President Buhari has signed into law a crucial bill reforming the oil and gas sector which has been some 20 years in the making. What exactly is at stake in Nigeria’s new Petroleum Industry Act, and will change finally be achieved?
What is Nigeria’s Petroleum Industry Act and why is it significant?
Crude oil dominates Nigeria’s economy, accounting for around 90% of export earnings. The country has the largest oil and gas reserves in sub-Saharan Africa with an estimated 37bn barrels of oil and 188 trillion cubic feet of gas. Yet for decades, the virtually ungovernable industry has been plagued by poor leadership, eye-watering corruption and environmental degradation.
Value has leached away through opaque licensing deals, unaccountable middlemen, a lack of refining capacity and graft in the government and state-owned Nigerian National Petroleum Corporation (NNPC). Sabotage and pipeline theft in the oil-rich Niger Delta have ensured that the taxpayer loses out on billions of dollars in annual revenues.
Nigerian administrations since the 1960s have – with varying degrees of effort – failed at reform. In the last 20 years, multiple governments have attempted to pass an all-encompassing Petroleum Industry Bill (PIB), the scope and complexity of which has ensured repeated failure.
In September 2020, President Muhammadu Buhari sent a new PIB to the bicameral National Assembly for consideration by the Senate and the House of Representatives. After several months of scutiny, the bill passed on 1 July, a relatively quick process which avoided a protracted clause-by-clause negotiation. The Senate house speaker had previously emphasised that it would not “sacrifice thoroughness at the altar of speed,” leading some to expect another lengthy process.
What changes under the new law?
The new law could offer a radical departure from past norms. The law provides for the selling of shares in a reformed NNPC, the replacement of regulatory bodies, and the reduction and streamlining of royalties.
The legislation suggests the NNPC should become “a commercially oriented and profit-driven national petroleum company” independent of government and audited annually, although no dates are yet given for a share sale.
One of the most contentious areas in negotiations was the amount of money companies pay to local communities, who pushed for a share of 10% of regional oil wealth from production. The House of Representatives bill approved an increase in the share of regional oil wealth generated from production that host communities can claim from 2.5% to 5%, but the Senate ultimately approved 3%.
The act also lays down rules for environmental cleanups, introduces new dispute-resolution mechanisms between government and oil companies, and sets up a midstream government infrastructure fund
“It would play a vital role in addressing the inefficiencies plaguing the NNPC, from slow approval for oil projects to budget shortfalls that hinder its ability to pursue public-private partnerships. What’s more, the act would create a supportive environment for both IOCs and indigenous petroleum companies, help protect the environment and the interests of host communities, support economic diversification in Nigeria, and critically important, promote transparency in Nigeria’s administration of petroleum resources,” wrote NJ Ayuk, executive chairman of the African Energy Chamber, in a statement released by the body in October 2020.
What does the passage of the act mean for Buhari?
Given the PIB’s tangled history, passage of the long-awaited act represents a significant political victory for the president and sends a strong message to international investors. With the oil price recovering to $74 a barrel in July from lows of around $35 last year as the world economy adapts to the Covid-19 pandemic, the government hopes that the new act will help to capture more of the country’s oil revenues and boost a limited federal budget.