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Nigeria’s House of Representatives will soon begin discussions on three new bills on the petroleum industry legislative framework, raising hopes of tangible solutions to various challenges stalling the oil sector’s expected multi-billion dollar direct foreign investments.
The three bills seen by BusinessDay are listed as : an ‘Act to establish a fiscal framework that encourages further investment in the petroleum industry whilst increasing accruable revenues to the Federal Government of Nigeria.’
An ‘Act of legal and regulatory framework, institutions and regulatory authorities, as well as for the operations of the upstream and downstream sectors of the Nigerian petroleum industry.’
An ‘Act for legislative framework relating to petroleum producing host community participation, cost and benefit sharing amongst government, petroleum exploration companies and petroleum host communities and mater’s connected thereto’.
The three bills are already being gazetted for second reading on the floor of the House and come with strong assurance of being passed before the end of first quarter of year 2017.
Ibe Kachikwu, Minister of State for Petroleum Resources, had told BusinessDay that the PIB had been unbundled such that all those contentious issues that have frustrated the passage of that bill for several years now are being addressed.
The Petroleum Host Community Legislative Lramework, seeks to provide for the establishment of a Community Fund, through which the Federal Government is obligated to “pay directly to Local Governments accounts, the amount for the benefits of the upstream petroleum communities within a Local Government.”
The bill also proposes that 10 percent of the total amount is payable to a State Government by the Federal Government in accordance with the Derivative formula as contained in the Constitution.
It further proposes that “thirty percent of royalties is to be paid by a company from petroleum production on land within the territory of an upstream petroleum community.”
Likewise, “Twenty percent of an aggregate of the total royalties accruing to the Federal Government for petroleum production be evenly divided by the number of Local Governments with facility.”
The PHC legislative framework also provides that “Fifty percent of the amount payable to the Federal Government for pipeline rights of way shall be paid to Local Government within which pipeline communities are located, solely for the benefit of these communities.”
The second bill – an ‘Act of legal and regulatory framework, institutions and regulatory authorities, as well as for the operations of the upstream and downstream sectors of the Nigerian petroleum industry.’ seeks to deregulate the downstream and upstream petroleum sectors and repeal the Nigerian National Petroleum Corporation (NNPC) and establish a National Oil Company (NOC), Nigerian Petroleum Commission, Oil and Gas Directorate, Nigerian Petroleum Assets Management Company and Nigerian Petroleum Research Centre.
It further seeks to create a commercially viable National Oil Company, deregulate petroleum products prices, create regulatory efficiency, transparency and openness through robust governance mechanisms and promote Nigerian content.
To ensure effective take-off of the NOC, provisions were made that the Ministry of Finance Incorporated should acquire 51 percent, while the Bureau of Public Enterprises (BPE) should accure 49 percent of the initial shares of the company.
The companies are to be managed and governed by the Companies and Allied Matters Act and Securities and Exchange Commission Codes of Corporate Governance.
In the process of winding-down the NNPC and other entities, 26 major Oil Mining Licences and Oil Processing Licences (OPLs) are to be transferred to the Nigerian Petroleum Assets Management Company.
They are: OML 123, OML 124, OPL 90, OPL 125, OPL 209, OPL 211, OPL 212, OPL 213, OPL 214, OPL 217 and OPL 218.
Others include: OPL 219, OPL 220, OPL 211, OPL 222, OPL 242, OPL 244, OPL 245, OPL 247, OPL 256, OPL 318, OPL 320, OPL 322 and OPL 324.
The third bill is an ‘Act to establish a fiscal framework that encourages further investment in the petroleum industry, whilst increasing accruable revenues to the Federal Government of Nigeria.’
The bill provides for royalties rates payable on petroleum prospecting licenses and petroleum mining leases, modalities for payment of hydrocarbon tax, joint venture, roles of the National Oil Company and Commission, penalties, criminal proceedings, double taxation arrangements with other territories and production sharing contracts, among others.
According to section 11(1a) of the bill, all holders of petroleum prospecting licenses and petroleum mining leases are to pay royalties within 30 days “for crude oil and condensates, at a rate per centum of the value calculated in accordance with section 7 as follows:22% in onshore areas, 20% in areas up to 100 meters water depth, 8.5% in areas from 101 to 200m water depth, 15% in areas from 201 to 500m water depth, 12% in areas from 501 to 800m water depth, 10% in areas from 801 to 1000m water depth and 8% in areas beyond 1000m water depth.
Meanwhile 11(b) provides that “notwithstanding the provisions of subsection (1a) of this section, for an indigenous petroleum company, for crude oil and condensates, a royalty at a rate per centum of the value (the value calculated in accordance with section 320) as follows:
“In on-shore areas, 2.5% of the production up to and including 2,000 barrels per day, 12.5% of the production over 2,000 barrels per day up to and including 5,000 barrels per day and 22% of the production over 5,000 per day.
“In shallow water areas, 2.5% of the production up to and including 5,000 barrels per day, 12.5% of the production over 5,000 barrels per day up to and including 20,000 barrels per day and 18.5% of the production over 20,000 per barrels per day…”
Speaking recently at the public hearing on the PIB held at the instance of the Senate, Vivian Bellonwu-Okafor, Head, Social Action, stressed the need for the bill to “stipulate a date for the end to gas flaring in the country and not leave this to the discretion of the minister; it should not proscribe gas flaring only in principle but also in practice.
“The bill should provide avenue for communities or persons to report cases of gas flaring within their vicinity or environment. The bill should stipulate public disclosure of the daily fines for the continued gas flaring.
“The bill should stipulate a jail term of three months for refusal to make public, such gas flare reports. The bill should provide incentives in forms of equipment tax waivers, etc to encourage operators to embrace zero-flare technologies,” Bellonwu-Okafor stressed.
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She also stressed the need for the bill to provide for the establishment of an Environmental Management Plan as a pre-condition for the granting of oil license or lease in upstream petroleum operations.
“The Bill should place an obligation on oil and gas companies to develop and use environmentally friendly technologies for exploration in Nigeria, rather than just being ‘encouraged’. The bill should also ensure compliance with internationally accepted
environmental law principles.”
While speaking on the Joint Ventures (JVs), Bellonwu-Okafor, who spoke on behalf of the coalition of CSOs, observed that the PIB 2014 by virtue of section 394(b) reverses the trend and current practice by joint venture partners, of calculating and deducting production sharing first before determining taxes and.
According to her, Section 394(b) stated that “Under any production sharing contracts, royalties shall be determined first and subsequently production sharing…”.
On the need to establish the Petroleum Host Community Fund (PHCF), it noted that Section 142 of the PIB 2014 provided for the establishment of the Petroleum Host Communities Fund (PHC Fund), its purpose and beneficial entitlements to the communities.
According to the provision, the fund shall be utilised “to ameliorate the impacts of petroleum operations on host communities.”
KEHINDE AKINTOLA
