ACC 872 OIL & GAS ACCOUNTING Assignment Submitted By Austin Sams Udeh VPG/PHD/ACC/22/8790 Analyse the Petroleum Industry Act, 2021; examine the legal requirements, evaluate the benefits and drawbacks,[.]
ACC 872: OIL & GAS ACCOUNTING Assignment Submitted By Austin Sams Udeh VPG/PHD/ACC/22/8790 Analyse the Petroleum Industry Act, 2021; examine the legal requirements, evaluate the benefits and drawbacks, and assess the response of Nigerians to the law Table of Contents 1.0 Introduction 2.0 Analysis of Petroleum Industry Act, 2021 2.2 Benefits of the Petroleum Industry Act 2021 2.3 Drawbacks of the Petroleum Industry Act, 2021 2.4 Response of Nigerians to the Petroleum Industry Act, 2021 11 3.0 Conclusion 12 4.0 References 13 Appendix 1: NOTOBLE RESPONSES TO PIA, 2021 14 1.0 Introduction Oil and gas is the mainstay of Nigeria’s economy The industry contributes about 10% to the country’s gross domestic product (NBS, 2022) and revenue from oil and gas export represents around 86% of Nigeria’s total exports revenue In order to reform and reposition the Nigeria’s lucrative but chaotic oil and gas industry, in the last 20 years, successive governments have attempted unsuccessfully to pass an all-encompassing bill to overhaul the industry in line best international practices As one of the key achievements of the last administration of under President Muhammadu Buhari, on 16 August, 2021, the longawaited Petroleum Industry bill was signed into law, hence, Petroleum Industry Act, 2021 The PIA 2021 has been touted by many stakeholders as one of the most audacious attempts to overhaul the petroleum industry in Nigeria Among others, the Act seeks to provide robust legal, administrative, governance, regulatory and fiscal framework for the industry The Acts was also contemplated to reshape community relations, boost investment, and target reduction in waste and corruption that has bedevilled the industry Despite being a major source of revenue, the oil sector lags other sectors in terms of GDP contribution (NBS,2021) It is generally believed that if diligently and effectively implemented, the PIA promises to help facilitate Nigeria’s economic development by attracting and creating investment opportunities for local and international investors with Nigeria as Africa’s largest market, with a young, growing and vibrant population The country population is forecast to grow by an average of 2.6% per annum (World Bank, 2020) This population growth is expected to fuel greater energy demand This paper takes a comprehensive review of the PIA from legal requirements, key benefits, drawbacks and to response of Nigerians to the law 1.1 Nigeria Oil and Gas Industry Structure and Value Chain Structurally, the oil and gas industry value chain are broadly categorised into upstream, midstream and downstream activities with detailed value adding activities shown in figure below Figure 1: Nigeria Oil and Gas Value Chain 2.0 Analysis of Petroleum Industry Act, 2021 The Petroleum Industry Act, 2021 (PIA, 2021) is the Act that provide legal, governance, regulatory and fiscal framework for the Nigeria petroleum industry, the development of host communities, petroleum taxes and for related matters in Nigeria The Act, which is divided into five (5) Chapters and three hundred and nineteen (319) Sections, contains landmark provisions which include the restructuring of the regulatory framework, commercialization of the Nigerian National Petroleum Corporation, introduction of new fiscal regimes for operators in the industry, social and economic benefit for host communities and so on, professes lofty objectives including global competitiveness and development of strategic infrastructure The Act repealed some old Acts governing the industry The Key objectives of the Acts • Enhance exploration, exploitation and production of oil and gas: The Act aims to eliminate funding bottlenecks, increase investments by comprehensive deregulation of the downstream sector to make it attractive to investors, and increase acreage available for investment by reclaim acreage that is not being developed by the current owners • Increase domestic gas supplies: The Bill provides that all existing and future petroleum mining lessees shall meet their domestic gas supply obligations for the specified periods as the gas will be used for power generation and industrial development Failure to meet this obligation attracts a stiff penalty • Create a peaceful business environment: The Act target to align interest of the host communities to those of the oil companies and the government The Petroleum Host Communities Fund, which will be funded with 10% of the net profit of the oil companies operating in the communities, shall be used to develop the economic and social infrastructure of the host communities Communities will forfeit contributions in the Fund when vandalism or unrest causes damage to upstream facilities • Fiscal Framework for increased revenue: The Act establishes a progressive fiscal framework that encourages further investment in the industry whilst increasing accruable revenues to government The Bill simplifies collection of government revenues from the oil assets, increases the share of royalties in the case of high oil prices, etc • Create a commercially viable National Oil Company: The Act provides for the full commercialization of NNPC and the creation of other institutions that will ensure a restructuring of the sector for improved efficiency • Deregulate petroleum product prices: The Act proposes the full deregulation of the downstream oil sector A number of the institutions will be responsible for developing the infrastructure to support the sector, funding concessionaires and facility management operators The Petroleum Equalization Fund were repealed in line with the development of the support infrastructure • Create efficient regulatory entities: The Act provides for the creation of two major institutions to drive greater transparency and accountability • Create transparency: The Act makes public the terms of the licenses, leases, contracts and payments in the petroleum sector transform the country from being one of the most opaque oil industries in the world to one that sets the standards of transparency • Promote Nigeria content: The Act has far‐reaching local content components No project will be approved without a comprehensive Nigeria Content Plan including obligations of the investor to purchase local goods and services, engage local companies, employ Nigerians, ensure knowledge transfer and encourage Research and Development The Nigeria Content Monitoring Board will regularly verify compliance • Protect health, safety and environment: Every company requiring a license, lease or permit in the upstream and downstream petroleum industry in Nigeria shall conduct their operations in accordance with internationally accepted principles of sustainable development which includes the necessity to ensure that the constitutional rights of present and future generations to a healthy environment is protected 2.1 Review of Legal Requirements 2.1.1 Overview The newly enacted PIA contains chapters, 319 sections and schedules dealing with rights of pre-emption, incorporated joint ventures; domestic base price and pricing framework, pricing formular for Gas price for the based industries; capital allowance; production allowance and cost price ratio limit; petroleum fees, rents and royalty; and creation of the Ministry of petroleum incorporated Some of the specific PIA provisions include the following among others 2.1.1.1 Governance and Institutions Administration The objective of new governance and institutions administration provisions is to ensure good governance and accountability in the industry, creation of a commercially oriented national petroleum company, and fostering a conducive business environment for petroleum operations • Creation of Nigerian Upstream Regulatory Commission responsible for the technical and commercial regulation of the upstream petroleum operations; and the Nigeria Midstream and Downstream Petroleum Regulatory Authority (MDPRA) responsible for the technical and commercial regulation of the Midstream and Downstream operations in Nigeria The Commission and Authority are exempted from the provisions of any enactment relating to the taxation of companies or Trust Funds • Imposition of up to 1% levy on the wholesale price of petroleum products sold in the country (0.5% each for the Authority Fund and Midstream Gas Infrastructure Fund) • Incorporation of a commercial and profit focused NNPC Limited under CAMA within months from commencement of the new law with ownership vested in the Ministry of Finance Incorporated (and Ministry of Petroleum Incorporated) on behalf of the Federation to take over assets, interest and liabilities of NNPC This Structure is expected to pave the way for eventually sale of shares to Nigerians • Any assets, interest and liabilities note transferred to NNPC Limited will remain with NNPC until extinguished or transferred to the government after NNPC shall ceased to exist Transfer and sale of the shares are subject to approval by the government and endorsement by the National Economic Council • NNPC Limited will earn 10% of proceeds of the sale of profit oil and profit gas as management fee while 30% will be remitted to Frontier Exploration Fund for the development of frontier acreages in addition to 10% of rents on petroleum prospecting licences and mining leases • The main objective is to promote the exploration and exploitation of petroleum resources in Nigeria for the benefit of the Nigeria people and promote sustainable development of the industry, ensure safe, efficient transportation and distribution infrastructure, and transparency and accountability in the administration of petroleum resources in Nigeria • Avoid economic distortions and ensure a competitive market for the sale and distribution of petroleum products and natural gas in Nigeria; and avoid cross-subsidies among different categories of consumers • The Commission is required to develop a model licence and model lease to include a carried interest provision giving NNPC Limited the right to participate up to 60% in a contract 2.1.1.2 Host Communities Development The main objective of provisions for host communities’ development is to foster sustainable property within host communities, provide direct social and economic benefits and enhance harmonious co-existence • Any company granted an oil prospecting license or mining lease an operating company on behalf of joint venture partners (settlor) is required to contribute 3%-5% (upstream companies) and 2% (other companies) of its actual operating expenditure in the immediately preceding calendar year to the host community’s development trust fund This is in addition to the existing contribution of 3% to the NDDC The fund is tax exempt and any contributions by a settlor is tax deductible • Board of trustees and executive members of the management community may include persons of high integrity and professional standing who may not necessarily come from host communities • Available funds are to be allocated 75% for capital projects, 20% as reserved and 5% for administrative expenses However, a community will forfeit the cost of repairs in the event of vandalism, sabotage and other civil unrest causing damage to petroleum facilities or disruption of production activities 2.1.1.3 Fiscal Framework The key objective of the new fiscal regime is to establish a progressive fiscal framework that encourages investment in the Nigeria petroleum industry, provide clarity, enhances revenues for the government while ensuring a fair return for investors • FIRS to collect Hydrocarbon Tax of 15% - 30% on profited from crude oil production, CIT at 30% and Education Tax at 2% which will no longer be tax deductible The Commission will collect rents, royalties and production shares as applicable while the authority will collect gas flare penalty from midstream operations Latee filing of tax returns will attract N10m on the first day and N 2m for each subsequent day the failure continues A N20m fine is applicable to an offense where no penalty is prescribed • Generally, expenses must be wholly, reasonably, exclusively and necessarily incurred to be tax deductible However, a cost price ratio limit of 65% of gross revenue is imposed for hydrocarbon tax deduction purposes, any excess cost incurred may be carried forward • No tax deduction for head office cost while tax deduction of interest on monies borrowed is subject to the satisfaction of the commission that the fund was employee for upstream operations and the interest rates reflect market conditions • Royalties are payable at the rates of 15% for onshore areas, 12.5% for shallow water and 7.5% for deep offshore and frontier basins 2.5% -5% for natural gas In addition, a price-based royalty ranging from 0%-10% is a payable to be credited to the Nigerian Sovereign Investment Authority • Gas utilization incentive will apply to midstream petroleum operations and large-scale gas utilization industries An additional 5-years tax holiday will be granted to investors in gas pipelines 2.2 Benefits of the Petroleum Industry Act 2021 There is no doubt, that the enactment of the PIA is set a new dawn for the legal, institutional and fiscal framework for the regulation of the nation’s oil and gas industry The Act ushers in some commendable innovations which include the institutionalization of effective corporate governance, the establishment of a strong regulatory framework, the commercialization of the NNPC and the development of host communities among others Some of the major benefits of the PIA, 2021 include but not limited to the following: • Institutionalization of Effective Corporate Governance: The PIA no doubt is positioned to entrench effective corporate governance and proper accountability in the nation’s petroleum industry It is also geared towards the creation of a commercially oriented Incorporated National Petroleum Company, hence, the provision for the Nigerian National Petroleum Corporation Limited (NNPC Ltd) is principally aimed at fostering a conducive environment for petroleum operations in Nigeria This is so because, before 2021, the NNPC as established under the NNPC Act 1997, now repealed, operated as a corporation and not as an incorporated personality Accordingly, NNPC and some other institutions are now positioned so that their accountability, probity and commercial viability are somewhat guaranteed • Streamlining and Strengthening the Institutional Framework for Effective Regulation of the Industry: Prior to the enactment of the PIA, there existed multiple institutional frameworks regulating different aspects of the oil and gas industry in Nigeria with overlapping, uncoordinated, undefined and unproductive responsibilities Also, these institutions were minded by different bodies, ministries and parastatals such as the Nigerian National Petroleum Corporation, Federal Ministry of Petroleum Resources, Federal Ministry of Environment, etc Accordingly, with the PIA, 2021, the erstwhile duplicated institutions like the Department of Petroleum Resources (DPR), The Nigerian National Petroleum Corporation (NNPC),11 Petroleum Product Price Regulation Agency (PPPRA) and Petroleum Equalization Fund among others are now repealed, in other to provide a strong institutional framework for the oil and gas industry, the PIA established only two (2) well- streamlined and role-defined institutions: The Nigerian Upstream Regulatory Commission is referred to as ‘The Commission” Statutorily, charged with the responsibility of providing technical and commercial regulation for Upstream Petroleum Operations and the Nigerian Midstream and Downstream Petroleum Regulatory Authority ‘The Authority’ charged with the responsibility of providing technical and commercial regulation for the midstream and downstream petroleum operations in Nigeria However, under the PIA, the enormous power vested in the Minister of Petroleum resources has been institutionalized as the same is now exercisable by the ‘Commission’ and the ‘Authority’ in line with the provisions of the PIA • Incorporation and Commercial Viability of NNPC Ltd: The PIA now provides for the Incorporation of a commercial and profit-oriented or business-focused NNPC Ltd unlike under the Petroleum Act and the NNPC Act wherein NNPC was strictly operated as a corporation The newly incorporated NNPC Ltd is to comply with the provision of the Companies and Allied Matters Act (CAMA) relating to the incorporation of companies Importantly, the PIA set a six (6) months period reckoning from the date of the commencement of the PIA within which the NNPC Ltd must be floated and that has been complied with Interestingly, the PIA vested the Government owned shares of NNPC Ltd in the Ministry of Finance Incorporated and Ministry of Petroleum Incorporated and the same is to be held on behalf of the Federation Also, NNPC Ltd is statutorily empowered to take over the assets, interests and liabilities of the NNPC The incorporation of NNPC Ltd and its commercial orientation/viability are indeed worthy of commendation However, whether or not the alter ego would effectively manage the newly incorporated NNPC Ltd to achieve its economic yearning and aspiration is something to watch out for as event unfolds • Provision for Development of Host Communities: One of the most promising benefits of PIA is the provisions to foster sustainable development as well as prosperity within the host communities The PIA made provisions to ensure direct social and economic benefit cum harmonious co-existence between holders of Petroleum Exploration and Prospecting or Mining Licences with their host communities Accordingly, companies holding or to whom Petroleum Prospecting Licences, Mining Leases or any company operating on behalf of a Joint Venture Partners are by the PIA required to contribute three per cent (3%) of its actual operating expenditure in the immediate proceeding calendar year to the ‘Host Community’s Development Trust Fund.’ Interestingly, the Fund is tax exempted and any contribution by a Settlor is tax deductible Importantly, Settlors are mandated to incorporate Host Communities Development Trust, though communities will forfeit the cost of repairs in the event of sabotage, vandalism and other restiveness or civil unrest precipitating or causing damage to petroleum facilities, equipment or disturbance of petroleum activities • Effective Fiscal Framework: Under the PIA, the percentage of deductibles and hydrocarbon tax to be collected by the Federal Inland Revenue is clearly spelt out and unambiguously specified It is now well defined that the Federal Inland Revenue Service is empowered to collect hydrocarbon tax of 15% to 30% on profit accruing from crude oil production or exploration; Company Income Tax at the rate of 30% and Education Tax at the rate of 2% which will no longer be tax deductible Similarly, the Commission is now the body charged with the responsibility of collecting rents, royalties and production shares while the Authority will collect gas flare penalties from the midstream operations Again, this clear-cut fiscal arrangement is also worthy of commendation as it has the propensity to circumvent any form of institutional conflicts of uncertainty over fiscal arrangements • Harmonization of the Legal Framework for the Oil and Gas Industry: Prior to PIA enactment, there were multiple legislation and regulations the Nigerian oil and gas industry These legislations include now repealed Associated Gas Reinjection Act, Hydrocarbon Oil Refineries Act, Motor Spirits (Returns) Act Nigerian National Petroleum Corporation (Projects) Act, Nigerian National Petroleum Corporation Act, Petroleum Product Price Regulation Agency (Establishment) Act, the Petroleum Profit Tax Act, Deep Offshore and Inland Basin Production Sharing Contract Act 2019 (as amended), Petroleum Act, Petroleum Profit Tax Act, Oil Pipeline Act, etc has been harmonized under the PIA making it a giant stride worthy of an commendation With the harmonization, there is now one-stop-shop legal and related instruments for regulation of oil and gas industry available for experts, researchers and members of the general public 2.3 Drawbacks of the Petroleum Industry Act, 2021 Some of key drawbacks or challenges highlighted by different stakeholders in the oil and gas industry include: High Cost of Doing Business: The Act also provides for multiple taxes (Nigeria Hydrocarbon Tax, Company Income Tax), higher rents and royalties, and levies (Niger Delta Commission Levy, Petroleum Host Community Fund, and Education Tax) This is most noticeable in the deep offshore operations 2 Retroactive Reversal of Contracts: The Act advocates reversal of provisions of prior agreements and contracts, and introduces new fiscal regimes even for old Petroleum Sharing Contracts Relinquish Acreage: The Act provides for the revocation of acreage that is yet to be developed by the allocated owners Opponents of this provision claim that it is an infringement on earlier agreements while its proponents argue that it is required to bringing new investment to the industry Calculating Payments: The Act advocates for oil and gas companies will pay for quantities produced Instead of quantities exported The oil companies have argued that solving the security challenge and fixing sabotage of logistics infrastructure is the core responsibility of government Duplication of roles: There are overlaps of roles and responsibilities with a number of the institutions created under this Bill For instance, the Nigerian Petroleum Inspectorate, Petroleum Products Regulatory Agency, and Petroleum Infrastructure Development Fund have conflicting responsibility for funding the development of infrastructure especially for the downstream sector of the petroleum industry Deadline for Gas flaring: In line with the provision of the Act, the deadline for gas flaring is not realistic Lack of Regulatory Independence: The two regulators (the Commission and Authority) need to be fully independent from supervision by the Minister of Petroleum resources Ambiguous and imprecise language One of the key concerns in the PIA is that of interpretation and imprecisions in the law For instance, it is unclear whether host community development trust obligations are additional to existing community levies (such as the Niger Delta development levy) or will be an aggregation of those levies Similarly, the law is silent on the definition of “frontier basin” and host community, instead deferring to the NUPRC on the definition of frontier basin and to settlors or license holders on the definition of “host community.” These definitions are not neutral to revenue; they have revenue implications This lack of clarity creates uncertainty and even possible disputes, especially if relevant parties define them differently Capacity building This law is complex and complicated While capacity in the oil and gas sector has been built over the years, the new legal provisions and fiscal framework will need new capacities to succeed This challenge will be particularly acute in the new regulatory institutions; in the understanding, interpretation, and application of the law; and in the management of the funds, including the Host Community Development Trust Fund (HCDTF) 10 Tensions over revenue sharing The law has serious implications for the public finances of the federation and its constituent states and local government areas First, the reduction in taxes and royalties will result in considerable reduction in revenues to the three tiers of government at a time they cannot afford it Second, Nigeria’s revenue law requires that entities or enterprises owned by the federation remit their profits to a pool, the Federation Account, for sharing among the three tiers of government Revenue from the Federation Account accounts for more than 80 percent of the revenues of many states and local governments Therefore, the stipulation that 30 percent of NNPC Ltd.’s profits must be set aside for frontier exploration could cause a significant decrease in its contribution to the Federation Account In the short term, revenues shared among the three tiers of government from the Federation Account will fall Many states and local governments, especially those with very weak internal revenue-generation capacity will be unable to discharge their duties of providing essential social services to their citizens 11 Politics and politicking: Under the PIA, the president has the power to appoint members of the boards of the various institutions established by the act Appointments to the boards of oil companies are watched keenly and could be a source of discontent among constituent parts of the country To manage this discontent, it has become the norm (but is not the law) to have at least six positions in the board of federally owned companies and parastatals, reflecting the six geopolitical zones of the country Unfortunately, the PIA does not create enough board positions for this condition to be met Not increasing the number of board positions to manage out possible accusations of marginalization could be politically risky Then again, expansion of board positions could raise the overhead of the boards and slow decision-making 2.4 Response of Nigerians to the Petroleum Industry Act, 2021 There have been mixed responses from Nigerians on the recently passed Petroleum Industry Act, particularly on some of the specific provisions of the law While many stakeholders are applauding the government for the achievement, others have criticised the Act and the government with the following response title: • The New Petroleum Industry Act: Robbing Peter to Pay Paul • ‘The PIA Must be Amended’ • PIA: Unresolved Issues of Resource Control and True Federalism • ‘PIA: Accord Host Communities their Lawful Due’ • ‘Sort Insight on 3% Funding for Petroleum Host Communities Development Trust’ Etc • Petroleum Industry Act, 2021: An Opportunity Missed? • Buhari’s Assent to the PIB: A Brazen Injustice to South-South • Host Communities’ Unrest: Is the PIA a Breather? See (appendix 1) for detailed responses from individual stakeholders 3.0 Conclusion The long-awaited Petroleum Industry Act (“PIA”) is here and it is expected to be a game changer for the petroleum industry in Nigeria In fact, some pundits noted that the PIA can represent the gold standard of natural resource management, with clear and separate roles for the subsectors of the industry; the existence of a commercially-oriented and profit-driven national petroleum company; the codification of transparency, good governance, and accountability in the administration of the petroleum resources of Nigeria; the economic and social development of host communities; environmental remediation; and a business environment conducive for oil and gas operations to thrive in the country The PIA is indeed robust in its provision with respect to providing a legal, institutional and fiscal framework for the regulation of the oil and gas industry in Nigeria However, just as there exist many applaudable PIA benefits as enumerated above, there are several identified pitfalls which need to be revisited to align the industry with best international practices 4.0 References Akpan MJD: Petroleum Industry Act in Nigeria: An Analysis of the Impact of the Novel Host Communities Development Trusts Provision Global Journal of Politics and Law Research 2021; 9(7): 30–46 Obaje A, (2022): The Nigerian Petroleum Industry Act, Frontier Basins Exploration and the Global Energy Transition Energy and Earth Science 5(1): 1–5 Bielu KJ (2021): Legal Framework for Petroleum Administration and Taxation in Nigeria: A Legal Appraisal of Conflicting Legislations ACARELAR.; 3: 70–80 20 Blythe T: C: (2021) Understanding Nigeria’s Petroleum Industry Act’ National Law Review (XI) 2021; 235: Mary Nwachukwu -Onuoha (2023) https: ACC872 Oil and Gas Accounting Lecture Note Umenweke MN, Chukwuma WA: (2023): An Examination of the Petroleum Industry Act 2021 and the Quest for a New Nigeria’ Law and Social Justice Review (2) Petroleum Industry Act, 2021 www.brookings.edu/articles/nigerias-petroleum-industry-act-addressing-old-problemscreating-new-ones/ https://www.thisdaylive.com/index.php/2021/08/24/the-pia-and-its-imperfections-was-nigerdelta-shortchanged Appendix 1: NOTOBLE RESPONSES TO THE PIA, 2021 The Petroleum Industry Act (PIA,2021) and Its Imperfections: Was Niger Delta? After so many years of waiting for the Petroleum Industry Bill to be passed, most Nigerians, especially in the Niger Delta, expected a near perfect law from the National Assembly (NASS) that would assuage their worries and address age long concerns about lack of infrastructural development in the area, and environmental pollution/degradation, resulting in a loss of livelihood for many, and chronic ailments like cancer and birth defects emanating from oil exploration and production activities Last month, the PIB was finally passed into law by the NASS, and speedily assented to by the President Alas! the newly enacted Petroleum Industry Act (PIA) has not met the expectations of many, nor does it seem to have addressed the concerns of Niger Deltans that have caused them to weep over the last few decades For many, it’s not a case of how long, but, how well; and, disappointed, they are already talking about amendments to the PIA, even before the ink with which President Buhari signed the PIB into law, is dry In this discourse, Chief Mike Ozekhome, SAN, Senator Ndoma Egba, SAN, Norrison Ibinabo Quakers, SAN, Chief Layi Babatunde, SAN, Professor Andrew I Chukwuemerie, SAN, Abubakar Sani, Chief Dan Orbih and Tolu Aderemi weigh in on the contentious piece of legislation, pointing out its many imperfections and how to possibly address them, while Taiwo Oyedele points out 20 highlights of the new law The New Petroleum Industry Act: Robbing Peter to Pay Paul Chief Mike Ozekhome OFR, SAN, Ph.D The PIB just assented to as an Act of Parliament by President Muhammadu Buhari, is a mere ruse, a monstrosity, an artifice and device, carefully crafted, incubated and delivered, to actually irretrievable violence to Nigeria’s progress and juris corpus The Act constitutes a direct assault on the age-long cherished principles of Federalism and the Doctrine of Separation of Powers, most ably propounded in 1748 by Baron de Montesquieu, a great French philosopher Unconstitutionality The Petroleum Industry Act (PIA) seeks to frontally attack the provisions of Section 162 of the 1999 Constitution, which state that all revenues accruing to the Federation shall be paid into a Federation account from which sharing shall be made amongst the three tiers of Government – the Federal Government, the 36 State Governments and the 774 Local Government Areas of Nigeria No expenditure can be made by the Federal Government, outside the provisions of Section 162 Nor can any monies be expended without going through an Appropriation Bill, through submission of budgetary proposals See Sections 80- 84 of the Constitution To the extent that the Act seeks to redesign the provisions of the Constitution (the fons et origo, grundnorm, Oba, Eze and Emir of all our laws), to that extent is the Act unconstitutional It must therefore, be struck down with the constitutional sledge hammer of Section 1(3) of the 1999 Constitution of Nigeria NNPC In a sane clime, Nigeria’s only surviving cash cow, the NNPC, ought to be totally unbundled to make it more viable, productive, transparent and accountable to the Nigerian people But, alas, most curiously, the Act has further strengthened NNPC’s hand of non-accountability and non-responsibility How can the Federal Government alone have shares in the only viable milk industry of Nigeria, to the total exclusion of the other three tiers of Government, major stakeholders, oil-bearing communities and the longsuffering people of the Niger Delta? How can an Act of Parliament, rather than assuage and ameliorate the sufferings of a beleaguered people, further compound them by reaffirming the people’s perilous status as slavish hewers of wood, drawers of water, masseurs of ego and sideline onlookers in the exploitation and use of their God-given wealth through their natural resources? The Act is nothing but, a mere totalitarian and draconian piece of legislation designed to rob Peter to pay Paul The Act is a deliberate design by state captors, to further their egoist and bacchanalian self-interests It was never designed to reform an institution such as the NNPC, nor passed to advance the principles of Federalism or Doctrine of Separation of Powers It is most egregious, expropriatory and unfair to States, Local Government Areas, and the suffering masses of the oil- bearing communities of the Niger Delta area of Nigeria The panacea? Simple The 36 States Attorneys-General should Immediately approach the Supreme Court, and challenge this latest Federal Government’s impunity and the outrageous acts of executive lawlessness and legislative rascality we are beholding, by invoking the Supreme Court’s original jurisdiction under Section 233(1) of the 1999 Constitution That is the way to go Allowing the Act to stay will further cement the present misguided Unitary system of government that Nigeria is currently operating, under our thinly garnished disguise of a pseudo-Federalism ‘The PIA Must be Amended’ Senator Ndoma-Egba, SAN The Senate had in her version of the Bill, provided 3% for Host Communities, while the House of Representatives in her version provided for 5% For a region devastated, despoiled, and totally polluted, one would have expected that the higher figure of 5% will be adopted, in the harmonised version of the Bill Surprisingly, the lower figure was taken This is evidence of failure of “politics” There was a failure in engagement of stakeholders of the Region, the Governors, NASS members, Ministers, Traditional Rulers, the APC caucus and others The legislative processes are inherently political and require lobbying, horse-trading and strategic engagement The Region should have learnt from how the NDDC and the Allocation of Revenue (Abolition of Dichotomy in the Application of the Principle of Derivation) Act were passed, and used the experience as a template for engagement These Bills were critical to the Region, and the necessary reach out was done with the Governors of the zone at the time in the forefront NASS members from the Region on their own, are constrained in how far they can go with such an important Bill Having said so, since there is no perfect law, the Region can still the needful to get a better deal, through an amendment to the just passed Petroleum Industry Act The percentage provided for the host communities is important; but, more important is the use to which it is put and the mechanisms to ensure transparency and accountability in the application of the funds We have seen a number of historic interventions in the Region from OMPADEC, NDDC, the Ministry of Niger Delta Affairs, the Amnesty Programme and Ogoni Cleanup They have all failed For as long as you not have a solid stakeholder generated Masterplan for the Region to which all commit, more money will be like pouring more water into a basket The most important reason why the impacts of the interventions have been very limited, is the absence of a Regional Master Plan Without one, there can be no meaningful development of the Region, the percentage for Host communities notwithstanding PIA: Unresolved Issues of Resource Control and True Federalism Norrison Quakers, SAN Since the signing into law of the Petroleum Industry Act (hereinafter referred to as – PIA) on 16th August, 2021 to provide for a legal, governance, regulatory and fiscal framework for the Nigerian Petroleum Industry, the criticism expressed in some quarters about the role of the legislative bomb in addressing the myriad of problems confronting our fatherland, is best summarised by – agitations for Resource Control and true Federalism This equally explains concerns over the 3% Settlor’s annual operating expenditure to be dedicated to the Host Community Trust Funds, as captured in Section 240(2) of the PIA vis-a-vis the 30% fund for the frontier basin exploration development It is on this footing that – the removal of the requirement to transfer payments into the Federation Account which is a Constitutional issue, and the setting aside of 30% profit as the Frontier Exploration Fund under Sections 9(4), (5) and 64(c) of the PIA require judicial pronouncements to resolve, since all legislations inclusive of this novel subject Act derive their validity from the fons et origo of other laws, being the Constitution of the Federal Republic of Nigeria 1999 (as amended), and as such, must not be inconsistent with same In the same vein, since the oil and gas industry is the mainstay of the country today, succinctly it is not out of place from an equitable point of view, for host communities bearing the brunt of oil exploration activities to clamour for an increased percentage contribution from actual operating expenditure of companies granted an oil prospecting licence, or mining lease, or an operating company, in addition to the existing contribution of 3% to the NDDC under the NDDC Act, so long as same is not mismanaged by the concerned States Further, the public sector which the NNPC exemplifies, represents the realm where the Government operates for the benefit of the citizenry, hence, a restriction of NNPC’s ownership under Section 50 of PIA which stipulates that ownership of all her shares shall be vested in Government and held by the Ministry of Finance on behalf of Government upon her being transformed into a Limited Liability Company, without States constituting the Federation being allotted a stake in her ownership structure leaves much to be desired, particularly when extrapolated against the background of various regional agitations with far reaching security consequences Considering the transmutations the Act underwent as a foetus, one would have expected a rather soothing sigh of relief from States constituting the Federal Republic of Nigeria upon her nativity, with a promise of annual commemoration; regrettably, these shortfalls are not to be termed – ‘much ado about nothing’ Despite these grey areas, the NASS and the Presidency deserve commendation for the eventual passage of the landmark legislation, to timeously safeguard the long-term macroeconomic stability of the country, reform the extractive industry’s institutional framework, and to provide better clarity for Nigeria’s economic development, considering the importance of a framework for creating commercially oriented and profit driven petroleum entities in accordance with international standards ‘PIA: Accord Host Communities their Lawful Due’ Chief Layi Babatunde, SAN In spite of the very strong reservations expressed for good reasons by the leaders of the affected host communities, on the provisions of Section 240(2) of the PIA as it relates to the Operating companies in the affected host communities, making an annual contribution of an amount equal to 3% of its actual annual operating expenditure of the preceding financial year in the upstream petroleum operations affecting the host communities, the provision, to the extent that it constitutes an admission of a problem that needs to be comprehensively addressed in spite of previous efforts, provides a work in process Foundation, upon which to build However, the law as it stands will take a good measure of good faith and transparent commitment on the part of the operating companies, particularly the IOCs, and eternal vigilance on the part of the host communities, even for its minimal objectives to be attained For one, to the extent that the Operators/Settlors, who are to contribute the funds are also given the powers to more or less constitute the Board of Trustees that will administer the funds and also appoint the Secretary to the Board, it may constitute a present danger to the interest of the host communities In the same vein, it will not be an easy task, determining the ‘actual annual operating expenditure’ of the Operators as provided for the Act; especially against the background of the exclusion clause provided for under Section 257 (3) of the Act; dealing with costs of repairs of damaged or vandalised facilities or sabotage given that alleged sabotage of oil facilities, has remained a cat and mouse affair between the Operators and the host communities over the years One can only hope, that all the affected parties, will see the wisdom of acting in the greater good of all concerned ‘Sort Insight on 3% Funding for Petroleum Host Communities Development Trust’ Etc Professor Andrew I Chukwuemerie, SAN History of the PIB Efforts for the reform of the ailing Petroleum Industry in Nigeria began in the year 2000 when the then President, Olusegun Obasanjo, constituted the Oil and Gas Implementation Committee (OGIC) Its recommendation birthed the National Oil Policy of 2004, which in turn metamorphosed into the Petroleum Industry Bill (PIB) The PIB was introduced in 2008 as an Executive Bill by the President Umaru Musa Yar’adua’s administration The Bill proposed a 10% Dedicated Fund, for the development of host communities In September, 2020 President Buhari resubmitted the Bill as an Executive Bill to the National Assembly, with some adjustments The Challenges of the 3% Payment into the Trust Fund The PIB as passed by the House of Representatives retained 5% of the annual operating expenditure of the settlor, to be paid into the Trust Fund However, the Senate in its section-by-section consideration of the Bill, opted to reduce it to 3% This was after the Senate had briefed the Group Managing Director of the NNPC, who canvassed that 3% amounts to about half a billion dollars There is a need to create an enabling environment, so as to attract investors into the industry It is therefore simple logic that, if there are no investments there will be nothing to share In effect, if the fortunes of the oil companies improve, there will certainly be opportunities for improvement in their obligations to the communities Otherwise, if there is an imposition of what may be difficult or impossible for them to pay, there will be friction, which, in the end will undermine the target goals and objectives It is therefore appropriate, to seek to exploit the inherent benefits of the legislation, particularly in the areas of foreign direct investments and wealth creation through a viable rural economy And apart from the dividends accruable to the communities, the overall Government revenue is to be shared among the tiers of Government, for developmental activities The core area of misgiving is the wellbeing of the host communities, who suffer the direct impact of oil and gas production activities; as such, the allocation of 3% of the Oil and Gas companies profit, or annual operating expenditure as contained in Section 240(2) of the Petroleum Industry Act 2021 (PIA) It is unjust to say the least, considering the fact that the same PIA in Section 9(4) approved 30% of the NNPC Limited’s profit for ‘Frontier Exploration Fund’ The fund is to be used for exploration purposes, in areas where there are suspected oil in existence or availability This position simply means that the Legislature is more concerned in exploration of areas where it is believed that there could be oil deposits, such as the Lake Chad Basin This seems not to take equal care of the host communities of the Niger Delta region, who suffer the impact of actual oil exploration, from which the Fund is to be distributed amongst host communities and the Frontier Exploration Fund It looks more like taking from Peter to pay Paul Another challenge with the allocation of the 3%, is the fact that the PIA equally placed the responsibility of protecting the pipeline and other oil infrastructure on the host communities It also makes it a condition for the host communities, to forfeit their entitlements under Section 240(2) of the Act as such This seems to place the protection of oil installations, in the hands of unarmed host communities It is hardly realistic as oil theft is mostly carried out by armed cartel hence Other Provisions of the PIA Section 257(2) of the PIA is most unfortunate, as it clearly amounts to giving in one hand and taking back through another This is made more difficult, as the Act failed to deal with the ambiguity, arising from integrating the host communities and the pipeline bearing communities That ambiguity may ultimately result in conflict, as to who the beneficiaries of the 3% Host Community Trust Fund should be There is an urgent need, to amend the just assented PIA It may be good to state that under the PIA, any company granted an Oil Prospecting Licence or Mining Lease or an operating company on behalf of joint venture partners (settlor) is required to contribute 3% – 5% (upstream Companies) and 2% (other companies) of its actual operating expenditure, in the immediately preceding calendar year to the Host Communities Development Trust Fund This contribution is in addition to the existing contribution of 3% to the NDDC The Fund is tax exempt, and any contributions by a settlor is tax deductible The PIA also creates a Nigerian Upstream Regulatory Commission It is responsible for the technical and commercial regulation of the upstream petroleum operations The Act also creates the Nigerian Midstream and Downstream Petroleum Regulatory Authority, which is responsible for the technical and commercial regulation of the midstream and downstream operations in Nigeria The Commission and Authority are also exempted from tax Petroleum Industry Act, 2021: An Opportunity Missed? Abubakar Sani Legitimate Concerns The signing into law by President Muhammadu Buhari of the much-touted Petroleum Industry Bill has attracted mixed reactions, with the greatest reservations being expressed (predictably) by host communities of oil installations who regard the 3% derivation provision as not going far enough – with others questioning the classification of areas where oil pipelines merely traverse, as ‘oil-producing’ Yet, others point out the seeming silence of the Act on so-called ‘cleaner’ fuels, given the global shift to such alternatives State Governors have also weighed in with calls for correction of allegedly anti-fiscal Federalism provisions of the Act All these concerns are, to varying degrees, legitimate Subsidy However, a greater worry, in my opinion, is the subsequent confirmation by the Minister of State for Petroleum Resources, Chief Timipre Silva, that the new law will make no difference to the age-long practice of subsidising petroleum products – specifically, PMS, Premium Motor Spirit, popularly called Petrol This is unfortunate, in my view, as everyone agrees that the single greatest hindrance to reversing the imbalance between recurrent and capital expenditure in both Federal and State budgets, is the fuel subsidy regime That practice continues to date, and it has been sustained in an opaque and uneconomic framework which defies both legal and constitutional prescriptions Just what statute underpins/undergirds or justifies petroleum subsidisation? Is it the Petroleum Products Pricing Regulatory Agency Act, the Price Control Act, the Constitution, mere executive fiat or any combination of some of them? Beyond the first, it is shockingly unclear However, even that suffers from the absence of the constitutional condition precedent of the designation of petroleum products as “essential commodities” – vide Item 62(e) of the Exclusive Legislative List Far from the PPPRA Act, to my mind, the relevant applicable law is the Price Control Act of 1977, which – notwithstanding the non-designation of petrol as essential as aforesaid – would, if applied, have fortuitously eliminated fuel subsidies Simply at the stroke of a pen This is because the provisions of Section of the Act envisage the application of economic principles in fixing petrol prices (which, by virtue of Section 6(1) of the erstwhile Petroleum Act, 1969, the Minister of Petroleum is authorised to Curiously, the new Act appears to have done away with this provision) Be that as it may, Section of the Price Control Act provides thus: (1) The Board may by notice published in the Gazette – (a) Fix a basic price for any controlled commodity in accordance with subsection (2) below; and (b) Fix the permitted variation for that commodity in respect of any State in accordance with subsection (3) below (2) The basic price is the price which is the opinion of the Board properly represents – (a) in the case of goods produced in Nigeria, the cost of production of the commodity, plus the manufacturer’s profit; and (b) in the case of imported goods, the duty-paid landed cost in Nigeria, plus the importer’s profit (3) The permitted variation, in relation to any particular commodity, is the amount representing transport and other costs, plus the distributor’s profit which in the opinion of the Board ought properly to be added to the basic price in order to represent a fair controlled price (wholesale or retail, as the case may be) in any State It can be seen that Section of the Act obliges the Government to pass the cost of producing/refining/importation and customs duty on fuel (and even of bridging, i.e., supplies to the hinterland) to the consumer at the pump – along with the importer/producer or marketer’s profit It is evident that this prescription not only makes economic sense, it is sustainable in the long term It is important to stress that, what Item 62(e) of the Exclusive Legislative List of the Constitution provides for is “price control” – not subsidisation; they don’t mean the same thing This is because whereas subsidies are monies paid by the Government to reduce the cost of producing goods in order to keep their prices low, the Constitution gives no such power to the National Assembly – and, thus, the Executive is under no such obligation In the circumstances, it is, frankly, a mystery that the latter persists in whining about declining revenues and the unsustainability of fuel subsidies, whilst the solution is right there staring it in the face Buhari’s Assent to the PIB: A Brazen Injustice to South-South Chief Dan Orbih The Petroleum Industry Act recently signed by President Muhammadu Buhari is not only insensitive, but a brazen act of injustice The President has stayed true to character, by choosing to ignore the huge outcries of the people of the South-South over the meagre allocation of 3% to the oil-bearing communities in the new law The Buhari-led All Progressives Congress (APC) has shown, by its hurried assent to the disputed Bill, that it did not mean well for the South-South Stakeholders in the South-South region have taken a critical look at the Petroleum Industry Bill recently enacted into law by President Muhammadu Buhari, and note very painfully that it is insensitive to the plight and demands of the people of the Niger Delta who have, over the years, witnessed the destruction of their lands through oil exploration and production One considers the concession of 3% to oil producing communities as mere tokenism, and a brazen act of injustice which must reviewed without delay The President’s hasty endorsement of the Bill, while ignoring its implications for restiveness in the zone, showed his usual disdain for rigorous debate and tacky attitude towards issues of sustainable development The rush to sign into law an unwholesome Bill still in disputation is not a surprise, because the President has always shown his disdain for rigorous debate in matters of sustainable development The South-South Region could become a ground for renewed agitations and heightened tension, as restive youths mobilise for total resource control in the face of perceived injustice and inequity For as long as injustice persists, let the Government take heed that the clamour for total resource control will continue, as we cannot give up on what is rightfully ours Niger Delta youths must remain calm and make their agitations peaceful The SouthSouth should continue to demand justice, equity and fairness, and should legally resist any attempt to subjugate the region economically, politically and socially Nigeria should hold fast to a better and progressive Niger Delta built on honour, justice and equity Host Communities’ Unrest: Is the PIA a Breather? Tolu Aderemi The signing of the Petroleum Industry Bill into law by President Muhammadu Buhari, has been heralded as a quantum leap for Nigeria on the regulation of the oil and gas industry It is thought that the PIA will revolutionise business activities in the upstream, midstream and downstream sub-sectors of the oil and gas industry, by providing a framework that incentivises investments and establishes regulatory best practices The historic signing of the PIA, notwithstanding the issue of compensation of the host communities for the years of degradation, continues to be an albatross for the new PIA Civil societies and pressure groups in the Niger Delta, have continued to label the provision on the derivatives for the host communities as a cheat on them This article examines whether indeed, the 3% host community fund is a game changer in the endless agitation of oil producing communities for a fairer share in what they believe is their commonwealth History of Failed Host Community Compensation Schemes The regional concerns of the host community(ies) is rooted in the history of institutional failure, environmental degradation, socio-economic deprivations and violent agitations for resource control Perhaps, a look into its chequered history will reveal some of the remote and immediate cause(s) of agitations for host community recognition and compensation, in the scheme of things In 1961, the Nigerian Government birthed the Niger Delta Development Board (NDDB), with the mandate to develop the region with a 15% revenue contribution from its budget Although it successfully executed about 358 contracts, its success was short-lived as its operations became characterised with inefficiency, mismanagement, political interference and militancy In 1972, the Niger-Delta River Basin Development Authority (RBDA) was established to replace the NDDB, but also suffered a similar plague like its predecessor, and was soon to be replaced with the Oil Minerals Producing Areas Development Commission (OMPADEC), which was established by the General Ibrahim Babangida’s military government under Decree No 23 of 1992, and provided for the 13% derivation pursuant to the Allocation of Revenue (Federation Account) (Amendment Act No 106 of 1992), for the rehabilitation and development of the host communities based on the ratio of oil production, and not on the basis of dichotomy of on-shore or off-shore oil production Like its predecessors, OMPADEC also failed In 2000, former President Olusegun Obasanjo birthed the Niger Delta Development Commission (NDDC) who levies 3% from the IOCs The International Oil Companies (IOCs) also entered into bilateral Global Memorandum of Understanding (GMOU), and despite all of this, the region remains plagued with acute under-development The philosophy underpinning the percentage share to the host communities, can be traced to the proposal made in the first draft of the PIB under late Petroleum Minister, Dr Rilwanu Lukman The then Special Adviser to President Yar’adua, Eng Emmanuel Egboga, had championed the need to give the host communities ownership and control of the resource This was at a time when 10% equity was voted in favour of the host communities The reasoning at this time, though misconceived, was to give the host communities ownership and control of the resource in situ Unfortunately, this was not in tandem with the laws governing the sector, as ownership of the resource was exclusively in the hands of Government One main criticism of this proposal was that the allocation to the host community, a faceless entity, would only amount to a misappropriation of these funds, as was with other initiatives Secondly, where a cash-call was made on the parties to fund exploration and production of crude oil, to the extent that there is no entity known as the host community, it would be impossible to hold anyone responsible for any such payment Put simply, it was utterly impossible to give equity to a host community Today, the PIA has put in place a structured machinery that prescribes the domiciliation of the funds, the administration of the funds and a mechanism to measure performance The host communities, under the PIA, will also have an input in determining persons who will administer these funds The National Assembly must however, embark on a post-legislative advocacy of the benefits of the Act in the host communities, while the Federal Government should set up a monitoring task force to ensure strict compliance