New PIB throws up more ESG challenges

Oil and gas industry

. Acreage award, frontier exploration, host community, gender rank high

Clara Nwachukwu

Although the National Assembly’s passage of the Petroleum Industry Bill (PIB) 2021 signals hope, however, some of its provisions fall short on environment, social and governance (ESG) standards.

Ironically, the last bill passed by the 8th Assembly which tried to resolve these challenges with the Petroleum Industry Governance Bill (PIGB) 2018, never became an Act of Parliament, because Mr President refused to assent to the bill mostly over who holds the power to award or revoke oil block licences.

Fast forward to 2021, the executive PIB presented to the Assembly vested such powers on the Minister of Petroleum Resources, who incidentally has been the President of the Federal Republic of Nigeria since 2015.

Perhaps the power to award oil blocks is better understood against the backdrop that except for President Umaru Musa Yar’Adua, every other Nigerian president had arbitrarily abused this public trust.   

The PIB 2021 is said to be “A Bill for an Act to Provide Legal, Governance, Regulatory and Fiscal Framework for the Nigerian Petroleum Industry, the Development of Host Communities; and for Related Matters.”

Chapter 1 of the 437-page bill, titled: Governance and Institutions Part I Vesting and Objectives, seeks to in 2(c) promote transparency, good governance and accountability in the administration of the petroleum resources of Nigeria; and (d) foster a business environment conducive for petroleum operations,” as borrowed from the PIGB.

Acreage award and revocation

The harmonised PIGB vested the power to award and revoke acreage licences on the Nigeria Petroleum Regulatory Commission. Section 6, defined the functions of the Commission to include: 1(r) conduct bid rounds or other processes for the award of any licence or lease required for petroleum exploration or production;

(s) Issue, modify, amend, extend, suspend, review, cancel and reissue, revoke and/or terminate upstream licences made in compliance with applicable laws and regulations.

The PIB may have broken a 13-year jinx, but it ignored the implications for transparency and accountability, as Section 3, which defines the Powers of the Minster, states in: (g) upon the recommendation of the Commission, grant Petroleum Prospecting Licences and Petroleum Mining Leases through the processes established in this Bill; and,

(h) Upon the recommendation of the Commission and pursuant to the provisions of this Bill and the Regulations, revoke and assign interests in Petroleum Prospecting Licences and Petroleum Mining Leases.

A typical example played out in April, when the Department of Petroleum Resources (DPR), as the regulator of the industry, revoked four oil block licences belonging to Addax Petroleum Development Nigeria Limited due to the prolonged neglect of the assets. The decision was later reversed by the Presidency.

The power now vested on the minister or President as it were, is one of the reasons experts believe the PIB 2021 will receive presidential approval once it has been harmonised. 

Frontier exploration

Who awards or revokes oil and gas acreage licences is not the only ESG issue in the bill, as deploying as much as 30% of the proposed NNPC Limited’s profit oil and gas into Frontier Exploration is another knotty point .

Section 8 of the new PIB, provides for the establishment of the Nigerian Upstream Regulatory Commission. Further down in Section 9 are the Functions of the Commission for Frontier Basins, a region that has not yielded the desired success despite the humongous amount being deployed for hydrocarbon search in commercial quantities.

Also, Section 9(4), provides that “The Frontier Exploration Fund shall be 10% of rents on petroleum prospecting licences and 10% rent on petroleum mining leases; and 30% of NNPC Limited’s profit oil and profit gas as in the production sharing, profit sharing and risk service contracts.”

Furthermore, even when there is no entity interest for testing or drilling in the region, the PIB empowers the Commission to “…engage the services of a competent person to drill or test such prospects and leads on a service fee basis.”

Also, “the Commission shall in line with the provisions of subsection 64(k) request the services of NNPC Limited to drill or test such prospect and leads on a service fee basis to be charged to the Frontier Exploration Fund pursuant to this Act.”

Political interference

As a result, experts see these provisions as a major shortcoming of the PIB, since the NNPC Ltd. will still be owned by the government, while its policies will continue to be influenced by politicians.

Notably, the issue has always been how to wrestle the control of NNPC from politicians, such that it can operate in the mould of the likes of Saudi Aramco, which experiences little or no interference from the government, despite that the country is being run by a monarch.

Rather than deploying so much into a fruitless venture over the decades, such monies can be deployed into renewable energy. The money can also be used to develop other value adding resources to generate revenue from the north.  

Industry operators, who spoke to Sustainable Economy in confidence, insist that the proposed 30% of NNPC profit for frontier exploration is rather very high compared to its entire portfolio and return on investment (RoI). “Such a decision is politically motivated and not based on any economic or technological consideration, and cannot be justified,” they said.

In their opinion, “The frontier exploration is being pursued to discover oil in the north, so as to reduce the region’s dependence on the south. Rather than deploying so much into a fruitless venture over the decades, such monies can be deployed into renewable energy. The money can also be used to develop other value adding resources to generate revenue from the north.”

Host Community Fund

Compared to the Frontier Fund, indecision on the percentage equity for the Host Community Fund for the Niger Delta, from where over 80% of the Federal Government’s revenue is generated through hydrocarbon exploration raises concerns.

Different suggestions from the executive for 2.5% stake, the Senate 3%, and the House of Representatives 5%, against the host communities’ demand for 10% call for further harmonisation.

Petroleum Economist at the University of Ibadan, Prof. Adeola Adenikiju, described the situation in the host communities as appalling, given the environmental degradation and pollution residents have had to live with all these decades.

He recalled that such deprivation was confirmed in a CNN’s documentary, which showed that Nigerian oil communities are worse off than their peers among the Organisation of the Petroleum Exporting Countries (OPEC).

“Given the environmental pollution and degradation, people need to take care of themselves both financially and health wise. Whatever is needed to make their lives better must be done,” Adenikiju said.

“No matter the final percentage allocation, there must be some mechanism for operating the fund to ensure it is well-utilised to enhance development in the communities. This way, the communities will also allow E&P operations in their localities and will be more supportive of the projects, and there will be less disruption of activities.”

For Dr Chijioke Nwaozuzu of the Emerald Energy Institute, University of Port Harcourt, any equity fund below 5% for the host communities won’t cut it, because the communities are still highly underdeveloped.

“How the fund will be managed is more important than the percentage allocation, because if it doesn’t trickle down to good roads, good healthcare facilities, better markets, good and portable water, access to electricity, then it won’t do much good. Despite the existence of the NDDC and 13% derivation, the communities still look the same. So there should be proper distribution of revenues that accrue among the various communities.”

Agreeing, CEO International Energy Ltd. Dr Diran Fawibe, said: “The most important issue in the Host Community Fund is that the monies must be judiciously utilised for the benefit of the communities. When you consider the amount that has gone to the Niger Delta region through several avenues including OMPADEC, NDDC, 13% Derivation and Ecological Fund (2%), by now the landscape of the region should have changed significantly.

“Rather, what we have mostly seen is a show of shame because there is little to show for all the monies deployed. Therefore, the Host Community Fund should be used as a platform to right the wrongs of the past.”

Assessing ESG standards in PIB

Whether at par with international standards or not, Fawibe argues that “A lot of the success of this bill in terms of sustainability will depend on the political leaders, the executors and those who will administer the policies. These people must be honest.”

He argued that even with the current Petroleum Act of 1969, “if we had had a different mind-set, free from encumbrances and selfish interests from both the executors and operators, I believe we would have got a better deal than what we’ve had so far.

“Transparency and accountability does not happen on its own, it depends on the people that will guarantee this. If the executors and operators don’t show any sense of accountability and transparency, even the best piece of legislation will not make any sense.”

For Nwaozuzu, political will is key, because “With every policy there are losers and gainers. If the losers have higher levels and bargaining power, they will rubbish the bill. But where there is more political will from the top, it will be able to counterbalance the losers. There is always a potential for losers to interfere, for instance the subsidy regime; very powerful losers have been in control, which is why subsidy has lasted for this long. If we had passed the bill in 2005 or 2007, by now we would have achieved some relative mileage.”

On her part, the Executive Director, Centre for Transparency Advocacy (CTA), Ms Faith Nwadishi, is concerned that “not a single word of gender was mentioned in the Bill. However, the word ‘women’ was mentioned once in relation to host communities’ needs assessment.”

Nwadishi, in a statement, is equally worried that host communities are still held responsible for any kind of sabotage on oil facilities, while acknowledging provisions for contract transparency and banning of gas flaring.

“Section 83 sub 3-5 on contract transparency provides that: 3(a) the text of any existing contract, licence or lease and any amendment or side letter with NNPC shall – (A) not be confidential.

“Section 104 of the Bill makes gas flaring an offence except in the case of emergency exemption granted by the Commission or for an acceptable safety practice. Offenders are liable to a fine and the fine will be used for investment in midstream gas infrastructure within the host community on which the penalties are levied,” the statement reads.

Overall, Adenikiju believes the PIB tallies a lot with the PIGB, especially as it “took away the imbalances and obstructions in terms of who is responsible for what – environment, and gas emissions between DPR and NOSDRA. Also, NNPC will not be both a regulator and commercial enterprise, but is now strictly commercial.”      

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