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.
Creation of Ministry of Petroleum Incorporated
The Act creates the Ministry of Petroleum Incorporated as a sole corporation.[1] The Ministry is to be a co-shareholder in the NNPC Ltd as discussed below.
Incorporation of NNPC Ltd.
The Act provides for the incorporation of the Nigerian National Petroleum Company Limited (NNPC Ltd) with the Corporate Affairs Commission (CAC) as a Limited Liability Company within six (6) months of the commencement of the Act.[2] It vests the ownership of all Shares with the Federal Government, to be held by the Ministry of Finance Incorporated and the Ministry of Petroleum Incorporated in equal proportion.[3]
The shares held on behalf of the Federal Government cannot be transferred except approved by the Federal Government and endorsed by the National Economic Council on behalf of the Federation[4] and the transfer is to be done through an open and competitive bidding process and at a fair market value.[5]The Act makes NNPC Ltd the Concessionaire of all Product Sharing Contracts, Profit Sharing and Risk Service Contracts on behalf of the Federation.[6]
Following incorporation with the CAC and commencement of its operations, NNPC Ltd is required to remit the proceeds of sale of profit oil and profit gas less 30% to the Federation Account. The 30% is to be remitted to the Frontier Exploration Fund.[7]
Winding Down of NNPC
The Act divests the NNPC of its functions and transfers it to NNPC Ltd[8] after the conclusion of its winding down process, the NNPC as we know it shall cease to exist.[9] The Minister of Petroleum is required to consult with the Minister of Finance to appoint NNPC Ltd as the agent in charge of winding up NNPC.[10] All interests, assets and liabilities of NNPC are to be identified and transferred to NNPC Ltd within 18 months from the enactment of the Act.[11] All liabilities not transferred within the 18 months period are to be disposed in accordance with a framework to be set up by the Ministers of Finance and Justice – who doubles as the Attorney General of the Federation.[12] This framework is yet to be set up by these two Ministers.
The Establishment of the Nigerian Upstream Petroleum Regulatory Commission and the Nigerian Midstream and Downstream Regulatory Authority
The Commission and the Authority are the main regulatory bodies in the petroleum sector in Nigeria. They regulate the upstream, midstream and downstream petroleum sectors in accordance with the functions set out in the Act.
The Nigerian Upstream Petroleum Regulatory Commission.
The Act establishes the Nigerian Upstream Petroleum Regulatory Commission (the Commission).[13] The Commission is technically and commercially responsible for the regulation of the upstream petroleum operations in Nigeria,[14] including operations in the Frontier Basins of Nigeria.[15]
The Commission among other things is to, maintain a Fund known as the Commission Fund[16] and issues permits, licenses and other authorizations in the upstream sector such as the Petroleum Exploration License and Petroleum Mining Lease, etc. It is also in charge of integrated operations of both the Upstream and Midstream Petroleum Operations.
The Commission is required to maintain the Frontier Exploration Fund.[17] Its purpose is for the development of Frontier Acreages and, the exploration and development of Frontier Acreages activities in Nigeria, subject to appropriation by the National Assembly. The main source of revenue for the Fund is derived from 30% of NNPC Limited’s profit Oil and Gas.[18]
The Commission is required to comply with reporting obligations and is prohibited from accepting grants from persons and organisation regulated by them.
The Nigerian Midstream and Downstream Regulatory Authority
The Act establishes the Nigerian Midstream and Downstream Authority (the Authority).[19] It is vested with the responsibility of regulating the midstream and downstream petroleum operations in Nigeria, including the collection of gas flare penalty from midstream operations.[20]
The Authority is to maintain “the Authority Fund”[21] whose source of income, among other sources includes 0.5% of the wholesale price of Petroleum Products sold in Nigeria and which is to be collected from wholesale customers.[22] It is to ensure compliance with its reporting obligations and is prohibited from accepting grants and properties from persons or organisation that are regulated by them.
The Act establishes the Midstream and Downstream Infrastructure Fund[23] which is to be maintained by the Authority and penalties arising from Gas flaring from midstream operations are to be credited into the Infrastructure Fund which are to be utilized for midstream and downstream gas infrastructure investment within host communities of a designated facility.[24]
The Authority is charged with the responsibility of reimbursing oil marketing companies through funds available in the Petroleum Equalization Fund. However, where the money in the Fund is not sufficient for reimbursement, monies available in the Fund will be prorated at a ratio based on funds remaining and outstanding payments. Where the Fund runs at a deficit or there is no money in the Fund, oil marketing companies will have no claim on the outstanding amount.
Any entity or individual, representative, etc. that fails to grant access or provide information requested by the Commission or Authority will be guilty of an offence and liable upon conviction to the payment of N5million or 5years imprisonment and N100,000 for each day the offence continues.[25]
Establishment of Incorporated Joint Venture Companies.
In respect of Upstream Petroleum Operations, the NNPC Ltd and parties to Joint Operating Agreements can voluntarily restructure their Joint Operating Agreement as a Joint Venture carried out by way of a Limited Liability Company and referred to as an Incorporated Joint Venture Company.[26] The initial capitalization and transactions required for the formation of the IJVC will not create additional tax liabilities for the IJVC provided that all assets, liabilities and interests, jointly owned in the JOA are transferred to the IJVC at their net value.[27]
Repealed Laws
The Act repeals six (6) laws – the Associated Gas Reinjection Act 1979, the Hydrocarbon Oil Refineries Act, Motors Spirit Returns Act, Nigerian National Petroleum Corporation (Projects) Act, Nigerian National Petroleum Corporation Act, the Petroleum Products Pricing Regulatory Agency (Establishment) Act while two (2) laws are to be subsequently repealed upon the happening of some events – the Petroleum Profit Tax Act, 2004 and the Deep Offshore and Inland Basin Production Sharing Contract Act, 2019.[28]
The Act does not repeal the Petroleum Act as holders of the previously issued licences/leases such as the Oil Prospecting License, Oil Mining Lease, etc. are still governed by the provision of the Petroleum Act until the license/lease expires or are converted to leases or licenses issued under the Petroleum Industry Act.[29] However, provisions under the repealed laws shall remain in force provided that they are not inconsistent with the provisions of the PIA.[30]
Conclusion.
Contrary to the speculations, the PIA only paves the way for the extinction of the Petroleum Act 1969 and does not completely repeal it. Provisions of extant laws should also be considered by operators in the Petroleum Industry in so far as they are not contrary to the PIA.
The PIA is a bold and ambitious piece of legislation. It shall mark the end of the Nigerian State oil Corporation the NNPC as we know it. If properly implemented, it should make the NNPC Ltd. a transparent company, which adopts international best practice in its operations.
Watch out for our next publication on the PIA series coming out on 21st September 2021 which shall address the streams/category of operators in the Petroleum Industry as well as licenses/leases available to them under the PIA.
Please note that the contents of this Article are for general guidance on the Subject Matter. It is NOT legal advice.
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[1] Eighth Schedule, Petroleum Industry Act 2021
[2] Ibid, Section 53 (1)
[3] Ibid, Section 53 (3)
[4] Ibid, Section 53 (5)
[5] Ibid, Section 53 (6)
[6] Ibid, Section 64 (b)
[7] Ibid, Section 64 (c)
[8] Ibid, Section 64 (j)
[9] Ibid, Section 54 (3)
[10] Ibid, Section 55
[11] Ibid, Section 54 (1)
[12] Ibid, Section 54 (2)
[13] Ibid, Section 4
[14] Ibid, Section 6
[15] Ibid, Section 9
[16] Ibid, Section 24
[17] Ibid, Section 9(4)
[18] Ibid, Section 9(5)
[19] Ibid, Section 29(1)
[20] Ibid, Section 259 (c)
[21] Ibid, Section 47(1)
[22] Ibid, Section 47(2) (c)
[23] Ibid, Section 52 (1)
[24] Ibid, Section 33(y)
[25] Ibid, Section 26 (3) and 49 (3
[26] Ibid, Section 65
[27] Ibid, Second Schedule, Para 5(2)
[28] Ibid, Section 310(1)
[29] Ibid, Section 303
[30] Ibid, Section 311.
