Nigeria has come a long way in terms of oil production with significant reserve for the past ten years and rated the largest crude oil exporter in Africa as well. Surprisingly, the country’s oil sector remains a concern owing to its static nature without any meaningful growth like other oil producing nations across the globe. It has lost huge investments because there are no policy direction and institutional framework to drive its ailing oil industry to desired level.
The Petroleum Industry Bill (PIB), a document that will pave the way forward recently got attention from the National Assembly (NASS) that eventually split it into four elements. An aspect of the bill is known as Petroleum Industry Governance Bill (PIGB) which stipulates how the oil industry will be governed and managed.
Apparently showing concern about the PIGB, the Emerald Energy Institute (EEI), University of Port Harcourt, had a Discourse on the governance bill.
Professor Omowumi Iledare, Director of EEI made it known to participants and stakeholders who attended the Discourse titled, “Nigeria Petroleum Industry Reforms” that the institute is in the forefront of providing its input on what the government can do to address the situation. He disclosed that revenue is dropping. There is capacity and transparency gap as the country’s policy is not sustainable with ailing downstream and lack of open market structure. The absence of good governance tend to limit the ability of the oil and gas sector to deliver, “for the sake of the future generation, we must not allow sentiment to overwhelm us but there is need to discuss the issue and come to an agreement keeping in perspective the maximization of society well-being beyond us.” Beyond sentiment, there is need to plan how the country’s oil sector will move forward, Iledare asserted.
Iledare pointed out that PIGB is already on the president’s desk awaiting his assent. In the governance bill, there is a clear role definition of who is in charge of policy and performance share. But at present, what the industry has is amorphous and no one is in charge. The governance will resolve that opaqueness.
The essence of the PIGB is to take charge of what the country can control and in a democratic system of government, it is the nation that determines the overall trend on how to manage its affairs.
The Professor of Petroleum Economics was of the view that the overall objectives of the governance bill is to promote growth, sustain revenue to the government and finding a way to “reward effort instead of outcome.” He explained further that for many years, the upstream licensing has been kept for too long and there will be a philosophy for operators to either ‘drill or drop’ so as to create level playing field.
According to Iledare, this is the first time in the history of PIB where there is committed ownership of the bill with readiness to pass it into law. There is so much confidence in the technical team with “the interest of the nation at heart.”
Nigeria must timely exploit her oil and gas resources to realize maximum value for rapid development of her economy, the country needs an institutional framework that will enable it attain that status. Iledare stated that the governance bill addresses sustainability of the industry with effective license terms. Governance is required for good business, it will not personalize the management of economic resources but institutionalize it because institution has power.
He emphasized that “If there is a bad governance as it is over the years with regards to institutions that manage the country’s oil and gas, all it has are: inefficiency, red tape, maladministration, corruption and secrecy. So many contracts were awarded without transparency. But, the new PIGB that is in the president’s desk now; reduces all issues and challenges. Everything is transparent and it gives room for rule of law, transparency, participation, accountability and sustainability.
In the governance bill, Nigeria will breadth a sigh of relief on the Petroleum Equalization Fund (PEF), “there will be a sun set because the moment we deregulate according to the bill, the concept of PEF will become dead on arrival.” The core objectives of the governance bill are to create efficient and effective governing institutions with clear and separate roles for the petroleum industry. It establishes a framework for the creation of commercially oriented and profit driven petroleum entities that ensures value addition and internationalization of the industry. It emphasizes transparency and accountability in rule of law. There are provisions to ensure that if an operator defaults, he will be prosecuted, Iledare added.
Professor Iledare noted that the governance bill is not rigid for the country, it is written with the expectation that future generation will benefit from it. It is to guide the industry and the future of the country. The design principles of PIGB includes: clear separation of roles and distinct accountabilities. Also, it encompasses full coverage of the value chain; upstream, downstream and midstream. Iledare submitted that there is minimal interference. For instance, “If the Petroleum Commission decides to close a petroleum station, nobody will call any Commissioner, even the president will not be able to mediate.” He disclosed that Nigeria has subsidized risk and gas projects are subsidized from petroleum revenue, this has been put under control. PIGB does not give room for employment if there are no value added.
Speaking at the Discourse, the don observed that at present, the Nigerian oil industry is incoherent with overlap functions. It has zero accountability with duplication of agencies, the new PIGB will allow different institutions to align based on policy. The Minister of Petroleum can only coordinate affairs but not necessarily controlling. “When you coordinate, you are designing the policy that each of them will follow and you can call them to be accountable, that is the policy and structure with an arbiter which is NASS that will take up oversight function.” Iledare explained.
In terms of structure and organization, institutional mandates and controls are clearly defined. There is a policy direction for all institution managing the affairs of the industry by the minister. According to Iledare, the minister is the driver of industry policy and supervises other arms because he is the only official who attends the Federal Executive Council. While there will be industry watchdog, an independent supervisor and monitor. Also, the government investment will be well managed and it could invest in shares for commercial viability.
On the aspect of structure, the Emerald Director posited that each institution will have its own Board of Directors, while regulators will regulate, inference and promote, “there will be no more command and control, but carrot and stick, the regulator is going to be the referee among three stakeholders; the government, the industry and the people.” PIGB prevents regulator from taking sides on behalf of government against operators, it has to ensure there is no partiality, “he must must ensure compliance with coordination to promote and advocate for the oil industry.”
Going forward, the governance bill will be commercially spelt out as the National Oil Company will be run like other national interests across the globe. Part of the objectives of PIGB is to ensure that the Nigerian National Petroleum Corporation (NNPC) is equally like PETROBRAS, STATOIL among others. At present, NNPC is the most inefficient compare to other national oil companies due to government interference. “If the NNPC is severed from political influence, it will be like Shell and of good interest to the nation,” Iledare added. This is what the governance bill will do. He said, if “Seplat, an indigenous company can go to stock exchange in London, why can’t NNPC that has control of over sixty percent of total reserve in Nigeria?” Obviously, the governance has provision for this.
Besides, Iledare revealed further that PIGB has separated roles for accountability purposes, removed ministerial and presidential discretion of awards. He stated thus: “it is inefficient to give leases to people who do not have proper valuation. Although, there could be strategic reason for discretion but it will be the Commissioners, not the president.” This strengthens governance and transparency. As part of policy campaign, the governance bill promotes meritocracy in appointment and put political leaders to check. The petroleum industry will be on the right track, all that it requires from industry operations will be done.
The PIGB has met its set objectives with better foundation and the governance institutions are enhanced. There are policy contractual framework, revenue management and fiscal administration. As Nigerians await the passage of the bill, purposeful implementation will be the key for the industry. There is a provision for transition and amendment as well.
However, in contributing to the Discourse at the interactive session, participants and stakeholders urged the president to expedite action and sign the bill. They were of the opinion that if the bill is signed with the efforts put in place by professionals and industry experts, the country’s oil sector will move forward and attract investors. The country oil industry will also be in safe hands.