NEWS AND EVENTS


The Nigerian Senate passes the Petroleum Industry Governance Bill

1. Introduction

1.1 Nigeria has for many years sought to amend the regulatory and legislative framework for its oil and gas industry. An offshoot of this pursuit is the Petroleum Industry Bill several versions of which the Nigerian National Assembly has debated for more than seventeen (17) years. After many years of debate, the broad Petroleum Industry Bill was split into several different narrower bills, namely: (a) Petroleum Fiscal Framework Bill; (b) Petroleum Industry Downstream Administration Bill; (c) Petroleum Industry Revenue Management Framework Bill; (d) Petroleum Host Community Bill; and (e) Petroleum Industry Governance Bill (the “Bill”). It was felt that it would be more convenient and efficient to pass each of several discrete bills than to try to pass a single one.

1.2 The Nigerian Senate recently passed the Bill, which is the first part of the broad Petroleum Industry Bill to be passed. The Bill deals solely with the governance and institutional framework of the public sector dimension to the Nigerian oil and gas industry. The Bill still has to be passed by the House of Representatives and assented to by the President before it becomes law (Constitution of the Federal Republic of Nigeria 1999, s. 58(3)).

1.3 Very broadly speaking, the Bill (A) merges three regulators into one, (B) creates three business entities where there used to be only one (the NNPC, defined below), and (C) creates two funds where there used to be only one. The Bill is largely welcome, especially in providing well for succession to the NNPC’s liabilities and obligations and denying the successor business entities the statutory privileges and immunities that the NNPC currently enjoys. However, (1) it arguably does not go far enough, (2) there appear to be some ambiguities in interpreting it that need to be addressed, and (3) it overlooks major recent movements involving transparency and the environment.

2. Three Regulators into One: The Nigerian Petroleum Regulatory Commission

2.1 The Bill provides for the replacement of three agencies, the Department of Petroleum Resources, the Petroleum Inspectorate and the Petroleum Products Pricing Regulatory Agency with a single Nigeria Petroleum Regulatory Commission (the “Commission”), an entity established under the Bill. All the rights, interests, obligations, liabilities, assets, funds, resources and other property of these abolished entities will be vested in the Commission from the date of passage of the Bill into law. (S. 4) (all references below are to the Bill unless the contrary is indicated.) The Commission has wide functions and powers and is responsible for regulating the entire oil and gas industry (ss. 5, 6 and 7).

2.2 The Bill grants certain statutory immunities to the Commission. These include immunity from suit except upon issuance of a pre-action notice; and immunity from execution or attachment of the physical assets of the Commission (ss. 31, 33). The Bill further provides that any monetary judgment against the Commission, subject to any direction given by the court and where no notice of appeal has been given by the Commission, shall be paid from the Commission’s fund (ss. 33). The Bill also establishes a Governing Board for the Commission. The Governing Board will be responsible for the policy and general administration of the Commission (s. 13). The power to “issue, modify, amend, extend, suspend, review, cancel and reissue, revoke and/or terminate” licences which was hitherto vested on the Minister of Petroleum is under the Bill vested on the Commission. The Bill, however, did not provide parameters for the discharge of this duty.

3. One Business Organization into Three Business Organizations

3.1 Where the Bill becomes law, certain assets and liabilities of the Nigerian National Petroleum Corporation (“NNPC”) will be transferred to one of two successor entities that the Minister for Petroleum (the “Minister”) will by order direct (s. 37). The NNPC Act (1977) will then be deemed to be repealed and the NNPC will stand dissolved (because the NNPC Act, which creates it, will stand repealed) on the date that the Minister signifies by legal notice in the Federal Gazette for the assets and liabilities of the NNPC to become fully vested in the successor entities (s. 87(2)).

3.2 Pursuant to s. 37, the Minister must within 6 months of the enactment of the Act cause to be incorporated two successor entities, the Nigeria Petroleum Assets Management Company (“NPAMC”) and the National Petroleum Company (“NPC”). The entities are to be incorporated as companies under the Companies and Allied Matters Act (1990) (“CAMA”), the Nigerian equivalent of the English Companies Act (2006).

3.3 Subject to s. 37(2)(b) the Minister “shall” within 12 months of the incorporation of the NPC by order binding on the NNPC direct the NNPC to “transfer” its “employees, assets, liabilities, rights and obligations” to the NPC (s. 67(1) and (2)). Nothing precludes the Minister from making the actual transfer effective on a date later in time than the date on which the order was in fact made.

3.4 The NPC is empowered to “manage” all assets of the NNPC except for the assets currently held by the NNPC under production sharing contracts and back-in rights (s. 37(2)). (On this exception, see 3.5 below.) The NPC is also empowered “with the approval of its shareholders” (no minimum shareholder requirement is stated) to “utilize any appropriate mechanisms including sales of assets or interests to offset any liability of the NPC to meet any of its future obligations” (s. 64).

3.5 The NPAMC on the other hand, is empowered to “manage” assets currently held by the NNPC under the production sharing contracts and back-in rights provisions of the Petroleum Act (1969). (s. 37(2)(a)).

3.6 Where the Minister either does not incorporate the two new entities, or incorporates them but does not transfer the “employees, assets, liabilities, rights and obligations” in issue to them within the stipulated times, the Act is silent. However, the general law will grant orders of mandamus and injunctions to compel the performance of statutory duties by defaulting public officers. See, e.g. Associated Discount House Ltd. v. The Hon. Minister of the Federal Capital Territory et al. (2013) LPELR-20088 (Supreme Court).

3.7 The NPC will not be subject to the Fiscal Responsibility Act (2007) or the Public Procurement Act (2007) and can therefore, seek, get and service bank loans outside the statutory budget system (s. 62). (The Bill is silent on whether or not the NPAMC will be subject to the Fiscal Responsibility Act (2007) or the Public Procurement Act (2007).) The NPC and NPAMC will not enjoy the pre-action notice, immunities against attachment and short limitation periods that the NNPC currently enjoys under the NNPC Act (NNPC Act, ss. 12-14). There is no mention of pre-action notice, immunities or short limitation periods in the Bill for suits against the NPC and the NPAMC. This is welcome. Ideally, no business organization, which is what the NPC is, should enjoy such immunities whether it is owned by Government or not.

3.8 Curiously, the Bill gives the Minister the power to state that any given liability that has been transferred to the NPC or NPAMC shall remain enforceable only against the NNPC or against only the NPC or NPAMC, or against both the NNPC and the NPC, or the NPAMC and NPC, as the case may be (ss. 41(6)(e), 67(6)(e)). The words are not as clear as they should be. If liability has been transferred to the NPC or NPAMC, it makes sense that the transferred obligations should not remain enforceable against the NNPC but against the relevant successor entity.

3.9 The Bill also creates the Ministry of Petroleum Incorporated (s. 36(1)) (“MOPI”). MOPI is established under the Bill as a corporation sole to hold shares in the NPC, the NPAMC and the NPLMC (below, at 4.3).

4. Two Funds where there was only One

4.1 Under the Bill, a fund to be known as the Petroleum Equalisation Fund (the “Fund”) will be created (s. 36). The Fund is to be used to “enhance development of all regions of the federation by ensuring economic balance in the price of petroleum products” (s. 36(1)). Sources of funding for the Fund include a 5% fuel levy in respect of all fuel sold and distributed within the Federation which shall be charged subject to the approval of the Minister and such sums as may be provided for the purpose of the Equalisation Fund by the Federal Government.

4.2 The Fund will replace the existing Petroleum Equalisation Fund as all the rights, interests, obligations and liabilities of the existing Petroleum Equalisation Fund will be assigned to and vested in the Fund from the commencement of the Act (s. 37). The Fund is charged with the responsibility of collecting all revenues and levies charged pursuant to the provisions of the Bill and determining the amount of reimbursement due to any oil marketing company for the purposes of equalisation of price of products (s. 38). The Fund has certain statutory immunities: it cannot be sued without a pre-action notice and the physical assets of the Fund cannot be subject to judicial execution or attachment (ss. 61, 63).

4.3 Interestingly, the Bill also provides for the incorporation of another fund to be organized as a CAMA entity, the Nigerian Petroleum Liability Management Company (“NPLMC”), within six months of the commencement of the Act. The NPLMC will be vested with certain liabilities of the NNPC and the pension liabilities of the Department of Petroleum Resources (s. 85). The category of liabilities to be transferred to the NPMLC is however not specified. NPMLC will not be carrying out any activities but will be responsible for the management of NNPC’s liabilities and DPR’s pension liabilities.

5. Some Overlooked Points

5.1 The Bill did not recognize the principles of the extractive industry transparency initiative in the governance process of the oil and gas industry. This point was clearly captured in the governance section of the original draft of the Petroleum Industry Bill but was omitted in the Bill. Stakeholders have also noted that the Bill failed to address the existing lapse in the regulatory framework on environmental protection in the Nigerian petroleum industry.

5.2 Unlike the provisions under the earlier Petroleum Industry Bill, where the Commission is to act in consultation with the Ministry of Environment and any other agency in charge of environmental issues to ensure adherence to environmental standards, the Bill vests the role of environmental regulation solely on the Commission (s. 6(1)(d)). This may jeopardize the expertise, neutrality and independence required to enforce environmental regulations in the industry.

5.3 The Bill is silent on the rights and interests of occupiers and land owners with respect to valuation and assessment of compensation payable. The Land Use Act 1978 which is the principal legislation on land matters in Nigeria does not cover compensation for land acquired for petroleum-related activities. (Land Use Act, s. 29.) Issues of valuation and compensation for land owners have been major in the petroleum industry especially in the oil-producing States in Nigeria. This point, in view of its relevance ideally should be covered by the Bill.

6. Conclusion

Please do not hesitate to contact our Oluwatoyin Nathaniel (oluwatoyin.nathaniel@gelias.com) or Okechukwu Okoro (Okechukwu.okoro@gelias.com) should you require further clarification in respect of any of the foregoing.