Adegoke Oshunniyi

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The Petroleum Industry Bill (PIB), probably the only inchoate piece of legislation in Nigeria that has transcended many regimes, can best be likened to the proverbial cat with nine lives. A jinx, which the Senate President of the Ninth Assembly, Dr. Ahmad Lawan, has promised to break. Though only time will tell if that particular egg can break that easy.

The Bill was introduced to the National Assembly in 2007 to, inter alia, produce a dynamic policy framework for massive reforms in the oil & gas industry, which reforms were expected to form the nucleus of Nigeria’s aspiration to become one of the most- industrialised Nations by 2020,’[1]

However, contrary to all expectations, the Bill, in its wholesale form, has survived three presidents and four convocations of the National Assembly. Though a splinter of the Bill named the Petroleum Industry Governance Bill (PIGB), which was passed in 2018 by the 8^th National Assembly, failed to receive the prerequisite Assent of the President of Nigeria and thus could not become law.

However, on the 1st day of January 2020, in what may be perceived as a new year resolution, the Honourable Minister of State for Petroleum Resources, (HMoSPR), Mr. Timipre Sylva, vowed, that the current administration will ensure the soon passage of the PIB. His optimism was echoed by the Senate President, in his recent meeting with IMF Officials, reported by THISDAY Online on February 16, 2020, that the PIB will be passed by the National Assembly and signed into law by the Nation’s President before the end of the year 2020, though he admitted that the Bill may need to be redrafted ‘from scratch’ before it could be successfully passed.

The optimism of these two distinguished and notable Nigerians might have been inspired by the many expected benefits of the enactment of the PIB, as a mechanism that would implement much needed reform in the rules that govern the structure ‘of the country’s oil industry, … beset and delayed for years by corruption and inefficiency’[2].

The reasons adduced for the delay that has plagued the passage of the Bill, range from ‘fear of potential protests against any removal of the fuel subsidy that may arise from deregulation of the industry, to concerns about regional imbalances in the distribution of oil revenues, as well as mounting pressure from foreign oil companies that are unwilling to pay more oil taxes’[3], as proposed by previous versions of the Bill.

It appears however, that the latest plague that could beset the optimism that the PIB will soon be passed, is the unexpected onset of the Corona Virus Disease of 2019, COVID – 19, Pandemic, and its adverse colossal effect on the Energy Industry.

The purport of this article therefore, is to provide a perspective, (or a probable advisory), as to needful urgent and timeous steps to be taken, to cope with the evolving situation and avoid the onset of indolence, which may affect the timeous passage of the PIB. Hence the article will commence with a review of some of the effects of the COVID – 19 pandemic on the Oil Industry, as well as propose timeous review of certain sections of the previous versions of the PIB, before drawing a conclusion.

In an article titled “The Oil Collapse”, published in the March/April 2020 edition of the FOREIGN AFFAIRS Magazine, Daniel Yergin, the world renowned Energy Economist laconically stated that due to the effects of the COVID – 19 pandemic, ‘the global oil market has never in history collapsed as precipitously as it has right now’.

Yergin’s comments were underpinned by the crisis spurred by the COVID-19 pandemic, which has virtually collapsed international demand for oil as a result of the global shutdown, and has led to a price war between the World’s two major Oil producers, Russia and Saudi Arabia, ‘that’s threatening to flood the market with more oil than the world could use,’[4]  resulting in the unprecedented plummet in the price of oil to ‘an 18 year low of $22 per barrel in March 2020’.[5]

Such ominous news, as we say in Nigeria, ‘is bad market’. Especially because ‘Crude petroleum is Nigeria’s most important non-renewable energy source, contributing over 90 percent of our country’s foreign exchange earnings and about 80 percent of recurrent and capital expenditure.’[6]

These are menacing times, which according to McKinsey and Company, ‘has presented the global economy with an unprecedented challenge, a crisis which can best be weathered by building a network of teams.’

Little wonder that the Federal Government of Nigeria, in an attempt to weather the current storm, has been compelled to set up a Committee to review its annual budget downwards, in the face of dwindling revenue from Oil and has gone as far as submitting a Bill to that effect for passage by the National Assembly.

Similarly, apparently in the optimal belief that the current situation will abate, the Group Managing Director (GMD) of the Nigerian National Petroleum Corporation (NNPC), stated in an interview published on April 10, 2020 by the Nigerian THISDAY Online that ‘Nigeria would remain in production of crude oil, despite the prevailing below–the-cost-of-production market price, even if she has to borrow to sustain the current level of production.’

In the face of such optimism, expressed by the GMD of NNPC, the NASS cannot afford to rest on her oars, if she intends to achieve the goal of having the PIB passed in 2020. Hence the need for the Assembly to set up teams that will timeously consider and review certain key components of the PIB, so as to succeed, or at least be seen as trying to succeed, in her endeavour to redraft the new Bill ‘from scratch’.

For space constraints, this article will review the first of the three of these key components, agitating the Author’s attention, namely;

1. Decommissioning Costs.
2. The Fiscal Stability and the Economic Equilibrium Clause.
3. Impact and Benefits Agreements as compensation mechanisms for environmental degradation.

Decommissioning Costs (or Asset Retirement Obligation)

This is an Oil and Gas Industry terminology that denotes the cost expected to be incurred by Oil Companies in an attempt to reverse, or ameliorate the modifications made to the environment, when an Oil and Gas Installation has come to the end of its productive life and thus requires restoration to its pre-lease lifestyle.

Decommissioning procedures in Nigeria are guided by various stipulations of local enactments and regulations, such as EGASPIN, as well as International Conventions and Treaties, to which Nigeria is a signatory, principally the United Nations Convention on the Law of the Sea (UNCLOS), International Maritime Organisation’s (IMO) Guidelines and Standards for the Removal (Decommissioning) of Offshore Installations and Structures, as well as the London Convention on the Prevention of Marine Pollution of 1972, to name a few. The sum total of these requirements is that ‘no installation can be placed on the Nigerian Continental Shelf or Exclusive Economic Zone, unless it is designed for complete removal or decommissioning’.[7]

 

The major question however is, ‘who bears responsibility for the cost of decommissioning?’ Presently in Nigeria there are no statutory requirements for an Oil and gas Licensee to make ‘security payments in respect to future decommissioning costs, although this might be a feature of contractual requirements within various Production Sharing Contracts.’[8] (cf. EGASPIN, 2002, part G, Section A, 2.1).

This is a grave lacuna (omission) in the laws of Nigeria, which the new PIB must fix. There is no gainsaying the fact that, over the next decade, considerable investment will be required both from Industry and Government to retire oil and gas fields in Nigeria, because many installations will soon come to maturity. The NASS is thus advised to ensure that this issue is addressed TIMEOUSLY (emphasis supplied).

It is worthy of note that a similar omission on the UKCS (the United Kingdom Continental Shelf), has cost the UK dearly, because at the commencement of exploration activity, ‘decommissioning costs (and the responsibility for who bears the same), were notable by their absence.’[9] Such that presently, ‘decommissioning costs in the United Kingdom (UK) is ‘currently running at about GBP1.5 Billion (one billion and five hundred thousand pounds) per annum (about N825 Billion in Nigerian currency) and to date, in the UK, only about 9 per cent of the installed Oil and Gas Platforms have been decommissioned.’[10] It might be economically suicidal, if Nigeria ignores these oncoming costs, which quite admittedly, may have been unprovided for, in the various Joint Venture (JV) or Production Sharing Contracts, at the onset of production, because according to the Oil and Gas UK, ‘forecasting decommissioning expenditure at the outset of a project is challenging, due to the many uncertainties and factors influencing expenditure.’[11] Be that as it may, such a lapse can still be statutorily rectified by the various provisions of the new PIB.

 

CONCLUSION

The current distress that’s bedeviled the energy industry globally in Q1 and Q2 of 2020, in the wake of the effects of the COVID-19 Pandemic, should serve as a catalyst for Nigeria to pick up the gauntlet dropped by the Senate President to redraft the PIB ‘from scratch’ and unfold the many expected benefits from the enactment of the Act. Time, however should be of the essence of that endeavour. It is important to reiterate however, that any attempt to pass the PIB, without a provision for who bears responsibility for decommissioning costs, is a ticking time bomb, waiting for the effluxion of time, which, according to Pericles, ‘is the wisest Counselor of all.’

Adegoke Oshunniyi is an International Energy Consultant based in Lagos.

 

FOOTNOTES:

[1] https://govandbusinessjournal.ng/see-how-non-passage-of-pib-is-hurting-nigerias-economy/

[2] The Nigerian Petroleum Industry Bill: Key Upstream Questions for the National Assembly Patrick Heller, RWI Legal Analyst https://resourcegovernancke.org/sites/default/files/RWI_Nigeria_PIB_Analysis.pdf

[3] THE PIB: REFORMING NIGERIA’S PETROLEUM INDUSTRY – https://www.stakeholderdemocracy.org/wp-content/uploads/2015/09/V2-28.9.15-SPOTLIGHT-ISSUE-THE-PIB.pdf

[4] The UK Guardian Newspaper

[5] The UK GUARDIAN Newspaper

[6] THE PIB: REFORMING NIGERIA’S PETROLEUM INDUSTRY – https://www.stakeholderdemocracy.org/wp-content/uploads/2015/09/V2-28.9.15-SPOTLIGHT-ISSUE-THE-PIB.pdf

[7] DECOMMISSIONING IN NIGERIA : Overview of International Offshore Decommissioning Regulations

INTERNATIONAL ASSOCIATION OF OIL AND GAS PRODUCERS REPORT 584 JULY 2017

[8] ibid

[9] Professor John Paterson in ‘Gordon Greg, Paterson John and Usenmez Emre; ‘Oil and Gas Law – Current Practice and Emerging Trends.’ 2nd Edn. Page 287

[10] OGUK DECOMMISSIONING INSIGHT 2019

[11] OIL AND GAS UK: DECOMMISSIONING INSIGHT 2014 Page 10