- On 28 September, the government forwarded the latest draft Petroleum Industry Bill (PIB) to the National Assembly for consideration.
- Amid other things, the bill suggests putting the state-owned Nigeria National Petroleum Corporation (NNPC) on a new legal basis and stripping it of its regulatory functions.
- The reform, which has been in the works for 20 years, would be mostly welcome news for the oil and gas industry, and conditions for the much-delayed bill to pass finally seem favorable.
- However, the temporary suspension of the recent electricity tariff hike following union threats highlights the still fragile footing of recent economic reform efforts. Any future plans to privatize NNPC or some of its assets would likely face fierce resistance as well.
A bill that looks mostly promising…
The draft PIB is the latest indication that Covid-19-induced economic and fiscal pressures – Nigeria is facing its deepest recession in 40 years – are forcing reforms that had hitherto been unthinkable under President Muhammadu Buhari.
The main thrust of the bill is to disentangle various functions and roles that are vested in the behemoth NNPC, causing serious market distortions and encouraging rent-seeking behavior. Instead, new regulatory agencies for the up-, mid- and downstream sectors would take over the respective functions currently held by NNPC. The company itself is supposed to be incorporated as a limited liability company (LLC), with the government as the sole shareholder at incorporation.
While the draft law in principle also creates the possibility for the government to divest or transfer its shares, the respective clauses are much less ambitious and specific than the previous administration’s draft. In fact, the 2012 draft PIB of then-president Goodluck Jonathan mandated the government to divest up to 30% of its shares in a privatized NNPC on the Nigerian stock exchange within six years. Nevertheless, the new setup would still increase transparency due to mandatory annual audits – in its 43-year history, NNPC has only once published audited financial accounts – and require the new company and its subsidiaries to “conduct their affairs on a commercial basis without recourse to government funds.” While this would alleviate the government from its cash call obligations under joint venture contracts with the oil majors – which it has notoriously failed to honor for decades – the LLC structure may put a lid on the new company’s ability to raise funds as well.
The bill also makes some adjustments to the hike in royalties on deep offshore fields mandated with the 2019 Deep Offshore and Inland Basin PSC (Amendment) Act: royalties would be cut from 10% to 7% for fields with an output below 15,000 barrel per day, while production royalties would only kick in if global oil prices exceeded USD 50 per barrel, rather than USD 35 at present.
… but will it pass this time?
Prospects for the much-delayed bill to pass into law have rarely been better. Buhari’s All Progressives Congress (APC) commands comfortable majorities in both the Senate and the House of Representatives. While this was also the case during Buhari’s first term, which was characterized by a rather antagonistic relationship between the executive and legislative arms of government, the APC took care to install a much more amenable leadership at both houses in 2019. A series of examples – including the previously mentioned PSC Act, which was voted through within a matter of weeks – suggests the National Assembly will be towing the executive’s line. Furthermore, unlike the 2018 Petroleum Industry Governance Bill (PIGB), which originated from the Senate but was eventually vetoed by Buhari, the PIB is being sponsored by the executive. Finally, with national elections not due before Q1 2023, there should be enough time left to get legislation passed before ruling party elites devote their entire attention to Buhari’s succession.
Having said that, the long history of failed attempts to get oil and gas reform acts through parliament points to lawmakers’ propensity to work along regional and ethnic, rather than party lines on key issues affecting the distribution of wealth and revenues. A key point of friction in this regard, which also featured in the failed 2012 PIB, pertains to the provision of additional funds to so-called host communities, in addition to the 13% share of oil revenues already exclusively allocated to the oil-producing states of the Niger Delta. The 2020 PIB foresees a new levy of 2.5% of oil and gas companies’ “actual operating expenditure in the immediately preceding calendar year” to fund development projects in host communities.
Pushback to reform remains likely
Meanwhile, a temporary suspension of the 50% electricity price hike introduced on 1 September highlights the still fragile footing of recent macroeconomic reform efforts. Faced with the threat of strike action by the two main labor unions, the Nigeria Labor Congress (NLC) and the Trade Union Congress (TUC), the government conceded a two-week review of the new pricing template, during which the old tariffs will remain in place. Similar stand-offs seem likely should the government one day decide to privatize NNPC or some of its assets, such as the four state-owned refineries, as has been repeatedly suggested in recent months.