The most recent attempt prior to this Act, was the Fifth Alteration (No. 33) Bill 2022 (The Electricity Constitutional Amendment), which was signed in the last days of the previous administration and altered the Constitution of the Federal Republic of Nigeria to empower states to enact laws with respect to the generation, transmission, and distribution of electricity in areas covered by the national grid system within their state.

Overview

The Electricity Act 2023 repeals the Electric Sector Reform Act, 2005. The primary objective of the Act is  to provide a comprehensive legal and institutional framework to guide the operation of a privatized, contract and rule-based competitive electricity market in Nigeria, and to attract private sector investments in the entire power value chain of the Nigerian Electricity Supply Industry (NESI).

Applicability of the Act: The Act applies throughout the country with respect to all aspects and segments of the power sector value chain in Nigeria, but nothing in the Act invalidates any law passed by the House of Assembly of any state with respect to all aspects of generation, transmission, system operation, distribution, supply, and retail of electricity within the state. What this means is that states still have the liberty to enact laws through their state Houses of Assembly to regulate state electricity market, create power stations for generation of electricity for supply, transmission and distribution to rural unserved and underserved areas.

Creation of Integrated National Electricity Policy and Strategic Implementation Plan: To further guide the overall development of the electric power sector in Nigeria for optimal utilization of resources like coal, natural gas, nuclear substance, and materials, as well as renewable energy sources for the generation, transmission and distribution of electricity, the Act mandates the Federal Government to create an Integrated National Electricity Policy and Strategic Implementation Plan. This new strategic policy implementation plan is to be initiated through the ministry in charge of power, within one year of the commencement of the Act upon approval of the Federal Executive Council (FEC) and may be reviewed periodically but not later than every five years.

Validity of the pre-privatization and post-privatization of the Nigerian Electricity Supply Industry (NESI): The Act recognizes the validity of the pre-privatization and post-privatization of the Nigerian Electricity Supply Industry (NESI) which resulted in the unbundling of the defunct National Electric Power Authority (NEPA), into 18 distinct Power generation, transmission, and distribution companies, which emerged from the Power Holding Company of Nigeria (PHCN) which was the initial holding company. The Act also provides for the regulation and supervision of competition in the substantially privatized electricity market, by ensuring that the federal minister in charge of power exercise supervisory powers and functions.

Creation of the Nigerian Electricity Regulatory Commission (NERC): The Act creates the Nigerian Electricity Regulatory Commission (NERC) as the apex regulator of the NESI. It empowers NERC to among other things, license and regulate persons engaged in the generation, transmission, system operation, distribution, supply and trading of electricity, create market rules and grid codes, safety, security, reliability and quality standards, establish consumer rights and obligations regarding the provision of electricity services, monitor the general operation of the electricity markets, and place sanctions as necessary in deserving circumstances. Any grievance with the decisions or actions of the NERC by any person with respect to the cancellation of a licence, refusal to issue or renew a licence, etc.  is subject to a review first by NERC upon an application made to it and it may give a final decision rescinding or varying its earlier decision. Any further grievance with the final decision given by NERC pursuant to its review is subject to an appeal at the Federal High Court. The Act further states that a person shall not institute and maintain a suit against NERC without first initiating and exhausting the internal dispute resolution with NERC.

Compulsory installation of meters for distribution of electricity to consumers. The Act makes it mandatory for electricity distribution licensees to install meters for distribution of electricity to consumers. There is also a corresponding mandatory obligation on all consumers of electricity to allow the installation of meters in their premises and pay bills chargeable to the electricity distribution licensees. The Act provides that where a consumer fails to pay bills, the electricity distribution licensee may cut off the consumer’s connection to power after giving notice in the manner prescribed by the NERC.

Establishment of the Power Consumer Assistance Fund: The Act establishes a Power Consumer Assistance Fund (PCAF), which shall be used to subsidize electricity supply to underprivileged power consumers. This category of underprivilege power consumers shall be determined by the Minister in charge of power in consultation with the NERC.

Creation of the Rural Electrification Agency: The Act creates the Rural Electrification Agency with the objectives of coordinating corporate bodies, private investors using renewable energy sources for rural electrification in the rural, unserved, underserved areas, thereby promoting universal access to affordable and sustainable electricity, and improving the quality of life and economic opportunities of rural, unserved, and underserved communities in Nigeria.

Key Highlights

• The Electricity Act, 2023 repeals the Electric Power Sector Reform Act, 2005, the Nigerian Electricity Management Services Agency Act, 2015, the Hydroelectric Power Producing Areas Development Commission (Establishment Act, Etc.) and its various amendment Acts
• Under the Act, the Federal Government shall support the development and utilization of renewable energy sources for the generation, transmission, system operation and distribution of electricity.
• The Transmission Company of Nigeria (TCN) is obliged to incorporate a company to be known as Independent System Operator (ISO) upon a written directive of NERC which is to be licensed by NERC to carry out the market and system operation functions such as generation scheduling, commitment and dispatch, transmission congestion management, administration of wholesale electricity market, etc. which were hitherto being exercised by TCN.
• A licence is required for electricity generation (excluding captive generation), transmission, distribution, supply trading and system operation.
• The construction, ownership and operation of an undertaking for generating electricity not exceeding 1 megawatt (MW) or an undertaking for distribution for electricity with a capacity not exceeding 100 kilowatts (KW) does not require a licence.
• The Act encourages private sector investments in the generation, transmission, distribution, and supply of electricity from renewable sources such as solar, wind or water.
• The Act provides for the introduction of tax incentives as are necessary to incentivize, promote and facilitate the generation and consumption of electric power from renewable energy sources.
• The Act recognizes the power of federating states to regulate their electricity markets by issuing licenses to private investors to operate mini-grids and power plants within the state. Interstate and international electricity delivery from such mini grids is however prohibited to state as it is within the remit of the Federal Government.
• The NERC maintains its status as the apex regulator of electricity sector in Nigeria, and until the federating states pass their own electricity laws, the NERC shall continue to regulate electricity business and markets within the federating states.
• The Act creates a Power Consumer Assistance Fund (PCAF), which shall be used to subsidize electricity supply to underprivileged power consumers.
• The Act creates the Rural Electrification Agency with the objectives of coordinating the use of renewable energy sources for rural electrification and promoting universal access to affordable and sustainable electricity, which improve the quality of life and economic opportunities.
• The Act creates offences and imposes penalties. Offences such as theft of electricity, theft of electric lines and materials, receiving stolen electricity, interference with meters or works of licensees, negligently breaking or damaging, intentionally disrupting power supply, damage to public street lightings, obstruction and impersonation, general contravention of orders and regulations and their penalties are specifically provided for under the Act.

Conclusion

The deficiency in power transmission in Nigeria has been attributed to inadequate power transmission infrastructure. The decentralization of power generation and distribution under the Electricity Act 2023, which gives states the power to develop legislations to create local markets for generation and transmission of power to all areas within their boundaries is anticipated to enhance affordable and sustainable electric power to all areas. Indeed, with the introduction of a parallel electricity market in the states, customers within the states can decide to remain connected to the national grid or opt for a mini-grid operator licensed by the state within which they reside in. The shift from fossil-based systems of energy production and consumption to renewable energy sources will create a market for renewable energy and stimulate private sector investments.

Please note that the contents of this article are for general guidance on the Subject Matter. It is NOT legal advice.

For further information or to see our other service offerings, please visit www.goldsmithsllp.com  or contact:

The post What the Electricity Act 2023 Means for the Electricity Market and Stakeholders in Nigeria. first appeared on Goldsmiths Solicitors.

2022 has been an incredibly busy and exciting year in the Nigerian legal and regulatory environment. There were major and far-reaching changes ushered in by the regulatory authorities particularly the Central Bank of Nigeria (CBN). There were also major developments relating to Banking and Finance, Competition and Consumer Protection, Startups, Capital Markets, Insolvency, etc. In this article, we have highlighted some of the major legal, regulatory, and judicial changes that occurred in 2022. This article is divided into four parts representing four quarters of the year. In each quarter, we deal with all the major legal changes that occurred therein.

1^st Quarter (January – March 2022)

A remarkable feature of the first quarter was the issuance of regulations/guidelines by the CBN. Within this period, the Electoral Act 2022 was also signed into law by the President. The new Electoral Act introduced important changes to the conduct of elections Nigeria. Below are some of the highlights of the 1^st quarter:

• The Central Bank of Nigeria (CBN) Guidelines on the Introduction of E-evaluator, e-invoicing for Import and Export in Nigeria. Although the Guidelines were issued in January, it became operative on 1 February 2022 and requires the submission of an electronic invoice authenticated by the Authorised Dealer Bank for all import and export operations. The electronic invoice replaces the usual hardcopy final invoice.
• On 11 January 2022, President Muhammadu Buhari approved the establishment of the Nigerian Diaspora Investment Trust Fund, a private sector investment window for Nigerians in the diaspora to support direct investments in the country.
• On 18 January 2022, the Lagos State Government introduced the Consolidated Informal Transport Sector Levy to harmonize the taxes paid by transporters to the state government.
• On 26 January 2022, the Federal High Court in the case of Attorney General of Rivers State v. Attorney General of Federation and 3 Others, invalidated deductions by the Federal Government from the Federation Account for funding the Nigeria Police Trust Fund.
• The Central Bank of Nigeria Operating Guidelines for RT200 Non-Oil Export Proceeds Repatriation Rebate Scheme. This is a programme designed and introduced by the CBN to incentivize exporters in the non-oil export sector with the goal of raising $200 billion in FX over the course of the next three years.
• The Central Bank of Nigeria Guidelines for Regulation and Supervision of Credit Guarantee Companies in Nigeria. The Guidelines seeks to ensure a conducive environment for Micro, Small and Medium Enterprises (MSMEs) to be able to access credit at low interest rates from banks and financial institutions. The requirements for obtaining a license and also the activities which are permitted and not permitted by the license are contained in the Guidelines.
• On 7 February 2022, the Lagos State Governor signed the Lagos State Real Estate Regulatory Authority Bill into Law. The law introduced significant changes to the real estate landscape in Lagos State by mandating the registration of real estate practitioners.
• Electoral Act (Amendment) Act 2022 (the Electoral Act). The new Electoral Act was signed into law on 25 February 2022 by President Muhammadu Buhari. The Electoral Act empowers the Independent National Electoral Commission (INEC) to transmit election results electronically. Section 84 (12) of the Act, prohibits appointees of government, government officials from holding office while vying or contesting at party primaries.
• On 4 March 2022, the CAC stated in a circular that schools and other institutions would no longer be registrable as business names. This means they can now only be registered as a company pursuant to the Companies and Allied Markets Act 2020.
• On 23 March 2022, the Nigerian Communications Commission (NCC) issued the License Framework for the Establishment of Mobile Virtual Network Operators in Nigeria.

2^nd Quarter (April – June 2022)

This quarter witnessed a high level of enactment of laws and the issuance of regulations by the regulatory authorities. Importantly, three laws were passed to deal with the issues of corruption and terrorism in Nigeria. One of these laws (Money Laundering [Prevention and Prohibition] Act 2022) prompted the issuance of a guidelines by the CBN to bring its AML/CFT regulations in compliance with the requirements of the new law. The Securities and Exchange Commission (SEC) also issued a guideline to regulate digital and virtual assets. Below are some of the highlights of the 2^nd quarter:

• On 6 April 2022, the President signed Executive Order 11 which mandates government to institutionalize maintenance of public buildings. The National Biotechnology Development Agency Act, 2022 was also signed on the same day. The law provides the legal framework for the established agency to carry out research and create public awareness in biotechnology to encourage private sector participation.
• On 24 April 2022, the Corporate Affairs Commission announced the approval of the Insolvency Regulations 2022 by the Minister of Industry, Trade and Development. The regulations govern insolvency proceedings under the Companies and Allied Matters Act 2020.
• On 12 May 2022, the President signed the Money Laundering (Prevention and Prohibition) Act, 2022, the Proceeds of Crime (Recovery and Management) Act, 2022, and the Terrorism (Prevention and Prohibition) Act, 2022.
• The Central Bank of Nigeria Exposure Draft Guidelines for Open Banking in Nigeria. These Guidelines are aimed at enhancing competition and innovation in the banking system. It established the principles for data sharing across the banking and the payments system and broadened the range of financial products and services available to bank customers.
• The Central Bank of Nigeria Guidelines for the Registration and Operation of Bank Neutral Cash Hubs (BNCH) in Nigeria. The Guidelines are aimed at  reducing the risks and cost borne in the course of cash management and to also enhance cash management efficiency. The registration of a BNCH is to be undertaken in two stages of obtaining CBN Approval-in-Principle and final approval. The BNCH are to be licensed to take deposit and disburse high volume cash on behalf of financial institutions but cannot carry out lending activities, receive or disburse foreign currency or sub-contract their operation.
• Revised Guidelines for the Operation of Non-Interest Financial Institutions’ Instruments by the Central Bank of Nigeria. These Guidelines replaced the 2012 Guidelines and were issued to regulate the issuance of non-interest instruments by Non-Interest Financial Institutions (NIFIs) while also stipulating the requirements and terms of operation for NIFIs.
• The Central Bank of Nigeria (Anti-Money Laundering, Combating the Financing of Terrorism and Countering Proliferation Financing of Weapons of Mass Destruction in Financial Institutions) Regulations, 2022. The CBN issued the Regulations to bring its regulations on anti-money laundering and combatting the financing of terrorism to be in compliance with the Money Laundering (Prevention and Prohibition) Act, 2022 and safeguard the financial institutions from being used for financial crimes.
• The Securities and Exchange Commission issued the Rules on the Issuance, Offering Platforms and Custody of Digital Assets. The Rules were issued by SEC on 13 May 2022 and provide for the issuance of digital assets, registration requirements for Digital Assets Offering Platforms (DAOPS) and Digital Assets Custodians (DAC) among others.
• On 25 May 2022, the Federal High Court in the case of Femi Davies v. National Broadcasting Commission, nullified the National Broadcasting Code (6^th Edition) through which the National Broadcasting Commission (NBC) sought to regulate the practice of advertising in Nigeria. The court held that it was beyond the power of the NBC to regulate advertisement.

3^rd Quarter (July – September 2022)

The regulatory authorities in the banking and finance sector, particularly the CBN, were very active in issuing one form of guidelines or the other. The Federal Competition and Consumer Protection Commission (FCCPC) issued a guideline to regulate the activities of digital money lenders after a series of predatory practices by many digital money lenders. There was also a judgement of the Court of Appeal which re-affirmed the power of the Federal Inland Revenue Service to collect VAT from hoteliers. Below are some of the highlights of the 3^rd quarter:

• The Central Bank of Nigeria Review of the Industry Quick Response (QR) Code Presentment Options. The review was done by the CBN to enhance the flexibility offered by the use of QR codes in payments. The review provides that the implementation of the QR code for payments shall be based on either merchant-presented or consumer-presented modes.
• The Central Bank of Nigeria Exposure Draft on the Digital Financial Services Awareness Guidelines. This was developed to address gaps in consumer knowledge and practices with Digital Financial Services (DFS). The Guidelines provides for a set of principles and expectations for financial service providers to integrate in the provision of DFS to ensure consumer understanding, good treatment and positive outcomes.
• On 1 July 2022, the Court of Appeal set aside the judgement of the Federal High Court in the case of The Registered Trustees of Hotel Owners and Managers Association of Lagos v. Attorney General of Lagos State which invalidated the powers of the Federal Inland Revenue Service (FIRS) to collect Value Added Tax (VAT) from hoteliers and held that the collection of the tax is in the purview of the state government. The Court of Appeal has now held that it is the FIRS that has the authority to collect VAT. See Federal Inland Revenue Service v. The Registered Trustees of Hotel Owners and Managers Association of Lagos.
• Limited Interim Regulatory/Registration Framework and Guidelines for Digital Lending 2022. The regulations were issued by the FCCPC on 18 August 2022 to provide the FCCPC’s approach to regulating the digital lending space and makes provisions for the requirements for approval/registration to carry out the business of digital lending in Nigeria. Thus, by this Framework and Guidelines, institutions engaged in digital lending activities are to be registered with the FCCPC.
• The Revised Handbook on Expatriate Quota Administration 2022 (the Revised Handbook). On 31 August 2022, the Federal Ministry of Interior announced the issuance of the Revised Handbook. The Handbook increased the minimum share capital requirement of a company wishing to apply for business permit from N10,000,000 to N100,000,000. It also reduced the lifespan of Expatriate Quotas (EQs) from ten to seven years. However, the provisions of the Handbook are yet to be operational.
• The Advertising Regulatory Council of Nigeria (ARCON) banned the use of foreign voice-over artists and models on any advertisement which targets the Nigerian advertising space. The ban took effect on 1 October 2022.

4^th Quarter (October – December 2022)

The Nigeria Startup Act was enacted during this quarter, and it represents a remarkable achievement towards incentivizing startups in Nigeria through the incentives and programmes dedicated to spur the growth of startups in Nigeria. A sport policy was also developed and approved with the motive to position the sport sector to generate revenue while standardizing it. The CBN was also active with the issuance of several guidelines and regulations to regulate players in the Nigerian financial services sector. Below are some of the highlights of the 4^th quarter:

• Exposure Draft Guidelines for the Regulation of Representative Offices of Foreign Banks in Nigeria. The Guidelines stipulate how a representative office of foreign banks can be licensed in Nigeria. It enumerates the activities they can validly engage in in Nigeria such as marketing the products and services of their foreign parent or affiliate and states that they cannot engage directly in any financial transaction.
• Exposure Draft Guidelines on Contactless Payments in Nigeria. The Guidelines provide the minimum standards and requirements for the operation of contactless payments and specified the roles of stakeholders such as acquirers, issues, payment schemes, merchants, etc.
• Nigeria Startup Act 2022. On 19 October 2022, the Nigeria Startup Act, 2022 was signed into law. The law aims to provide an enabling environment for the establishment, development, and operation of startups in Nigeria and to position Nigeria’s startup ecosystem as the leading digital technology centre in Africa.
• National Sports Industry Policy (NSIP) 2022 – 2026. On 2 November 2022, the Federal Executive Council (FEC) approved the National Sports Industry Policy (NSIP) 2022 – 2026. The policy contains provisions on governance regulations, infrastructure development plans, incentives for private investors, etc. aimed at standardizing the Nigerian sport sector and thereby generating revenue.
• CBN Naira Redesign Policy – Revised Cash Withdrawal Limits. Citing the need to combat fraud, corruption, terrorism and to ensure that most of the money in circulation are within the banking vault, the CBN issued the policy document on 6 December 2022 to reduce the daily and weekly cash withdrawal limit and also to introduce certain requirements for withdrawing across the counter beyond the set limit at the rate of 5% fee for individuals and 10% for corporate organizations. The revision of the cash withdrawal limits was done by the CBN pursuant to the recent redesign of the Nigerian currency i.e. N200, N500 and N1,000 notes. Coming less than three months before the next general elections in Nigeria, this policy has received a lot of resistance from the political class.

Conclusion

2022 has been a remarkable year in the Nigerian legal and regulatory space and saw the enactment of the Start Up Act, the redesign of the Naira and the introduction of far-reaching regulations especially by CBN aimed and tackling corruption, fraud and financial crimes.

We use this opportunity to wish all our clients a very Merry Christmas and best wishes for the New Year 2023. Thank you all for your support.

Please note that the contents of this Article are for general guidance on the Subject Matter. It is NOT legal advice.

For further information or to see our other service offerings, please visit www.goldsmithsllp.com  or contact:

The post Goldsmiths Solicitors – Legal Recap for the Year 2022 first appeared on Goldsmiths Solicitors.

In this concluding part of our series examining the Petroleum Industry Act (PIA) 2021, we take a look at the provisions made for host communities under the Act. We also highlight funds established under the Act as well as other general provisions relating to customer protection, natural gas price for strategic sector, etc. in the Act. The Act makes provisions for host communities which encourages social and economic development and is aimed at promoting mutual cooperation between the host communities and petroleum operators within the community (Settlors).

Incorporation of Host Communities Development Trust

Host communities are communities situated in or appurtenant to the area of operation of a settlor and any other community as a settlor may determine.[1]

The settlor[2] is required to incorporate a Host Community Development Trust ‘the Trust’ in the community where they carry out petroleum operations.[3] The Settlor is also required to appoint the Board of Trustees (the Board) as well as members of each Committee in the said Trust. The failure of a settlor to do so can be a ground for revocation of License or Lease.[4] The settlor is also required to undertake a Needs Assessment which shall metamorphose into the Community Development Plan and determine the project to be undertaken by the Trust.

Timeline for Incorporating the Trust

The timeframe within which the Trust is to be incorporated by the settlors are as follows:

• The settlors with existing Oil Mining Lease, existing designated facilities and new designated facilities under construction – 12 months from the effective date;[5]
• Settlors with existing Oil Prospecting License – prior to the application for field development plan;
• Settlors with Petroleum Prospecting License and Petroleum Mining – prior to the application for any field development plan; and
• Settlors who are licensees of designated facilities granted under the PIA – prior to the Commencement of commercial operations.[6]

Reporting Obligations under the Trust

The Management Committee of the Trust (one of the Committees to be setup under the Trust) has both mid-year and annual reporting obligations to the Board of Trustees which is to be sent respectively not later than 31^st August of the preceding year and 28^th February of the succeeding year. The Board is also required to report to the Settlor not later than 31^st March of that year. The Board shall then submit an annual report to the Commission or Authority (as the case may be) not later than 31^st May each year.[7]

Funds under the Petroleum Industry Act

The Act makes provision for the establishment of various Funds. The Funds established or to be established would be used in administering the affairs of the sectors which they apply to.

The Host Communities Development Trust Fund – this Trust Fund is established by the  constitution of each Host Community Development Trust and the Settlors are required to make an annual contribution to the applicable community of 3% of its actual operating expenditure of the preceding year in the Upstream Petroleum Operation affecting the community.

The Act protects petroleum operations and activities in host communities by providing that where there is any vandalism, sabotage or any civil unrest which causes damage to any petroleum or designated facilities or disrupts petroleum activities in a host community, such community will forfeit its entitlement to the extent of the cause to repair the damage or the damage that occurred as a result of such disruption.[8]

The Decommissioning and Abandonment Fund (DAF) –

This Fund is to be setup, maintained and managed by each Licensee and Lessee to be held by a financial institution that has no connection with the Licensee and Lessee or its affiliate. It is to be held in an escrow account, accessible to the Commission or Authority. The Fund is to be used for the payment of decommissioning and abandonment costs.

The amount to be contributed yearly into the Fund is to be based on the Decommissioning and Abandonment Plan set out by the licensee or lessee and approved by the Commission or Authority  and the amount is to be reviewed every 10 years following the first submission.[9]

A Licensee or Lessee is required to inform the Commission or Authority (as the case may be) of the establishment of this Fund not more than 3 months from the date of commencing upstream petroleum operations or commissioning the facilities for midstream operations. They are also required to submit the Statement of Account of the said Fund to the Authority or Commission on an annual basis and a copy is to be provided to the FIRS. The residue amount in the Fund after the decommissioning and abandonment has been carried out and approved is to be taken as income for production sharing and tax purposes and the remaining amount shall be returned to the Licensee or Lessee after tax deductions.[10]

Midstream and Downstream Infrastructure Fund (MDIF) –

This Fund is established by the Act and is a body corporate capable of suing and being sued.[11] Its source of funds includes 0.5% of the wholesale price of petroleum products and natural gas sold in Nigeria to be collected by the wholesale customers and which is to be paid within 21 days of sale[12], funds and grants from multilateral agencies, bilateral institutions dedicated partly or wholly to midstream and downstream infrastructure in Nigeria, monies received from gas flaring penalties by the commission, etc.

The Fund is to be used to make equity investments of Government owned participating or shareholders interest in infrastructures relating to operations of the midstream and downstream sector.[13]

The Frontier Exploration Fund (FEF)[14] –

This Fund is created to facilitate petroleum exploration activities in Nigeria including drilling and testing of identifiable petroleum prospects and leads, the development of frontier acreages, exploration of frontier basin, etc.

The major source of fund for the FEF is 30% of the Nigerian National Petroleum Company Limited profit oil and profit gas in the production sharing, profit sharing and risk service contracts.

A commercial discovery made in a frontier acreage and the identifiable prospect or lead is tested and grilled by the Commission, the NNPC Limited will have the right of first refusal.

The Authority Fund[15] –

This Fund is to be used for the administration and operations of the affairs of the Nigerian Midstream and Downstream Petroleum Regulatory Authority. Its source of fund includes 0.5% of the wholesale price of petroleum products and natural gas sold in Nigeria to be collected from wholesale customers, fees charged by the Authority for services rendered to licensees, fees paid to the Authority, income derived from publications made by the Authority, etc.

The contribution of 0.5% of the wholesale price of petroleum products and natural gas sold in Nigeria to be collected from wholesale customers applicable to this Fund is distinct from the one to be made to the MDIF.

The Commission Fund[16]–

This Fund is to be used for the administration and operations of the affairs of the Nigerian Upstream Petroleum Regulatory Commission. its source of fund includes money appropriated by the National Assembly, fees charged by the Commission for services rendered, income derived from publications by the Commission, etc.

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In our third series examining the main provisions of the newly enacted Petroleum Industry Act (PIA), we consider some of the tax and fiscal provisions under the Act. The PIA altered the administration of taxes and the payment of fees and levies in the Nigerian Petroleum Industry and makes changes aimed at encouraging investment in the Industry. The Act also sets out the agencies now in charge of the administration and collection of taxes and levies, and makes alterations on the rates, allowable and non-allowable deductions, etc. to be made in respect of taxes.

Responsible Agencies

The Agencies responsible for the administration and collection of taxes and other levies under the PIA are:

1. The Federal Inland Revenue Service (FIRS) – responsible for assessing and collecting Hydrocarbon Tax, Tertiary Education Tax and Companies Income Tax.^[1]
2. The Nigerian Upstream Petroleum Regulatory Commission (the Commission) – responsible for determining and collecting royalties, signature bonuses, rents, production shares profit sharing or risk service provisions and other related payments;[2] and
3. The Nigerian Midstream and Downstream Regulatory Authority (the Authority) – responsible for the determination and collection of penalties on gas flaring arising from midstream operations.[3]

Applicable Taxes

The PIA has made some changes with respect to some aspects of taxes payable by operators. The Petroleum Profit Tax (PPT) will now be replaced with Hydrocarbon Tax (HT) and Companies Income Tax (CIT).

The Hydrocarbon Tax.

Hydrocarbon Tax (HT) are assessable taxes, chargeable on profits of Companies engaged in upstream petroleum operations in the onshore, shallow water and deep waters and it applies to crude oil, field condensates and natural gas liquids derived from associated gas and produced in the field upstream of the measurement points.[4] The following are not subject to Hydrocarbon Tax (HT):

1. Associated gas produced which is not upstream of the measurement point[5];
2. Any frontier acreage until it is reclassified to a general onshore[6].

The crude oil taxable under the HT is the value of chargeable oil adjusted to measurement point.[7] To determine Hydrocarbon Tax (HT), the adjusted measurement point, allowable deductions[8] adjusted profit and non-allowable deductions[9] are to be considered. In ascertaining the adjusted profit, penalties, litigation and arbitration costs, bad debts, financial/bank charges, etc. are not deductible.^[10]

In determining the HT, the sum eligible for deduction in an accounting period is subject to the cost ratio limit of 65% of the gross revenue determined at measurement point.[11] Where deductions required to be made are not made in an accounting year, such deductions may be brought to FIRS’ notice within 5 months after the end of an accounting year or as extended by the FIRS[12] and may be deducted in the subsequent accounting year.[13] HT is payable in installments.[14] and its assessment, computation and payment is to be made in USD.^[15]

The Act categorizes chargeable tax with respect to HT into two (2), namely:

1. Profit on crude oil for Petroleum Mining Leases (PML) with respect to onshore and shallow water areas, which is 30% of the lessee’s profit; and
2. Profit on crude oil for Petroleum Prospecting Licence (PPL) with respect to onshore and shallow water areas, which is 15% of the licensee’s profit.

Chargeable Persons under Hydrocarbon Tax

Generally, Companies engaged in Upstream petroleum operations are liable to be charged and to pay Hydrocarbon Tax. The following persons/companies are also subject to hydrocarbon tax:

1. Any person or persons or partnership except companies and/or partnership between companies that engages and makes profit from upstream petroleum operations is liable to pay taxes in addition to provided penalties.[16]
2. Companies engaged in upstream petroleum operations either as a Partnership, Joint Ventures or any other arrangement. These companies will be charged in proportion to the equity interest held respectively by them.[17]

Accounts/Returns to be Kept

The FIRS oversees the administration, assessment and collection of Hydrocarbon Tax. Companies assessable to Hydrocarbon Tax are required to keep and submit accounts to the FIRS.

Accounts of Profit and Loss

Companies engaged in Upstream Petroleum Operations relating to crude oil are required to make accounts of profits and loss within an accounting period and they are required to submit a copy of the accounts to the FIRS within 5 months of the accounting period or within 5 months from the effective date of the PIA.[18]

Returns of Profit and Loss

Companies engaged in upstream petroleum operations related to crude oil are also required to submit an estimated return of profits and loss not later than 2 months after the commencement of each accounting period. Where there is a change in price, cost or volume after filing of returns, the company will be required to submit further returns reflecting the change.[19]

Accounts or Returns on Bulk Sale or Disposal of Chargeable Oil

Every company yet to commence bulk sale or disposal of chargeable oil are to file its audited accounts or returns to the FIRS within 5 months after the 31^st of December of each year for already existing Companies and 18 months for newly incorporated companies.[20]

The post The Tax and Fiscal Regime under the Petroleum Industry Act 2021: Goldsmiths Solicitors PIA Series III first appeared on Goldsmiths Solicitors.

Grant of Licences and Permits in Midstream and Downstream Petroleum Operations

The Authority publishes the applications for the grant of licence or renewal in respect of which comments or representations may be made.^[1]There is an obligation to comply with the Land Use Act as it relates to compensation for acquisition of land in respect of which a licence or permit has been issued by the Authority for Midstream and Downstream petroleum operations.^[2]

Licences in Midstream and Downstream Gas Operations

The activities that require a licence in the midstream and downstream gas operations include establishing, constructing or operating a facility for the processing and storage, of natural gas, engaging in wholesale gas supply, etc. ^[3] Licences to be obtained under the Midstream and Downstream gas operations include:

1. Gas processing licence – grants the licensee the right to install and operate gas conditioning plants, gas processing plants, gas to liquids plants, liquefied natural gas (LNG) plants and ethane extraction plants.^[4]

2. Bulk gas storage licence – grants the licensee the right to undertake the bulk storage of natural gas either for its own account or on behalf of customers.^[5]

3. Gas transportation pipeline licence – gives the holder the exclusive right to own, construct, operate and maintain a gas transportation pipeline within a route defined in the licence for its own account with third party access or as common carrier.^[6] The holder cannot supply gas to customers on its own account where it is granted on a common carrier basis.^[7] The licence is also required for unprocessed gas that needs to be transported.^[8]

4. Gas transportation network operator licence – authorises the holder to convey natural gas through the gas transportation network, balance the inputs and off takes from the gas transportation network, charge for the use of the gas transportation network, etc.^[9]

5. Wholesale gas supply licence – authorises the holder to purchase natural gas directly from any lessee or third party and sell and deliver wholesale gas to wholesale customers and gas distributors at any location in Nigeria.^[10]

6. Retail gas supply licence – authorises the holder to sell or retail compressed or liquefied marketable natural gas to customers and establish, construct and operate facilities to deliver compressed natural gas and small-scale facilities for LNG.^[11] It also authorises the holder to purchase marketable natural gas directly from a lessee, wholesale gas supplier or third party, and sell and deliver compressed or LNG to customers at any location in Nigeria on a free market basis.^[12]

7. Gas distribution licence – grants the holder the right to establish, construct, and operate a gas distribution system and to distribute and sell its natural gas to consumers in a local distribution zone,^[13] including retail customers.^[14]

8. Domestic gas aggregation licence – the licence is issued for a period of 2 years and renewal in each instance is also for 2 years.^[15] A domestic gas aggregator supports the implementation of the domestic gas delivery obligation in addition to other functions that it is expected to carry out.^[16] The domestic gas aggregator is required to be a company limited by guarantee established under the Companies and Allied Matters Act.^[17]

Midstream and Downstream Petroleum Liquid Operations

The following licences may be granted to qualified applicants in the midstream and downstream liquid sector:

1. Crude oil refining licence – permits the licensee to procure, construct, install and operate facilities to process crude oil on its own account into derivative chemicals and petroleum products and to sell such chemicals and petroleum products.^[18] The licence gives the holder right of access to facilities which include harbours, jetties, petroleum bulk storage, transportation facilities and pumping installations.^[19]
2. Bulk petroleum liquids storage licence – authorises its holder to undertake the bulk storage of petroleum liquids whether for its own account or on behalf of customers.^[20]

3. Petroleum liquids transportation pipeline licence – grants the holder the exclusive right to own, construct, operate and maintain a transportation pipeline for the transportation of petroleum liquids within a defined route.^[21]

4. Petroleum liquids transportation network operator licence – gives the holder the right to:^[22]
5. Convey petroleum liquids through the transportation network;
6. Balance the inputs and off takes from the transportation network;

5. Wholesale petroleum liquids supply licence – authorises the supplier (the holder) to sell and deliver petroleum liquids to bulk customers in Nigeria or for export.^[23] The company that is entitled to this licence is one that is a lessee producing crude oil or condensates or both or a holder of a crude oil refining licence.^[24]

6. Petroleum products distribution licence – authorises the licensee to distribute petroleum products.^[25] The licensee has the duty to carry out its activities in line with the provisions of the Act.

7. Licence to construct and operate a facility for retail supply and distribution of petroleum products – authorises the holder to establish, construct and operate a facility to be employed for retail sale of petroleum products.^[26]

8. Licence to operate a facility for the production of petrochemicals – authorises the holder to establish, construct and operate a facility for the production of petrochemicals and sell the petrochemicals produced.^[27]

Environmental Management

Licensee and lessors in upstream and midstream petroleum operations are to submit an environmental management plan to their respective regulators in respect of projects requiring environmental impact assessment.[28]

The Act seeks to ensure an eco-friendly petroleum operation by making contributions towards remediation of environmental damage by licensees and lessees a condition for the grant of the licence or lease.[29]

Conclusion

Under the PIA, the agency that now has the responsibility for licensing the with the midstream and downstream sectors is the Nigerian Midstream and Downstream Regulatory Authority.  There are now a variety of licenses to be obtained either in the gas or petroleum liquid operations under the midstream or downstream sectors. These include Gas processing licence, Bulk gas storage licence, Gas transportation pipeline licence, Gas transportation network operator licence, crude oil refining licence etc.

Watch out for our next publication on the PIA to be published next week and which shall consider the fiscal and tax regimes under the PIA..

Please note that the contents of this Article are for general guidance on the Subject Matter. It is NOT legal advice.

For further information or to see our other service offerings, please visit www.goldsmithsllp.com  or contact us:

The post New Licensing Regimes under the Petroleum Industry Act 2021 – GS Series II (Part B) first appeared on Goldsmiths Solicitors.

The PIA still categorizes the petroleum sector into three as follows: the Upstream, Midstream and the Downstream sectors. The Nigerian Upstream Petroleum Regulatory Commission (the Commission) is responsible for regulating the Upstream sector. The Commission is responsible for issuing licences to operators in the upstream sector. However, the grant of a licence to operate a refinery is issued by the Minister on the recommendation of the Authority.^[1]

A company cannot operate more than one (1) stream. Where a person intends to operate in more than one stream, separate companies must be incorporated for each stream.^[2] However, the Act provides for the establishment of an Integrated Specific Project (ISP) where the capital investments associated with the Midstream Petroleum Operations can be consolidated with the Upstream Petroleum Operations (UPO) for tax purposes. An ISP may be established where there is a project by the UPO to produce oil and natural gas, which is to be processed and refined as a final product and sold to the local market.^[3]

In this part, we address the licensing regime under the upstream petroleum sector as provided in the PIA.

Licences/Lease in Upstream Petroleum Operations

The PIA seems to have introduced a change in licence type nomenclature. Under the previous regime, there were the oil exploration licence, oil prospecting licence and oil mining lease. Now the word “Oil” has been replaced with the word “Petroleum”.

1. Petroleum Exploration Licence (PEL) – The license only allows its holder to explore petroleum on a non-exclusive basis.^[4] Exploration under this licence may also cover areas that include the Petroleum Prospecting License (PPL) and Petroleum Mining Lease (PML) provided the holders of the PPL and PML have no obligation to pay for the result of the survey conducted under the PEL.[5] The license is valid for 3 years and renewable for another period of 3 years on the satisfaction of prescribed conditions.^[6]

2. Petroleum Prospecting Licence (PPL) – This license allows its holders to carry out petroleum exploration on a non-exclusive basis and to drill exploration and appraisal wells.^[7] The holder is required to submit to the commission a commitment to a field development plan within a period of 2 years after a commercial discovery declaration to the commission.^[8] In respect of onshore and shallow water acreages, the licence is valid for 3 years and renewable for an additional period of 3 years at the option of the holder^[9] while for deep offshore and frontier acreages, it is valid for an initial period of 5 years and an optional extension period of 5 years.^[10] This licence is not to be extended except in accordance with the PIA.[11] Failure of the holder of the licence to fulfil any term or condition which arises from a force majeure shall not amount to a breach of the licence.^[12]

3. Petroleum Mining Lease (PML) – It is granted to qualified applicants to win, work, carry away and dispose of crude oil, condensates and natural gas on an exclusive basis.^[13] It also allows its holder to explore oil on a non-exclusive basis. The Lease will be granted to the holder of a PPL upon each commercial discovery of crude oil or natural gas or both and where it has satisfied the conditions imposed on it.^[14]

The holder of the lease has exclusive right to carry out the development and production of petroleum with respect to the area covered by the lease.^[15] The lease is granted for a maximum period of 20 years.^[16] Its holder must continue commercial production otherwise the lease may be revoked, and title goes to the government.^[17]

Any of these licences or lease may only be granted to companies incorporated under the Companies and Allied Matters Act.^[18] It is an offence for Individuals and Partnerships other than Companies or partnership between Companies to engage in upstream petroleum operations. Such individual or partnership will also be liable to HCT and CIT on profits so made^[19] and will be liable to pay an administrative penalty of N10Million, N2Million for each day the offense continues and upon conviction, the sum of N20Million or Six (6) months imprisonment.^[20]

Submission of Field Development Plan and Unitization

The holder of a Petroleum Prospecting Licence is required to submit to the commission a commitment to a field development plan within a period of 2 years after a commercial discovery declaration to the commission.[21] The field development plan may be submitted in phases.[22] Upon submission, the NURC shall evaluate the technical and commercial terms of the field development plan and shall approve it where it meets certain conditions.[23]

The areas where there is a declaration of commercial discovery in respect of may be developed and worked on, on a unitization basis for the purpose of optimum recovery of petroleum from a petroleum reservoir. This provision on unitization applies to the holders of PPL and PML.[24] The commission may issue regulations on unitization from time to time.[25]

Conversion of Oil Prospecting Licence and Oil Mining Lease

In view of the change in license nomenclature, the PIA has introduced new steps to be taken by license holders under the old regime who intend to switch to the new ones. Generally, present holders of the Oil Prospecting Licence (OPL) and the Oil Mining Lease are not mandated to convert to PPL and PML respectively. However, upon the expiration of their licence, they shall cease to hold any license and would be required to apply for the licences under the PIA. A holder of an OPL or OML who wishes to convert may do so through a Conversion Contract.^[26] For the conversion to take place, it is required that all arbitration and court cases related to it be terminated through the termination clause included in the contract.^[27]

Conversion for Marginal Field

A producing marginal field is allowed to continue at the original Royalty rates and Farm Out Agreements but is required to convert to petroleum mining lease within 18 months from the effective date of the PIA.^[28] On the other hand, a non-producing marginal field shall be converted into a petroleum prospecting licence.^[29] It is important to note that new marginal fields shall not be declared under the Act.^[30]

Gas Flaring or Venting

Generally, gas flaring or venting by a licensee, lessor or the operator of a marginal field is an offence except it is done:

1. In the case of an emergency
2. Pursuant to an exception granted by the commission for a specific period and purpose as defined under the Act.[31]
3. As an acceptable safety practice under established regulations.[32]

The fine is imposed on gas flaring or venting is for the remediation of the environment and relief of the host communities of the settlors.[33]

Revocation of Licences/Lease

PPL and PML may be revoked by the Minister of Petroleum. However, a notice of default shall be sent to the last known address of the holder in addition to the provision of a remediation period of not less than 60 days.^[34] Where a satisfactory remedy is received, the revocation process shall be terminated^[35] otherwise it shall be revoked and the fact of revocation shall be published in the Federal Government Gazette.^[36]

Conclusion

The PIA introduces some new licensing regimes in the Nigerian petroleum sector. It introduces a change in upstream sector’s license type nomenclature and has replaced the word “Oil” with the word “Petroleum” suggesting that there are more far-reaching licensing requirements. While it is not mandatory for holders of OPL and OML to convert their licences, holders of marginal field are required to do so within 18 months. Licensees are to comply with international best practices and ensure compliance with local laws and regulations to prevent revocation of their licence.

Watch out for the part B which comes out on 29^th September 2021 which will deal with the licenses under midstream and downstream sectors.

Please note that the contents of this Article are for general guidance on the Subject Matter. It is NOT legal advice.

[1] Section 111 (1), Petroleum Industry Act 2021

[2] Ibid, Section 302(3)

[3] Ibid, Section 302(4)

[4] Ibid, Section 70 (1) (a)

[5] Ibid, Section 71 (4)

[6] Ibid, Section 71 (3)

[7] Ibid, Section 70 (1) (b)

[8] Ibid, Section 79 (1)

[9] Ibid, Section 77 (1)

[10] Ibid, Section 77 (2)

[11] Ibid, Section 78 (4) and 79 (6)

[12] Ibid, Section 72 (2)

[13] Ibid, Section 70 (1) (c)

[14] Ibid, Section 81(1)

[15] Ibid, Section 82(1)

[16] Ibid, Section 86(1)

[17] Ibid, Section 86 (2) and (3)

[18] Ibid, Section 70 (2)

[19] Ibid, Section 273(1) & (2)

[20] Ibid, Section 297(1) & (2)

[21] S. 79 (1)

[22] S. 79 (14)

[23] S. 79 (2)

[24] S. 80

[25] S. 80 (9)

[26] Ibid, Section 92 (1)

[27] Ibid, Section 92 (3)

[28] Ibid, Section 94 (1)

[29] Ibid, Section 94 (2)

[30] Ibid, Section 94 (9)

[31] S. 107

[32] S. 104

[33] S. 104 (4)

[34] Ibid, Section 97 (1) (a) and (b)

[35] Ibid, Section 97 (2)

[36] Ibid, Section 97 (6)

The post New Licensing Regimes under the Petroleum Industry Act (PIA) 2021 – GS Series II (Part A) first appeared on Goldsmiths Solicitors.

The Petroleum Industry Act (the PIA) was signed into law by Nigerian President, Muhammadu Buhari on 16 August 2021. Before its passage into law, it was a Bill pending for over 20 years at the National Assembly. Its passage represents a breakthrough for the petroleum industry in Nigeria with its innovative provisions and is aimed at repositioning the sector and meeting international best practices.

The PIA marks the beginning of the end of the Nigerian National Petroleum Corporation (NNPC) which was established on 1 April 1977. It provides for the incorporation of a National Oil Company – Nigerian National Petroleum Company Limited (NNPC Ltd.) which will eventually be vested with the responsibility of winding down the NNPC and taking over its operations.

For further information or to see our other service offerings, please visitwww.goldsmithsllp.comor contact us.

The post The Petroleum Industry Act, 2021 – Goldsmiths Solicitors PIA Series 1 first appeared on Goldsmiths Solicitors.