Too many things are happening in the petroleum sector aimed at blocking reform but also at blocking persecution of the perpetrators of mega corruption. Out of the blues, Senator Ita Enang made a claim at the Senate that 83% of the country’s oil blocks is in the hands of northerners.
The intention is clearly to dramatically politicise the debate over the Petroleum Industry Bill (PIB) and thereby obfuscate the real issues of contention in the debate itself. Toyin Akinosho, a petroleum geologist with over two decades of work at Chevron and now publisher of the well-regarded Africa Oil and Gas Report has come out to explain clearly that the likes of Senator Ita Enang are making statements that are “merely hysterical, and tendentious, designed to mislead the public”.
Mr. Akinosho points out that when Jibril Aminu handed out oil prospecting blocks, in the first comprehensive effort “to encourage indigenous participation” in 1991, he gave blocks to companies owned by Folawiyo, Abiola, Adenuga, Udoji, Ibru, Igbinedion,(all Southerners) as much as he gave to enterprises set up by people like Saleh Jumbo and Mai Deribe.
The fact of the matter however is that most of the Nigerian beneficiary companies had neither the capacity nor even the ambition to develop their oil blocks. They never developed their concessions to produce oil and sold them out. Mr Akinosho points out that today, only Mike Adenuga is producing oil today, from his own block.
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He adds that Nigerian indigenous private acreage holders don’t produce, as a collective, up to 150,000 Barrels per day, or 7% of the national daily production. The issue therefore is why companies are owned by Nigerians given blocks they are not developing, but simply use to generate unprecedented rent for individuals based on a national asset that should benefit all Nigerians.
It is also important to go back to the real issues on the PIB. The PIB was released to much anticipation in July of 2012 and is an overwhelming 223 pages of text covering a wide array of issues, including the unbundling of the NNPC and new environmental regulations.
The priority of the new policy is to ensure the separation and clarity of roles between the different public agencies operating in the industry. This bill proposes to do through the unbundling the national oil company, the NNPC. The core proposal to decouple the NNPC’s functions into separate institutions.
The PIB breaks the company down into three distinct commercial units: the National Oil Company (NOC), the National Petroleum Assets Management Corporation and the National Gas Company. Furthermore the NOC will be opened up for public investment.
The Federal government will be required to divest 30 percent of its shareholdings in the NOC to sell on the Nigerian Stock Exchange within three months of the PIB’s passing.
The PIB also creates several institutions which will not operate on a commercial basis. The two primary regulatory agencies will be the Upstream Petroleum Inspectorate (UPI) and Downstream Petroleum Regulatory Agency. The UPI will take over the responsibilities of the Director of Petroleum Resources, a bureau that is widely considered to be inefficient, corrupt and powerless.
The Downstream Petroleum Regulatory Agency will take over the downstream responsibilities of the Director of Petroleum Resources, as well as the functions of the PPPRA. This agency shall, among other responsibilities “enforce compliance with the terms and conditions of all licences, permits and authorisations issued in respect of downstream petroleum operations.”
The PIB clearly demarcates the functions of these two bodies in an attempt to eliminate redundancy and create efficiency in the conduct of their responsibilities.
Three funds are also initiated by the PIB, these include the Petroleum Technology Development Fund, the Petroleum Equalization Fund and the Petroleum Host Community Fund (HCTF). Each of these funds will be used for specifically designated purposes.
The first will be utilized to overcome the pervasive stagnation of technological development in the Nigerian petroleum sector by investing in the country’s human capital. Scholarships will be provided to students interested in the field and programs will be subsidized to make them more accessible.
The second fund will be used to mitigate the costs of transporting fuel across all of Nigeria and ensure that every region has petroleum at the established price set by the Federal Government.
The third and possibly most unique fund is the much-discussed HCTF, which will be used to compensate and financially support communities affected by the petroleum sector.
The controversial HCTF appears to be a well-intentioned resource to provide social and economic development to some of Nigeria’s most vulnerable citizens. There are some very concerning elements of the Fund as it is currently drafted. Without adequate changes it is likely that conflict could increase in an area which already been ravaged by violence over the last 20 years.
The most troubling aspect of the HCTF is its vague definitions. It is not known what exactly constitutes a “host community”. Of course the concern expressed by Northern Senators is the implication of given a further 10% of petroleum revenues to these host communities, however they are defined, in a context of a disequilibrium in revenue sharing since the off shore decision dramatically increased revenues for oil producing states.
The debate over the host community fund should also take on board the implications of the equalization fund which conflicts directly with section 221 (a) – (d) which outlines that the downstream petroleum sector needs to be deregulated.
The intention of the fund is to sustain the subsidy regime which is something that is pleasing to the generality of Nigerians. Can we sustain both funds and still retain the core objectives of the PIB? Is the retention of the fund an indication that the federal government has given up its ambition of progressively removing the subsidy on fuel.
The PIB also gives excessive powers to the Minister of Petroleum. For example the Minister has been granted the discretion to initiate the blanket ban on gas flaring, as well as the power to grant permission for excessive flaring. In general, the bill has been constructed to make the Minister the Czar of the oil industry and such a monopoly of control could defeat the purpose for which the bill has been designed.
One of the most glaring deficiencies of the new PIB is its weak language concerning transparency and accountability. For example, the PIB authorizes both new regulatory agencies to receive gifts, including money, “or other property upon such terms and conditions as may be specified by the person or organization making the gift provided such gifts are not inconsistent with the objectives and functions of the Act”.
While the conditions of any gift being made are established in the PIB, it should be recognized that there is a thin line between a gift and a bribe. There should be an absolute ban on receiving gifts. This type of policy would contribute to instilling a feeling of confidence that the sector is legitimately addressing reform.
Moving forward, it is important that greater transparency and accountability mechanisms are introduced into the PIB and allow for greater monitoring by the NEITI. The provision for “gift giving” should be removed from the PIB. It is also important that the bill clearly articulates a schedule outlining when gas flaring will be ceased and how the federal government proposes to achieve these goals.
For too long, the petroleum sector has stagnated under archaic and ineffective legislation. Social, political and economic realities have drastically changed since the NNPC was initiated in the 1970s. Breaking the NNPC’s monopoly over the entire petroleum sector is a positive first step in invigorating the sector with fresh capital and accountability.
We should not lose the opportunity to pass a good PIB.
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