also ensuring the effective management of the environment by petroleum operators and administrators. It provides a framework to unleash midstream activities which will open up the market for the supply of gas and other downstream products, for economic growth and provides much needed legal backing for the deregulation of the downstream sector of the petroleum industry.

– Sept. 7, 2018 @ 14:55 GMT