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Making the best of reforms beyond PIB

The debates on the Petroleum Industry Bill (PIB) rage on the hallowed chambers of legislators, the highbrow offices of operators and stakeholders and on the streets. In this analysis, Najim Animashaun, a seasoned oil and gas expert and Partner, Gulf of Guinea Consulting, underlines the imperatives of reforms in the oil and gas sector and the need for government to undertake more urgent reforms in the sector

 

The Petroleum Industry Bill (PIB) that is before the National Assembly is the first time in Nigerian history that the complete overhaul of the legal regime of the sector has, since 1963, occurred in a democratic dispensation, and, more importantly, not coincided, at least within two years, of a new constitution or restructuring of the Nigerian state occurring.

These two connections would be coincidental or even accidental, if five of the most consequential structural or constitutional changes to Nigeria’s political-geography had not happened within two years of major petroleum industry legislative changes.

Successive governments since Frederick Lugard amalgamated Northern and Southern Nigeria have designed legislation to exert control over and extract revenue from the petroleum industry. That would not be a concern, were that fixation accompanied by an enterprising mind-set rather than narrower imperial or statist ‘rentier’ goals. Why consult the governed when designing governing systems when you can have a monopoly on resources to fund government, essentially without imposing or effectively enforcing tax on the populace? Why create an energy sector, when tax and other resource revenues enter government coffers? The default mind-set is thus to secure the resource for revenue for the government. And the constitution is there to support that endeavour. This mind-set is consistent with creating an extractive industry but is anathema to creating a diversified energy sector. That constitution making and petroleum legislation have gone hand in hand at critical junctures of our history thus bears further scrutiny.

For present purposes, constitutions should chart a path for the future. But when combined with petroleum legislation, including the current PIB, they tend to focus on solving past problems than meeting future challenges. Or as the Columbia Center for Sustainable Investment (CCSI) described the PIB as “a small step when Nigeria needs a leap”.

“The PIB, ultimately, fails to account for climate change, acknowledge the Paris Agreement, and address the need for diversification to adequately prepare Nigeria for the energy transition that is already underway, ‘’ CCSI notes in its blog. They continue “rather than locking more capital into projects and infrastructure that will soon be obsolete, Nigeria should be promoting the stewardship of assets that propel the energy transition forward, not those that will be left behind”.

In short, the PIB does well to play catch up, while being woefully unprepared for what’s coming next. NNPC is not only way behind its peer National Oil Companies in planning energy transitions, but the PIB’s proposed new NNPC limited is not equipped for the monumental changes facing the energy sector. Equinor, for example, Norway’s National Oil Company (NOC), is an investor in Oxford PV, an innovator in solar panel production using Perskovite cells. Equinoris also creating the world’s first fully decarbonised industrial cluster at an old chemical plant in Saltend, England.

Where Equinor is investing in cutting-edge solar and Carbon Capture and Storage technology, the PIB obsesses over applying 10 per cent of revenue from acreage rents to subsidise petroleum exploration in frontier basins for reserves that may not be worth much after 2030, elevating sectional political agendas over compelling commercial and climate change priorities.

Policy blindspots to changing global trends can be traced to the 1914 Ordinance. That law restricted participation in Nigeria’s oil industry to British companies, while also claiming ownership of the resource for the British crown. While excluding European competitors was good for Britain, was it any good for newly amalgamated Nigeria, or even in the Lugard administration’s enlightened self-interest, especially as the colonial office refused to fund exploration at the time? Imperial policy and post amalgamation public revenue demands drove the 1914 and subsequent petroleum legislation that Nigerians in the 1940s dubbed ‘obnoxious ordinances’.

Only upon enacting the 1963 Mineral Oils Amendment Act were these ‘obnoxious ordinances’ repealed, making room for Italy’s Eni to become Nigeria’s first non-British oil concessionaire. This amendment also came on the heels of the 1963 Republican Constitution that made subtle but consequential changes, beyond declaring Nigeria a republic, strengthening executive powers. Changes that enhanced state control over petroleum and gave the Prime Minister operational control over the security services. But changes that also triggered military intervention and the descent to civil war.

By 1965 Nigeria began asserting its desire to participate in the sector without defining whether this would-be private sector or government led. The Tafawa Balewa government negotiated a 35 per cent option to participate in Eni’s concession in 1963. In 1965, the deal with Shell over the Port Harcourt refinery included a term vaguely granting options for “Nigerians” to participate.

Shell’s reluctance to pay royalties and fees to the Federal Government during the civil war influenced government policy, paving the way for Nigeria to assert resource sovereignty and vest vast discretionary powers in the Minister of Petroleum under the Petroleum Act 1969. Abolishing regional governments and creating 12 states, in 1967, made Nigeria a federal republic thereby increasing the centralisation of power and centralisation of revenues from oil to the Federal Government. By 1971 oil revenue began exceeding non-oil revenue. This would continue for 45 years until 2016. Greasing political power with revenues from resources is a powerful multiplier of executive authority.

A literal demonstration of the allure the power of petroleum legislation backing constitutional authority is the fact that all present and past presidents in this Fourth Republic, with the exception of Goodluck Jonathan, for all or some of their tenure, made themselves minister of petroleum; dispensing altogether with any pretence of governing through ministers. Something no military or civilian leader before them ever did. To its credit the PIB devotes substantial energy to curbing these discretionary powers.

Until 1971, the minister’s wide discretionary powers under the 1969 Act were restricted to policy and regulation. It was not until the Nigerian National Oil Company (NNOC) was formed as part of the requirements for Nigeria to join OPEC, that the fusion of policy, regulation and commercial operations became possible. This vastly increased the operational scope and exercise of ministerial discretion. Thereafter commercial petroleum operations fueled ever deeper patronage networks that have come to define Nigeria’s petroleum and political landscape.

Battles over operational and commercial decisions between the management of NNOC and the Permanent Secretary, Ministry of Mines nearly caused Nigeria to default on her obligations in 1973. Without adequate capitalisation and no operational autonomy NNOC was unable to function commercially. The Murtala-Obasanjo regime, rather than set NNOC commercially free, decided to abolish the ministry altogether and yolk NNOC’s successor NNPC with policy and regulatory responsibility, while repeating the earlier mistake of not capitalising NNPC. The net effect is that NNPC was no more autonomous than NNOC but now had to set national policy and regulate the oil companies. Essentially, Government threw the baby out with the bath water in the NNPC Act 1977, which act also accompanied another monumental wholesale constitutional change – the 1979 Presidential Constitution and the creation of additional states.  Three years after the NNPC Act was decreed, the “N2.8-billion oil money is still missing” scandal Fela sang about in 1985 occurred – an NNOC-type scandal all over again.

Meaningful reform came during Ibrahim Babangida’s administration, which arguably made more consequential commercially oriented reforms and promoted more private sector led indigenous participation in the petroleum sector than any administration since Tafawa Balewa amended the Mineral Oils Act.

Babangida, notwithstanding, failings in other spheres, also created new states and promulgated a new constitution of 1989 (from which the 1999 constitution is cloned). In the petroleum sector, he incentivised Deep Water exploration, restructured NNPC along commercial lines – creating and incorporating strategic business units such as Nigerian Petroleum Development Company and Corporate Service Units such as NNPC headquarters, which survive to this day. He appointed the first independent chairman of NNPC.  He even announced plans to commercialise NNPC through the Technical Committee on Privatisation and Commercialisation (now the Bureau of Public Enterprises).

He also separated policy functions from regulatory functions reestablishing the Department of Petroleum Resources as regulator in 1988.  Babangida’s reforms decoupled from 25 years of increasingly statist- driven policy re-making the petroleum landscape without enacting a new framework law . The PIB is the policy progeny of these reforms, but cannot shake off the limiting statist impulses.

After 20 years of struggling to pass a PIB, we have reached a fork in the road, with a bleak future for petroleum and no accompanying structural political change on the horizon. Petroleum can no longer paper over the cracks in the constitutional structure. It behooved this government to have more ambition than to bet on a petroleum future when our petroleum past, at the best of times, has produced suboptimal returns. In light of the apparent decoupling of structural or constitutional change from petroleum policy reform, Nigeria may be missing that rarest of opportunities to forge a new energy future untethered to hydrocarbons, essentially bypassing the industrial revolution in the way Nigeria did with telecoms.

The PIB would have been a forward-looking piece of Legislation in 1992 when the Earth Summit in Rio de Jenario, Brazil brought Climate change into international political consciousness. It would even have positioned the industry for greater domestic utilisation and diversification had it been passed in 2000. But, today, it is a day late and dollar short. Though, perhaps, this is better than no dollar at all.

 

  • Animashaun is a Partner at Gulf of Guinea Consulting, Abuja.

 

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Source: The Nation

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