-Felix Douglas
The Centre for Petroleum Information (CPI), recently had its Oil & Gas Law Forum with the topic: Implementing Petroleum Industry Act (PIA 2021)
Lessons and Insights. The webinar Forum was well attended by experts and professionals in the oil and gas industry as they listened to deliberations on the subject matter bothering the sector for more than two decades before it was passed into law.
No doubt about it, the PIA was seen as saviour of the petroleum industry but recent happenings show it is not a delight for operators.
Two presentations were made by resource persons on the theme: Implementing PIA: Fiscal Perspectives and Implementing PIA: Regulatory Perspectives by Azeez Alatoye, Managing Partner, Ascension Consulting Services and Gbenga Biobaku, Senior Partner, Gbenga Biobaku & Co.
They made it known clearly that when the PIA came into existence by President Muhammadu Buhari government, its objectives are to create efficient and effective governing institutions with clear and separate roles for the petroleum industry. Establish a framework for the creation of a commercially oriented and profit-driven national petroleum company.
Also, to promote transparency, good governance and accountability in the administration of the petroleum resources of Nigeria while fostering a conducive business environment for petroleum operations and deepen local content practice in Nigeria’s oil and gas industry.
Meanwhile, key components of the PIA are: governance structure, separate regulations, policy and commercial institutions. It has the duty of Licensing, management, and administration of petroleum operations in the upstream midstream and downstream including host community and fiscal framework elements that are flexible.
One of the reactor panelists, Dapo Akinosun, Managing Partner SimmonsCooper Partners, was of the view that the issue of investment is a concern to operators because it is dwindling and what the country is missing at present may never be regained. “The whole world is moving towards renewables and getting out from fossil fuel which we rely on. Nigeria and Africa have so much gas but there is no funding to process it.”
Sandra Asuzu-Gini, Senior Legal Counsel, Deltatek Offshore Limited, said there have been a lot of activities from the newly Nigerian National Petroleum Company Limited (NNPCL), Nigerian Upstream Petroleum Regulatory Commission (NUPRC) and Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA), highlighted by the presenters with regards to regulations and other issues but have not really translate to development. Although, it is too early since the country has a new administration.
The physical reforms of the PIA will be seen by 2024. Industry watchers have to wait till 2024 to see those results. As for the regulatory aspect, it needs intensive capacity building.
She made reference to the Annual Value Assurance workshop that was organized by National Petroleum Investment Management Services (NAPIMS), which is now NNPC Upstream Investment Services (NUIS), where Dangote stated that Nigeria has the capacity to become Africa Aramco.
Is it achievable? Well! It is, without government interference and placement of the right personnel with positive attitude and progressive mindsets. The country cannot have a bureaucratic mindset and expect to thrive as an investment destination.
Adeola, a participant of the Forum, showed concern that the oil and gas industry is exposed to a lot of levies and taxes aside from the PIA. There are other plethora of taxes, for instance, from Nigerian Maritime Administration and Safety Agency (NIMASA), and Nigeria Ports Authority (NPA) and other government agencies, but PIA does not provide any protection for the oil and gas industry.
These translate to high technical costs, which is one of the reasons why investment is slow and objective the country tries to achieve with PIA is not attainable since the industry is heavily taxed. In case the government wants to revisit the PIA to review it, any government agency that wants to deduct percentage from oil and gas companies should do it according to provisions stipulated by law.
Expressing his own views, past Chairman of CPI, Chief Chambers Oyibo, said current transition and reforms in the industry will take time. He added that OPEC production for Nigeria is supposed to be 1.8bpd but Nigeria production is 1.3bpd therefore the country is nearly 40% below where it should be. If the investment does not come equity holders and prospective investors with technical partners cannot claim their capital allowance.
According to Chief Oyibo, government still thinks that NNPC is a parastatal. This has always been the problem of the country as every new government concentrates on NNPC and its staff is always jittery not knowing what could happen.
The government believes that reduction in production is due to pipeline vandalisation, far from it; the real reason is that the country is not investing in the industry which has not been addressed. Surprisingly, it took Nigeria 21 years to produce PIA, other serious minded countries will do it within two years or less and it is taking the country a long time to implement.
“We heard in the news that the previous government used its influence to place relations and cronies into management positions in NNPC. It doesn’t give one comfort. Also, conflict within two organisations should have been nipped in the bud after twenty-one years.”
“The depots and terminals used by upstream companies, who is in charge? Is it NUPRC or NMDPRA, we need to set up a committee that will go through these areas that needed to be tightened up. In another one year something should be done in the next three months.”
It is worrisome that only five out of 13 regulations have been gazetted. What does it take to gazet?
Giving an insight into his presentation, Azeez Alatoye disclosed that there are quite a number of challenges in the PIA which is not only for the incoming investors, but also for the existing ones. For instance, cost price ratio is applicable to the existing investors. “What you are saying is that if you have 100% of revenue before your cost is around 80%, and you have 20% in terms of profit that is taxable, you’re happy that you have 20% and your cost is up to 80% but now we are saying no, even if your cost is up to 80% the government is not going to allow your cost more than 65% of your revenue.”
Alatoye added that this means you are not able to claim about 15% of that cost. The fact that businesses are already struggling with their margin, they’re not able to claim that 15% means that their margin is going down. This is where the challenge lies. Hence, survival is a major issue.
Optimistically, the current administration should understand that there are issues of grant and there is urgent need to revisit the current fiscal position of the PIA if “we have to help the existing industry as well as the new investors coming.”
Buttressing his point and adding his voice on the aspect of PIA, Dada Thomas, CEO of Frontier Oil, said: “As a man in the trenches taking all the heat and flack, first of all, the PIA is a critical document, but it’s not and could be much better. It needs to be much better because throughout Africa other countries are discovering oil and gas in abundant quantities.”
“When you talk to people who go to those countries, they will tell you that it is so easy to do business in these countries. Therefore, you discover that money and investment that should be coming to Nigeria go to other climes. The country needs to do something about it and the biggest problem is that the reason why Nigeria is under producing is only a tiny bit caused by pipeline vandalisation, but the biggest problem is lack of investment over the last fifteen to twenty years.”
Thomas added that in order to get investment, there is need for a competitive environment because dollar doesn’t care about emotions. The dollar goes to where it is safe, and where it yields required returns. Nigeria is not quite that yet. The country’s speed of policymaking and implementation is ludicrous. African countries that used to talk to Nigeria to show them the way don’t care about the country any longer.
According to Thomas, some countries discovered that it takes Nigeria twenty years to do a PIA. Ghana went from legislation to production in three or four years. Other countries are doing same. Nigeria needs to get rid of bureaucracy that has made the oil and gas industry captive to government instead of being a market driven segment that can truly contribute to create value in Nigeria.
The issue of insecurity, which is one of the biggest above ground risks, government needs to address it.
In his words: “In my small operations, guess what? In six months, we’ve had five pipeline vandalisation attacks. I rarely go to the security forces, you know what they will tell you? There’s nothing that can be done about it because order is from above, leave them alone. It is an unbelievable story to hear that kind of statement from your law enforcement agency, when illegalities are being perpetrated on a daily basis.”
Thomas continued that solving the above ground risks is key. Finding oil and gas in Nigeria is extremely easy but getting it out of the ground to where it should go is a problem. The authority should do something about it.
He threw more light on regulatory agencies; “We’re now seeing the unintended consequence of having two regulators. I remembered that in all the contribution that we were making, I played quite a big role along with the Nigerian Gas Association (NGA) and Independent Petroleum Producers Group (IPPG), in the PIA over the years and none of us advocated for multiple agencies.”
“We wanted one single agency that is properly manned professionally and left to do the job independently. Guess what we got? Two regulators and guess what is happening, they are fighting each other and there is total confusion on a daily basis, we’re getting conflicting letters and regulations by NMDRA and NUPRC. They’re fighting openly and there’s absolutely no one is calling them to order.”
Unfortunately, they are not acting as regulators but revenue collectors.
“Every time you see a letter, they’ve sanctioned a N100, 000 to $100,000. It is unbelievable what is going on in regulatory space in Nigeria today and the signal to the outside world is that these people are unserious.
Instead of working harmoniously to generate revenue for Nigeria, to assist the country to monetise oil below the ground as fast as possible and use the proceeds to develop gas and industrialize the country and create value locally to change the quality of life for its subjects.”
On his part, Victor Eromosele, Executive Director of CPI lamented the negative insinuation given to regulatory agencies in the petroleum industry as revenue collectors. He said the tug of war ongoing between equity holders and investors do not help matters in terms of additional investors coming to Nigeria. Really, there is still problem and PIA is not yet the solution.
Reacting to issue on two regulators, Anthony observed that, “If there’s one thing that needs to be corrected, is not a new structure or laws but a new mindset which is drastically missing. There are new laws and regulations being implemented in the same mentality. The same approach and bureaucracies in business are used. Having more than one regulator in the industry is an issue, for example, you cannot talk about gas without a robust pipeline industry, and is time to move away from treating pipelines as part of upstream companies. There are companies and organisations that can run pipelines as their own business. A regulator can regulate it separately for the benefit of all. Making the separation of agencies work is not the existence of two agencies but mindset.
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