The Nigerian government recently changed its strategy to overhaul the country’s petroleum regulatory framework, proposing a new regulator and splitting the country’s state oil giant in two.
For years now, the National Assembly has been unable to swallow the Petroleum Industry Bill 2012 (the PIB), an indigestible 223-page effort to comprehensively reform and clarify the country’s existing petroleum regulatory framework. Instead, the PIB has been the subject of on-going political wrangling and disagreement with international oil companies. Meanwhile, the country’s oil industry continues to suffer from allegations of corruption.
If there was ever a time for Africa’s largest oil producing country to progress its long-overdue reforms, it is now. During the time that the PIB has been stuck in the gorge of Nigeria’s legislative approval process, it is suggested that the country has lost approximately US$15 billion annually as a result of failure to pass the PIB into law.
The government has now chopped up the PIB into what is purportedly a digestible approach to its reform goals. The first legislative piece of the apple of reform comes in the form of the Petroleum Industry Governance and Institutional Framework Bill 2015 (the PIGIFB). According to its executive summary, the PIGIFB aspires to provide the governance and institutional framework for the petroleum industry and create clear separation between policy, regulatory and commercial institutions. In doing so, the PIGIFB provides for a number of structural changes to the commercial and regulatory players.
If enacted, the PIGIFB would split Nigeria’s state oil giant, Nigerian National Petroleum Corporation (NNPC) into two separate entities, National Petroleum Company (NPC) and Nigeria Petroleum Assets Management Company (NPAMC), which together would inherit different aspects of NNPC’s current assets and liabilities. It is understood that NPC would operate commercially as an integrated oil and gas company (to become partly privatised in due course, by at least 30%) while NPAMC would manage NNPC’s oil and gas investments where the government is not required to provide upfront funding.
The PIGIFB also proposes to establish the Nigeria Petroleum Regulatory Commission (the NPRC), a consolidated administrative body which would be vested with all the rights, liabilities, assets, funds, resources and properties previously held by the Petroleum Inspectorate, the Department of Petroleum Resources and the Petroleum Products and Regulatory Agency.
It is hoped that dividing NNPC’s structure and workload between NPC and NPAMC will, among other things, make existing and future commercial dealings with the state more efficient and transparent. Conversely, consolidating the country’s regulatory powers into the NPRC will hopefully clear the bureaucratic haze that can confuse and potentially repel investors interested in Nigeria’s petroleum industry and create clarity and confidence in relation to the country’s regulatory framework.
While international oil companies will be keen to see whether ensuing draft legislation will address other issues omitted from the PIGIFB (such as fiscal issues and hydrocarbon tax), the PIGIFB is hopefully a positive step toward taking a long-awaited bite into the apple of reform.