PETROLEUM INDUSTRY BILL (2020)

Presented By: George Onuma & Uchechi Ngonadi

Table of Contents

❖ Historical Background

❖ The Legislative Journey

❖ Introduction

❖ Objectives of PIB 2020

❖ The Key Provisions Of PIB 2020

❖ Legal Status of Old Contracts Under The PIB 2020

❖ Conclusion
Background

Since 2008, Nigeria has been working to improve transparency and

accountability in the oil sector. Despite being one of the largest suppliers of
crude oil in Africa, the country has traditionally been unable to significantly
translate its oil wealth into sufficient national development.

There have been many reasons for this, including insufficient governance,
weak sector regulation, and inefficiencies in oil operations. These have
resulted in declining investment and returns in the industry, owing to the
uncertain investment climate, incessant fuel shortage and insecurity.

In response to these challenges, the Petroleum Industry Bill (PIB) was

developed.
 PIB - The Legislative Journey

The main idea behind the 2008 version was to increase transparency in the
petroleum sector, namely in the National Nigerian Petroleum Corporation
(NNPC), as well as increase the country’s share of revenue in oil projects.
The passing of the bill failed due to objections from both the international
operators and the NNPC over some of its content.

In 2015, Ibe Kachikwu, then Minister of State for Petroleum Resources,

requested the Bill to be amended to facilitate the process.

Consequently, and to facilitate the passage of the legislation, the PIB was
split into four parts:

the Petroleum Industry Governance Bill (PIGB);

the Petroleum Industry Administration Bill (PIAB);
the Petroleum Industry Host Community Bill (PIHCB); and
the Petroleum Industry Fiscal Bill (PIFB).
 Introduction

The Petroleum Industry Bill (PIB), an omnibus law meant to regulate the
entire sphere of the industry and repeal all current existing oil and gas
legislation, had struggled to see the light of day despite its introduction to the
National Assembly over 12 years ago.

The PIB 2020 is expected to provide a framework to boost oil and gas output
while enhancing the sector’s attractiveness for international investors, thus
increasing foreign direct investment. The Bill proposes reforms to
governance, administration, host community and fiscal matters in the oil and
gas industry.

It establishes the streamlining and the reduction of some oil and gas
royalties, with the underlying objective to encourage international operators
to invest in exploration and production, taking advantage of Nigeria’s
extensive petroleum reserves.
The Objectives Of The PIB 2020

Given oil’s prominent role in the economy, Nigeria will struggle to break in to
the top 20 economies without such reforms. Nigeria’s National Oil and Gas
Policy—implemented by the PIB—prioritizes “increasing transparency and
accountability” as one of its goals.
Since the Petroleum Industry Bill (PIB) 2020 contains strong transparency and
accountability provisions, Nigeria’s oil sector performance has real opportunity
to improve. Transparency encourages competition, discourages illicit
behaviour and attracts investment.
Accountable institutions reassure investors, improve regulation and revenue
collection and result in higher production and earnings.
The PIB 2020 has been drafted to fulfill at least six basic objectives in this
area.
Objective 1 - Open, Competitive and
Transparent Upstream Awards
Oil production licenses and contracts are some of Nigeria’s most valuable
assets. To maximize returns, government should allocate them through open
and competitive processes to well-qualified companies.
In the past, contracting and licensing have suffered from deep abuses of
secrecy and discretion. Irregularities marred all major bid rounds held in the
2000s, bringing about lawsuits, indictments, sackings, cancelled or revoked
awards, and legislative probes.
Many of the promised signature bonuses went unpaid, deals fell through, and
awarded blocks remain undeveloped.
Objective 2 - Strong Rules For Lifting
Crude, Midstream and Downstream
Licenses
The Government awards licenses for lifting crude oil, and for midstream and
downstream activities. In a major oversight, no PIB draft guards against
manipulation of such award processes.
These too are high- value transactions: in 2008, crude sales through lifting
contracts earned over $40 billion, or 69% of total government oil revenues.
However, each year elite-controlled “briefcase companies” snatch up
discounted licenses to lift government crude.
Current licensing procedures in the downstream allow the capture of valuable
state subsidies.
Objective 3 - Defined Processes For
Selling Shares in NNPC and Joint
Venture Operations
The PIB announce potentially huge sales of public assets without saying how
to conduct them.
NNPC and JV incorporations are potentially welcome steps towards
commercializing the sector and ending chronic funding woes. If left to chance,
however, they could leave young, vital institutions corrupted and un-bankable.
Objective 4 - Increased Access To
Information
Nigeria has shown great enthusiasm for oil sector transparency programs.
The Nigerian Extractive Industries Transparency Initiative (NEITI) set an early
“gold standard” for the global EITI movement with its comprehensive reports.
President Jonathan has further advanced transparency by signing the
Freedom of Information Act.
Neither NEITI nor the FOI Act replaces the need for regular disclosures by oil
sector participants. By opening more kinds of documents and data to public
scrutiny, the PIB would improve incentives for performance, attract investment
and financing, and protect against illicit practices.
Objective 5 - Clarity On Revenue Flows

As revealed in NEITI audits, Nigeria’s laws and practices for capturing oil
revenues show widespread weaknesses that reduce government earnings. Oil
companies pay taxes and royalties through “unregulated self-assessment.”
NNPC calculates its crude sale revenues with little oversight and keeps a
share without clear rules.
Signature bonuses are underpaid and enter a maze of bank accounts. Annual
reports by the Auditor-General of the Federation find significant oil revenues
missing or mislaid.
A PIB that tackles these problems would help net Nigeria billions in extra
development revenues.
Objective 6 - Better NNPC Oversight And
Corporate Governance
Nigeria’s oil sector will not reach its full potential without a new corporate
culture for the NNPC. Greater oversight of the firm’s operations and financials
will encourage a more commercial orientation.
Added transparency will also help plug leaks while sending good signals to
partners, lenders and investors
The 1st Key Provision Of The PIB 2020

1. The Minister of Petroleum:

The Minister of Petroleum is empowered to formulate, monitor and administer
government policy in the petroleum industry; exercise general supervision
over the affairs and operations of the petroleum industry in accordance with
the provisions of this Act; report developments in the petroleum industry to the
government; represent Nigeria at international organizations on petroleum
matters; promote an enabling environment for investment in the Nigerian
petroleum industry; negotiate treaties or other international agreements on
matters pertaining to petroleum on behalf of the Government, shall have rights
of pre-emption of petroleum and petroleum products marketed under any
license or lease, in the event of a national emergency.
The 2nd Key Provision Of The PIB 2020

2. Establishment of the Nigerian Upstream Petroleum Regulatory

Commission:
This commission is to administer and enforce policies and regulations relating
to all aspects of upstream petroleum operations and to issue, administer and
enforce compliance on the issuance of licenses and leases in the upstream
sector.
It is also to establish, monitor, regulate, and enforce health and safety
measures relating to all aspects of upstream petroleum operations, publish
reports and statistics on the upstream sector, validate and certify the
evaluation of national hydrocarbon reserve, manage and administer all
upstream petroleum data for all unallocated acreage.
This Commission on the approval of the minister, is to allocate petroleum
production quotas, and develop cost benchmarks for upstream petroleum
operations performance amongst other functions, as laid out in the bill.
The 3rd Key Provision Of The PIB 2020

3. Establishment of the Nigerian Midstream and Downstream Petroleum

Regulatory Authority:
This authority is to administer and enforce policies, laws and regulations
relating to all aspects of midstream and downstream petroleum operations,
and to issue and administer licenses in the midstream and downstream
sectors.
The agency is also to ensure and enforce compliance with the terms and
conditions of all licenses, permits, and authorizations issued in respect of the
midstream and downstream petroleum operations; set and enforce approved
standards for designs, procurement, construction, and maintenance for all
plant; installation and facilities pertaining to midstream and downstream
operations.
The 3rd Key Provision Of The PIB 2020
(Cont’d)
This authority is also laden with the responsibility of inspecting measurement
equipment, and other facilities for midstream and downstream petroleum
operations.
It is also to facilitate the supply of gas to the strategic sectors, in accordance
with the approved national gas pricing framework, implement customer
protection measures in accordance with the provisions of this Act, regulate
and ensure the supply, distribution marketing, and retail of petroleum products
as may be prescribed by regulations, and shall also do other things that are
necessary and expedient for the effective and full discharge of any of its
functions under this Act, amongst other functions as stipulated in the bill..
The 4th Key Provision Of The PIB 2020

4. Incorporation of the Nigerian National Petroleum Company Limited:

The Minister of Petroleum shall within 6 months from the commencement of
this Act, cause to be incorporated under the Companies and Allied Matters
Act, a limited liability company, which shall be called Nigerian National
Petroleum Company Limited (NNPC Limited).
The Minister shall at the incorporation of NNPC Limited, consult with the
Minister of Finance to determine the number and nominal value of the shares
to be allotted, which shall form the initial paid-up share capital of NNPC
Limited, and the Government shall subscribe and pay cash for the shares.
Ownership of all shares in NNPC Limited shall be vested in the Government at
incorporation, and held by the Ministry of Finance Incorporated on behalf of
the Government.
The 4th Key Provision Of The PIB 2020
(Cont’d)
The Minister of Petroleum and the Minister of Finance shall determine the
assets, interests, and liabilities of NNPC to be transferred to NNPC Limited or
its subsidiaries, and upon the identification; the Minister shall cause such
assets, interests, and liabilities to be transferred to NNPC Limited.
Assets, interests, and liabilities of NNPC not transferred to NNPC Limited or
its subsidiary, shall remain the assets, interests, and liabilities of NNPC, until
they become extinguished or transferred to the Government.
NNPC shall cease to exist, after its remaining assets, interests, and liabilities
other than its assets, interests, and liabilities transferred to NNPC Limited or
its subsidiaries under subsection (1) of this section, shall have been
extinguished or transferred to the Government.
The 5th Key Provision Of The PIB 2020

5. Granting of Licenses and Leases:

Petroleum exploration license may be granted to qualified applicants, to
explore petroleum on a speculative and non-exclusive basis.
Petroleum Prospecting License may be granted to qualified applicants, to
carry out petroleum exploration operations on an exclusive basis. A Petroleum
Prospecting License for onshore and shallow water acreages, shall be for
duration of not more than 6 years, comprising of an initial exploration period of
3 years, and an optional extension period of 3 years.
A petroleum prospecting license for deep offshore and frontier acreages, shall
be for duration of not more than 10 years, comprising of an initial exploration
period of 5 years, and an optional extension period of 5 years.
Petroleum mining lease may be granted to qualified applicants to search for
win, work, carry away and dispose of crude oil, condensates, and natural gas.
A petroleum mining lease may be granted for a maximum period of 20 years,
which terms shall include the development period.
The 6th Key Provision Of The PIB 2020

6. Abolition of Gas Flaring:

Gas flaring has been said to be a major destroyer of the ozone layer, and this
has a very detrimental effect on climate all over the world, as is presently
occurring. The United Nations Framework Convention on Climate Change
(UNFCCC), has called on countries to put an end to greenhouse effect.
Despite not having any binding emission target under the UNFCC, Nigeria in
its own way, has responded under the proposed bill to illegalize and abolish
gas flaring.

Accordingly, the new bill demands strict adherence to a gas flaring plan, along
with gas utilization plans, to be submitted by all oil and gas operators within
six months of the coming into effect of the law, indicating data on their daily
flare quantity, reserve, location, composition. Statistics posit that Nigeria
losses a lump sum of money every year to gas flaring, such that its abolition is
a wise way of saving this money, and making it available for the usage of the
economy and its development.
.
The 7th Key Provision Of The PIB 2020

7. Domestic Gas Obligations:

The PIB provides that the Nigerian Upstream Regulatory Commission shall,
having regard to the needs of the domestic gas market and in accordance with
the National Gas Master Plan, impose Domestic Gas Supply Obligations
(DGSO) on lessees.
As proposed, a lessee who fails to comply with its DGSO, shall not be
permitted to make supplies to gas export operations, and where the lessee
only supplies gas to export operations, the lessee shall be directed to suspend
operations.
This section will oust the existing Department of Gas in its functions and
responsibilities.
The 8th Key Provision Of The PIB 2020

8. Deregulation of the Downstream Sector:

The PIB provides that the pricing of petroleum products in the downstream
product sector, shall be deregulated to ensure market related pricing,
adequate supply and removal of economic distortions, and creation of a fair
market value for petroleum products in Nigeria’s economy.
However, although pricing is to be left to market forces, the Bill proposes to
safe-guard the interests of consumers, by providing that the Nigerian
Midstream and Downstream Petroleum Regulatory Authority shall oversee
tariffs for transportation by pipelines, bulk storage for petroleum products, and
regulated open access facilities.
The Nigerian Midstream and Downstream Petroleum Regulatory Authority will
also be responsible for market monitoring and promotion of competition. This
will oust the present Petroleum Pricing Products Regulatory Agency (PPPRA),
which is charged with the same responsibilities, but has largely been
inefficient till date.
The 9th Key Provision Of The PIB 2020

9. Petroleum Host Communities Fund:

The objective of the Bill is to provide direct social and economic benefits from
petroleum operations to host and impacted communities. Also, the Bill seeks
to enhance peaceful and harmonious coexistence between E & P companies
on one hand, and host and impacted communities on the other – with an
objective to foster sustainable and shared prosperity amongst the oil and gas
companies and host communities.
The bill stipulates that an annual contribution of 2.5% of the actual operating
expenditure (OPEX) of the E&P Company, will be placed into a fund. The
funds available in the Endowment Fund are to be allocated in the following
manner; 70% of the Endowment Fund shall be allocated to the Capital Fund,
out of which the Board of Trustees shall make disbursements for projects in
each Host Community, as may be determined by the Management.
Any sum not utilized will be rolled over and utilized in subsequent years; 20%
of the Endowment Fund shall be allocated to the Reserve Fund.
The 9th Key Provision Of The PIB 2020
(Cont’d)
The money is to be invested in the Trust when there is a cessation in the
endowment payable by the settlor; 10% of the Endowment Fund shall be
allocated to the settlor’s Special Project Fund to be utilized solely by the
settlor for special projects, aimed to assist and support the host and impacted
communities, provided that at the end of each financial year, the settlor shall
render a full account of the utilization of the Special Project Fund to the Board
of Trustees, and where any portion of the Fund is not utilized in a given year, it
shall be returned to the Capital Fund.

If the PIB is eventually passed into law, it will contribute to lowering the oil theft
rates and regular rifts, if host communities are satisfied.
The 10th Key Provision Of The PIB 2020

10. Fiscal Regime under the PIB:

The Bill proposes to replace the existing petroleum profits tax with a Nigerian
Hydrocarbon Tax (NHT), at the rate of 50 per cent for petroleum operations
onshore, and in shallow water fields; and 25 per cent for petroleum operations
in deep-water, bituminous and frontier acreages.
In addition to NHT, the Bill also proposes companies income tax at the rate of
30 per cent on upstream petroleum operations (which under the existing
regime are not subject to companies income tax). Where petroleum
operations fall in geographical areas that are subject to different tax rates,
NHT shall be levied on the proportionate parts of the profits arising from such
operations.
The Legal Implications PIB 2020

• Contracts
• Assets & Liabilities
• Tax Appeal Tribunal
• Legal Proceedings & Notices
• Offences & Penalties
Conclusion