An Overview of the Petroleum Industry Act (PIA), 2021

Introduction

The Petroleum Industry Act (PIA) 2021 was signed on August 16, 2021. It closed the numerous efforts aimed at reshaping the petroleum industry over the years with the sole purpose of carving out a conducive habitat for the growing of the sector and solving real the major plight of environments impacted by the industries.[1] Prior to the PIA 2021, the oil and gas industry had four major regulations viz: the Petroleum Act 1969, Petroleum Profits Tax Act, Deep Offshore and Inland Basin Production Sharing Contract Act, and Associated Gas Re-injection Act.

A number of successes were recorded in the sector municipally and internationally since the refurbishing started. The figure of aboriginal oil and gas firms has grown even to oil producing countries, and militancy is suppressed reasonably. The PIA depicts the move by Africa’s major manufacturing country to tackle the changing society and if appositely implemented, the PIA can be the standard for natural resource control, having whole and different duties for the parastatals across the industry with commercial and profit-oriented national petroleum industry, transparency, quality governance, accountability and a conducive environment for the exploration of oil and gas. When all of these are imbibed prudently, the three paradigms for sustainable development (environmental protection pillar, economic growth paradigm, and social development paradigm) would then be achieved. Also, if properly and vigorously implemented, the PIA can represent the gold standard of natural resource management, with clear and separate roles for the sub-sectors of the industry; the existence of a commercially-oriented and profit-driven national petroleum company; the codification of transparency, good governance and accountability in the administration of the petroleum resources of Nigeria; the economic and social development of host communities; environmental remediation and a business environment conducive for oil and gas operations to thrive in the country. However, these results are conditional on Nigeria’s political and oil industry leaders overcoming old time corruptible challenges[2]

Notable Sections of Petroleum Industry Act, 2021

The new Act establishes two controllers for the petroleum industry. The ‘Commission’, which is a corporate entity functioning in the regulation of upstream petroleum operations in Section 4, while Section 29(3) established the body (authority) saddled with taking care of technical and commercial petroleum operations).[3]

Also, section 53 established the Nigerian National Petroleum Company Limited for overseeing winding of services, activities, and liabilities of the NNPC. Section 53 states that “the Minister shall, within six months from the commencement of this Act, cause to be incorporated under the Companies and Allied Matters Act, a limited liability company, which shall be called the Nigerian National Petroleum Company Limited.”[4] Section 53(3) vests ownership of NNPC Limited in the Federal Government, to be held by the finance minister for the Ministry with provisions for joint companies as stated in Section 65.[5]

Section 67 provides that general management of petroleum resources should be as stipulated in the Act and anchored by true management, transparency, and sustainable development. This suggests the efforts at curbing corruption and bad administration in the petroleum industry.

On licenses, section 111 (3) juxtaposed conditions upon which a license shall be granted to a person seeking it, which spans from meeting global standards, environmental standards and the economic use of machinery.[6] Upstream operations will now be operated under three (3) new classes of licenses to be granted by the Commission, viz:

1. Petroleum Exploration License (“PEL”) gives the licensee the right to explore with option to renew for three years.
2. Petroleum Prospecting License (PPL) gives the licensees the exclusive right to drill exploration and appraisal wells, carry out test production and non-exclusive right to carry out petroleum exploration for a maximum of 6 years for onshore and shallow water acreages and 10 years for deep offshore and frontier acreages.
3. Petroleum Mining Lease (PML), issued to qualified applicants to win and dispose of crude oil, condensates and natural gas for a maximum of 20 years.[7]

The Commission is vested with exclusive right to grant and revoke the licenses and no longer the power of the Minister as it was under the old Petroleum Act. The PEL will be granted on a discretionary basis while PPL and PML will only be granted after a free and fair competitive bidding process. Where the consents and approvals required under the Act are not provided within the stipulated time, deemed approvals will apply.

Note that the current Oil Prospecting License (OPL) or Oil Mining Lease (OML) holders have the option to convert their subsisting interests to a PPL or PML through a Conversion Contract and thereafter enjoy the fiscal incentives under the new regime. Conversion to the new regime will terminate all unconcluded court and arbitration cases. Upon conversion, the OML holders will be required to surrender up to 60% of their existing acreage.[8]

The conversions shall become concluded or effective at the earlier of expiry dates of the current licenses or 18 months from the effective date of the Act which is February 2023. Where OPL or OML holders choose not to convert to the PIA regime, the current regime will continue to apply to them until the expiration of the licenses. Upon expiration, the new regime will apply to the renewed licenses.[9]

Section 126 issued terms for midstream and downstream activities, creation and circulation of bulk natural gas business scheme to make flexible the continuous supply of natural gas to buyers extending to keepers and users of gas pipelines, shippers, possessors and dissemination. This categorically shows the efforts made with economic growth in sight.

ISSUES AND PROBLEMS

Despite the laudable provisions as enumerated above, it can, however, be deduced that on the environmental sustainability mechanisms provided for in the Act, a replication of the Associated Gas Reinjection Act and its inept provisions did not solve the environmental challenges as compensation only accrues to sacred objects, public spaces and economic trees as against the environment itself. This is quite unfortunate because the Act even goes a step further to mandate metering equipment to weigh the amount of discharged gas for fiscal penalties. The obvious intent is, therefore, tilted towards economic gains rather than environmental protection.[10]

On Social Development, Chapter 3, particularly Section 234, introduced Petroleum Host Community Development (PHCD) which promotes sustainable continuity in host environs, provides immediate social and economic dividend gotten in petroleum operations, creates a framework to hold the development of communities, and the establishment of the Host Communities Development Trust Fund in section 235.[11]

However, where damage and petroleum exploitation occur, the Act vests jurisdiction on the High Court and it is no news that the Nigerian judicial system shines and glows like a rotten wood. In other words, it portrays justice but does otherwise: the long proceedings have a consistent record of being cumbersome and slow to meet societal and immediate needs.

On economic growth, it introduces the Hydrocarbon Tax under Section 260 which deals with profits of companies. Also, Section 262 states that the natural oil revenue of the company shall be the value based on the proceeds of the oil sold by the company and failure to comply attracts a penalty of ten thousand Naira, and where a different penalty is not made, a person found guilty is liable to pay Twenty Million Naira as fine or a figure to be determined by the Minister of Finance as seen in Section 297.

The glaring objective of the foregoing is that it has more stringent and elaborate provisions for royalties, compensation, levies for breaches, taxes and a host of financial percentages accruable to the industry which shows that corruption might have been tackled in writing, but corruption in this sense can be seen sitting so pretty in writing as well. The Act gives with the left hand and takes with the right hand.

In conclusion, moving forward, Nigeria’s focus on investment should be tilted more towards the aspect of renewable energy and technology. And the profits accruing from NNPC Ltd. should be diverted from increasing Nigeria’s energy reserve to that of developing scientific and technologically driven reserves for energy which will further curb environmental degradation and gas emissions. Priority should also be given to the sustainability of the environment rather than the elements in the environment. As said, the Petroleum Industry Act 2021 introduced legal remedies and general administration for the industry and the development of communities impacted. It is hereby concluded that the PIA is a golden but not shiny phenomenon, because it has successfully solved old and underlying issues in the Nigeria’s petroleum industry and has introduced new fundamental problems detrimental to the future of the Nigerian energy sector, economic growth, environmental protection, and social development paradigms, amongst other problems created.

FOOTNOTES:

[1] From <https://www.brookings.edu/blog/africa-in-focus/2021/11/24/nigerias-petroleum-industry-act-> (accessed on 27^th March, 2023)

[2] From <https//www.brookings.edu> (accessed 27^th March, 2023)

[3] From <https://www.natlawreview.com/article/understanding-nigeria-s-petroleum-industry-act> (accessed on 26^th March, 2023)

[4] From <https://www.mondaq.com/nigeria/contracts-and-commercial-law/1119516/salient-statutory-and-institutional-changes-to-the-nigerian-national-petroleum-corporation-under-the-new-petroleum-industry-act-2021> (accessed on 28^th March, 2023)

[5] From <https://spaajibade.com/1405-2/> (accessed on 29^th March, 2023)

[6] From <https://goldsmithsllp.com/new-licensing-regimes-under-the-petroleum-industry-act-pia-2021-gs-series-ii-part-a/> (accessed on 28^th March, 2023)

[7] From <https://www.goldsmithsllp.com> (accessed 1^st April, 2023)

[8] Section 93 (8) of PIA, 2021

[9] From <https://www.mondaq.com> (accessed 1^st April, 2023)

[10] O. L Ejenavi, “Comparative International Law, Approaches for Optimizing Petro-Wealth in Nigeria: The Sustainable Development Pathway” (Paclerd Press Limited, Benin City, 2021)

[11] From <https://www.google.com/search?q=salient + provisions+ of+ the + pia&ie=UTF-8&oe=UTF-8&hl=en-us&client=safari> (accessed on 30^th March, 2023)