UNDERSTANDING THE PETROLEUM INDUSTRY ACT (PIA) 2021

COMMUNIQUE ISSUED AT THE END OF A FIVE-DAY TRAINING/WORKSHOP FOR SENIOR OFFICERS OF THE MINISTRY OF PETROLEUM RESOURCES — ORGANISED BY TONCIA ENERGY RESOURCES AND PROFESSIONAL SERVICES IN JEMMYLAND HOTEL, MARARABA, NASARAWA STATE.

An elaborate engagement was held with the Senior Officers of the Ministry of Petroleum Resources between 21^st and 25^th March, 2022 with Major focus on the Petroleum Industry Act (PIA). The training was sponsored by PTDF and facilitated by TONCIA ENERGY RESOURCES, ABUJA.

At the meeting, the following were observed and considered as upsides of the PIA:

GOVERNANCE AND INSTITUTIONS

1. It was recognized that the enactment of the Petroleum Industry Act (PIA) would drive reforms by strengthening governance andinstitutions thereby ensuring transparency and accountability in oil and gas resource management (Sections 3, 5 & 31-33). The clear delineation of roles (Policy, Regulatory and Commercial), helps potential investors gain clarity of the Nigerian oil and gas landscape (Parts 2, 3 and 4).
2. The PIA provides for the incorporation of a commercial and profit-focused Nigerian National Petroleum Company (NNPC) Limited, under the Companies and Allied Matters Act (CAMA). It also provides for the establishment of the Nigerian Upstream Petroleum Regulatory Commission and the Nigerian Midstream and Downstream Petroleum Regulatory Authority.

ADMINISTRATION

1. It is acknowledged that the ACT would serve to avoid economic distortions such as removal of Fuel Subsidy. It will ensure a competitive market for the distribution of petroleum products and natural gas in Nigeria; and avoid cross-subsidies among different categories of consumers.

• This ACT would also promote exploration and exploitation of petroleum resources in Nigeria for the benefit of the Nigerian people and promote sustainable development of the industry, ensure safe, efficient transportation and distribution infrastructure.

• The ACT has also been commended for a clear disaggregation of licensing regimes to ensure effectiveness. It has also positioned NNPC LTD to be competitive by its various provisions.

HOST COMMUNITIES

1. The PIA provides a 3% equity stake of operators OPEX to Host communities (communities/places that host Oil and Gas Assets). It provides opportunities for host communitiesto realize the full potential of their petroleum wealth through the following:

1. Provides socio-economic benefits from petroleum operations to host communities.
2. Enhances peaceful and harmonious coexistence between Settlers and host communities.
3. Creates framework to support the development of host communities.

• The fund is categorized and specifically allotted in this order: 75% goes to capital projects; 20% will serve as a reserve; and 5% will cater for administrative expenses.

FISCAL REGIME

1. The Petroleum Profit tax is now replaced with the Hydrocarbon Tax and the Companies Income Tax.

• The regime is simpler, clearer and more efficient than the previous.

• The new fiscal regime stipulates royalties which are lower and more favorable. 

The Midstream petroleum operations and large-scale gas utilization industries will benefit from Gas Utilization Incentives. Investors in gas pipelines will benefit from a 10-year tax holiday.

1. Hydrocarbon Tax of 15% -30% on profits from crude oil production.
2. Education Tax at 2% will no longer be tax deductible
3. Cost price ratio limit of 65% of gross revenue, excess may be carried forward.Less Hydrocarbon Tax Concession on Deep Offshore
4. Frontier Basin Royalty of 2.5% – 5% for Natural Gas will attract more investment
5. PIA, 2021 opens up exploration and development in the Frontier Basin by allocating 30% of NNPC Profit Oil

CONCERNS IN THE PETROLEUM INDUSTRY ACT (PIA)

The following were identified as the downside of the PIA:

GOVERNANCE AND INSTITUTIONS:

1. Making the Minister an institution instead of the Ministry of Petroleum Resources.
2. The non-recognition of the Department of Gas Resources, Ministry of Petroleum Resources(2008 National Gas Supply and Pricing Regulations),whose functions were taken to Commission and Authority (Section 32).
3. No Special Policy Funding Provision for Ministry of Petroleum Resources because of its Specialized responsibilities as recognized in Sections 21 and 44 of the PIA.

ADMINISTRATION

1. Lack of clear Independence of Regulator i.e The President also serving as the Minster
2. Duplication of duties among Regulatory bodies

The downstream, midstream and upstream sectors are part and parcel of just one industry. Many players in the industry operate in more than one sector and having them constantly liaising with two different regulators is unnecessary and lacks any visible benefit. The provisions for two regulators should be expunged for the sake of the country.

HOST COMMUNITIES

1. Percentage of representatives from host communities on the Board of trustees are not specified
2. No fund for community policing of petroleum assets
3. Section 234, subsection 4 empowers the settlor to make adjustment where funds available are not sufficient to fund ongoing operation without consultation with host communities. This a recipe for confrontation from the host communities. 
4. Section 257 (2) – forfeiture of contribution to the Host Community Trust Fund as a result of vandalism, sabotage or other civil unrest. There should be a clause to indicate that such vandalism, sabotage or other civil unrest were caused by the host community as established by the commission and not a form of sabotage by outside forces or near communities.

FISCAL REGIME

1. Disparity in Tax regimes especially for deep offshores where Companies have been given a zero to 5% Hydrocarbon Tax concession could lead to excessive Divestments of onshore and shallow water assets.

• The PIA , does not necessarily recommend commensurate punishment for flare gas data log offenders. It merely recommends a fine of extra $2.50.

• The CAPEX and OPEX of Gas infrastructure be ring-fenced to Gas fields; CAPEX and OPEX of oil infrastructure be ring-fenced for oil fields.

RECOMMENDATIONS

1. Proper Definition of the Ministry of Petroleum Resources as the organ for policy making in the Nigerian oil and gas industry

2.  Expand the provision for staff movement to include the Department of Gas Resources, Ministry of Petroleum Resources (see National Gas Supply and Pricing Regulation, 2008)
3. Establish the national policy fund and define source of funding e.g 1-5% of profit from NNPC Limited or revenue collected by Commission and Authority
4. The ACT should be amended to specify the numbers of representatives on the Board of trustees of Host Communities Trust Fund to avoid conflict.
5. It has to be   proven beyond reasonable doubt that the communities are responsible for vandalism before they are held liable.
6. A percentage should be provided from the host communities fund to enable the communities to police the assets in their domain.  In that regard, the communities can be held liable for any vandalism of assets in their domain.
7. We proposed that adjustment made by settlor when fund are insufficient to settle ongoing operations be carried out with consultation with host communities.

8. A Petroleum Policy Fund should be created for the  Ministry of Petroleum Resources as was provided for the Commission and the Authority and also a remuneration enhancement allowance for staff of the Ministry of Petroleum Resources be established.
9. Frontier Basin Royalty Rate should be established for Crude Oil similar to the provision for Natural Gas
10. Artificial Intelligence should be considered in the monitoring of every drop of petroleum from Petroleum fields to enhance accuracy in payment of taxes.
11. The Ministry of Petroleum Resources should collaborate with the  National Orientation Agency and other relevant stakeholders to sensitize the host communities and Nigerians as a whole on provisions of the PIA;
12. The International Oil Companies (IOCs) and other players operating within the host communities should be sincere, transparent and faithfully adhere to the provisions of the PIA on Host Communities Development Fund;
13. The Host Communities should ensure that their representatives on the Board of the Trust Fund, Management Committee and Advisory Committee are persons with impeccable character and integrity; and
14. The Ministry of Petroleum Resources should, as a matter of its ethical responsibility facilitate and meticulously monitor the implementation of the Host Communities Development Fund as stipulated in the PIA.

Overall, it was agreed by the participants and stakeholders that the signing into Law of the PIA is a great step in the right direction for the requisite reform of the Petroleum Industry, however, ensuring comprehensive implementation is imperative to take care of the governance spectrum, environmental issues and fiscal matters in the industry.