The Petroleum Industry Act 2021 will be ineffective if oil sector regulators lack the boldness to implement the legislation, stakeholders tell OKECHUKWU NNODIM in this report
Since the passage of the Petroleum Industry Act in August last year, the legislation has been facing operational and bureaucratic huddles with some pushback from operators who may stall its effective implementation.
Industry analysts stated that the pushback emanated from operators who desire the business-as-usual status quo, as well as some employees in the regulatory agencies who might be gaining from the endemic corruption in Nigeria’s oil sector.
There have been arguments that the impacts of the PIA have been slow, but there are also counter-arguments that it would take some time for the audacious legislation to start having the expected effect on the industry.
Lawyer and social commentator, Liborous Oshoma, said, “The PIA being a new law will take a gradual process to permeate considering the enormity of the challenges and the attitude of some operators who would do anything to maintain the status quo.”
He observed that there seems to be some form of systemic corruption in the oil sector’s regulatory agencies, stressing that this had to be addressed in order not to derail the mandates of the regulators.
Oshoma said, “In my recent visit to Port Harcourt, I discovered that the office of the Nigerian Upstream Petroleum Regulatory Commission (former Department of Petroleum Resources) has been shut via a court order by the Rivers State Government.
“This was due to the non-remittance of tax liabilities on bonuses and upfront payments to workers between 1999 and 2020, before the passage of the PIA. The office was shut due to taxes accruable to Rivers State Government to the tune of over N13bn. The question is where is the N13bn?
“Our investigation revealed that there has been serious connivance between some staff members of the defunct DPR and the state tax board over the years to avoid payments of these taxes.”
He added, “This was before the creation of the new upstream commission. The NUPRC must carry out a thorough investigation and ensure heads roll to send a strong signal that it is no longer going to be business as usual.”
Oshoma also raised concerns about the issue of arbitrary retirement packages in the defunct DPR, the pushback by some staff members and opposition to performance-based promotion in the upstream regulatory commission.
He said, “It is shocking that until 2020, despite the clear provisions of the Revenue Mobilisation and Fiscal Commission Act vis-a-vis the Pension Act, there are no clear-cut statutory provisions for determining pensions for exiting staff members in the defunct DPR, now NUPRC.
“Any attempt to put measures that will ensure transparency in place was largely condemned by some members of staff. We also learnt that the workers want to determine the conditions of service for themselves in the new regulatory agencies.
“How is that possible? You want remuneration to comply with international best standards, but don’t want the promotion to be performance-driven.”
“Instead, you just want to mark time on a position and three years later you are promoted, whether you know anything or not,” he noted. “No system can grow or sustain any organisation that way in modern times.”
“There must be transparent parameters for measuring the performance and the Key Performance Index must be known to all to ensure a level playing field and avoid victimisation,” he added.
Speaking on the way forward for the regulator, the legal practitioner stated that “we must as a matter of urgency deepen the conversation on what is happening in our petroleum upstream regulatory commission and Nigerian Midstream and Downstream Petroleum Regulatory Authority.”
He said this was not just on a need-to-know basis, but because these agencies were saddled with the responsibility for collecting royalties/revenue for the nation’s oil sales.
“What have been and are the current parameters for determining the sale of our marginal fields and oil blocks? How much was realised from such sales?” Oshoma asked.
He added, “What are the legal frameworks in place to ensure the maintenance of international best standards? What are the attitude of the staff to work and the nature of the work to be done?
“Who is behind the companies involved in the big transactions in our oil industry, and what are they doing for the country? How available is the access to information as regards the operations and workability of our regulatory system?
“Until we do all these and more, we would not only lose money through oil theft, but we will lose more through attitudinal theft.”
He said there was a need for a strong upstream regulator that must counter both internal and external pushback.
He cited the revocation of four Oil Mining Licenses belonging to Addax Petroleum by the defunct DPR as a case that was viewed by industry observers as an example of external influence on the regulator.
The DPR had in April 2021 revoked four OMLs belonging to Addax Petroleum and explained that the decision was due to the non-development of the assets by the petroleum company.
The affected assets were OML 123, 124, 126 and 137, now under the control of the Nigerian National Petroleum Company Limited.
The former Director of the defunct DPR, Sarki Auwalu, had told journalists that it was discovered that over 50 per cent of the assets had remained underdeveloped, which he said was resulting in a loss of revenue to the Federal Government.
Also speaking on the need that only a strong upstream regulator could fight all the ills in the industry including oil theft, the Executive Director, DMA Advisory and Management Services Limited, Gbolahan Olojede, said those benefiting from the status quo would subtly oppose the full implementation of the PIA.
Olojede, who is also an economist and financial analyst, said, “These are some of the challenges that the new regulators will have to correct; otherwise, it’s going to be business as usual.
“Mind you, we have already said there is going to be some pushback. People who benefit from this system will not allow the new regulators to work, so they have to put their foot down.
“The government will have to empower the regulator to be able to carry through key decisions.”
He also condemned the rising cases of oil theft in Nigeria, stressing that the regulators already had their tasks cut out for them in this case, as they must join hands with security agencies to nip the development in the bud.
In an interview with The PUNCH on how badly oil theft was hurting Nigeria, Olojede said, “We are an oil-producing country. We sell crude and make money. There are rents, royalties, fees, and all sorts of incomes that we make by virtue of oil production.
“Apart from that, there is now the petroleum profit tax which is paid to the government. There is the income tax of oil companies; these operators also consume VAT-related services and goods.
“So, all forms of taxes are involved that are payable to the government by virtue of the oil and gas industry operations. The second pedestal is debt. Now, if our oil is being stolen and we are not making enough income, it means that we find ourselves in a position of deficit financing.”
The expert added, “We do not have enough revenue to meet the expenditures we have budgeted. So, we start to borrow. When you go borrowing, those deficit financings continue to pile up, your debt sustainability begins to deteriorate and at a point, your cost of borrowing also starts to go up because investors begin to see you as a risky person.”
He said the third pedestal was forex, adding that though oil and gas were a small percentage of the country’s Gross Domestic Product, they constitute about 90 per cent of Nigeria’s foreign exchange earnings.
Olojede said, “If you don’t make money from crude oil, we are not going to earn foreign exchange. That will affect the stability of our currency.
“Then you are unable to provide enough forex for users within your own economy. Manufacturers will be challenged. Recently, we saw what happened with the aviation industry.
“People who have been operating here needed to repatriate money, they couldn’t repatriate money and it became an issue. So, from an income perspective, debt sustainability perspective and forex situation, it’s a total mess if we lose money to oil theft.”
Also speaking on why the PIA must be implemented by the regulatory agencies, Prof. Wumi Iledare, an Associate Editor of SPE Journal of Economics and Management, stated that it was illegal for the government not to implement some key sections of the Act after it was passed over a year ago.
“Taking the issue of petrol subsidy as an instance, the Petroleum Industry Act indirectly puts an end to subsidy,” he stated.
Iledare added, “The midstream and downstream regulatory authority has no power in the PIA to set the price of petroleum.
“The power derived in setting the price of petroleum comes from the Petroleum Act of 1969, which in a way does not exist. So it is illegal to set petrol price.”
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