Petroleum Industry Governance Bill: More Hurdles to Cross

February 5, 2018

Victoria Ibezim-Ohaeri

Alas, the Nigerian House of Representatives [HOR] has concurred with the Senate on the Petroleum Industry Governance Bill (PIGB). Although this latest development represents a departure from their earlier position not to pass the legislation piecemeal like the Senate had done in May 2017, The HoR’s concurrence with the upper legislative chamber comes at a critical time when decisive policy action is needed to reposition the industry for greater performance. Coming after a 17-year-long wait, industry watchers have cheered the passage of the petroleum sector-wide legislation. As good as this news may sound, the country needs to cross a few more hurdles in order to prepare the industry for the journey towards full transparency and accountability.

The first thing to notice in HB477 – that is, the version of the PIGB recently passed by the HoR – is the remarkable improvement made on the earlier version passed by the Senate (SB237). Particularly remarkable is the recommendation to transfer the minister’s power to grant, amend, renew, extend or revoke any license or lease required for petroleum exploration to the Nigerian Petroleum Regulatory Commission (NPRC). This review addresses concerns about arrogating excessive powers to the person of the minister, rather than to independent institutions, which can easily give room to abuse of power, patronage and political interference. Notably too, HB477’s recommendation further clarifies with specificity, who the minister can delegate powers to.
Any downsides?

Should the president be minister of Petroleum Resources? Transferring power to the Commission is laudable, but a likely problem that will emerge from this arrangement is where the president still retains the position of the substantive petroleum minister, as it has been witnessed under Obasanjo and Buhari administrations. Remember that the president is to appoint the members of the Governing Board of the Commission (NPRC). (See HB 477: S 13 (5)). Domiciling the power to issue and revoke licenses in the Commission is meaningless in a situation where the president doubles as the petroleum minister and the appointing authority for members of the governing board of the same Commission. In this situation, no real transfer of power from the minister to the Commission has occurred since the president/minister will retain the power to hire and fire those mandated to grant and revoke licenses. This sort of arrangement obfuscates accountability because it elevates the president to the status of both the judge and the jury in the same case. One way to enhance the integrity of the licensing process, as well as the independence of the NPRC is through an express legislative prohibition requiring that the president should no longer have the power to become the petroleum minister under any circumstance.

Not only will the HoR’s commendable reviews be defeated if the current arrangement that allows a sitting president to double as the minister of petroleum resources is retained, this dual-portfolio arrangement violates constitutional provisions. Section 138 of the 1999 Constitution as amended, provides that the president shall not during his tenure of office, hold any other executive office or paid employment in any form whatsoever. These roles should be separated through a legislative prohibition.

Regulatory Overlap and Consultations: The HoR’s version of the PIGB domiciles the responsibility to ensure strict implementation of environmental policies, laws and regulations pertaining to oil and gas regulations in the NPRC, and removed the requirement for the NPRC to consult with the Ministry of Environment with regard to the implementation of laws and regulations pertaining to oil and gas operations. In other words, historically-overlapping regulatory functions of the Ministry of Environment (MoE) and the Nigerian Petroleum Regulatory Commission (NPRC) in matters relating to environmental protection were resolved in favour of the latter (NPRC). That is, full responsibility for environmental matters in the petroleum industry is now vested in the NPRC. While this is a bold step toward addressing the issue of regulatory overlap, gaps however remain.

The retention of the PEF rolls back the gains that have been made in sanitising and improving transparency in the industry. Opportunities exist to address pricing gaps through effective downstream operations, including the construction of pipelines and new refineries across the country. PEF needs to be yanked off from the petroleum legislation completely.

Communities impacted by oil and gas exploration and production usually experience a time lag between when the oil spills or pollution occurs, and when the regulators become aware of it and intervene, resulting in extensive damage to fisherfolk and contamination of water, fishing and food sources. Part of the reason for this time lag is because federal institutions are often located far away from remote localities where environmental pollution is most felt. Recognising the challenge posed by limited access to federal institutions, removing the requirement for consultation with the Ministry of Environment in matters pertaining to oil and gas operations, is not in the best interest of petroleum-impacted communities. In localities where there is limited presence of federal institutions, ministries of environment at the state levels often provide communities with a first-line mechanism for receiving complaints of environmental breaches, for onward transmission to the relevant federal authorities. Through these state-level and other localised mechanisms, problems could be resolved as quickly as possible, without having to turn to other redress mechanisms, such as the courts and tribunals.

Granting the NPRC the responsibility over all aspects of health, safety and environmental matters in respect of the petroleum industry, coupled with removing the requirement for consultation between the NPRC and the Ministry of Environment, will slow down the response time for intervening in environmental pollution even further; it will hamper effective coordination between agencies and contract the spaces available to locals to ventilate their grievances. It also tends to deemphasise prevention, but rather places more emphasis on cleaning up the damage of oilspills afterwards. This arrangement is ostensibly inadequate to protect the rights of communities. One way to cure this inadequacy is for NPRC to remain the lead agency in enforcing environmental laws in oil and gas matters. However, there should still be avenues for consulting with the environment ministry, while areas of collaboration should be clearly spelt out with clear specification of who the lead law enforcement agency is (i.e NPRC) and who the advising agency is, including specific areas where the environment ministry needs to proffer opinions and advice.

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Does Nigeria Still Need the Petroleum Equalisation Fund?: The Petroleum Equalisation Fund (PEF) is set aside for the reimbursement of petroleum products marketing companies who incur losses solely and exclusively as a result of selling petroleum products at uniform benchmark prices. The Fund operates as a subsidy to be used to even out the prices of petroleum products, so that they can be purchased at a uniform price at any point and place within the country. In other words, what the Fund does is to harmonise the pump price of petroleum products across the country, irrespective of the distance and costs incurred in transporting the products from the depots.

Nigeria officially removed subsidy on premium motor spirit in May 2016 and kerosene in January 2016. The proposal to use the PEF to ensure uniform benchmark prices of fuel throughout the country simply shifts the subsidy placed on the importation of products to distribution and supply. This effectively brings subsidy back through the back door. This move is uneconomical for three major reasons. First, it only subsidises petroleum products in order to artificially keep costs low in the domestic market. Second, it is inconsistent with the natural market phenomenon for goods to cost less based on distance to production. Thirdly, it defeats the PIGB’s promised objectives of liberalising the industry, allowing market forces to determine the prices of products

A plethora of probes have already shown that the subsidy regime is vulnerable to misappropriation, encourages smuggling activities, and is very difficult to budget for because of the exposure to price fluctuations. Findings of various probes emphasised the negative impacts of subsidy, propelling the sector-wide reforms of 2012 in particular, and the stringent measures introduced to remove subsidy on premium motor spirit and kerosene. The retention of the PEF rolls back the gains that have been made in sanitising and improving transparency in the industry. Opportunities exist to address pricing gaps through effective downstream operations, including the construction of pipelines and new refineries across the country. PEF needs to be yanked off from the petroleum legislation completely.

The PIGB presents a window of opportunity to redress the historical under-representation of women in energy sector decision-making. In appointing the chairman and the non-executive commissioners, the president shall have due regard for a fair representation on the basis of the gender, technical, legal and commercial experience, of prospective nominees.

Women’s Under-representation In Energy Sector Decision-making Can Be Reversed: Women are not advancing enough to leadership roles and contributing to influential decision-making, particularly in the oil and gas sector. According Pew Research Center’s January 2015 research study, women constitute only 5 percent of CEOs and 17 percent of board members across all Fortune 500 companies. Likewise, Price Waterhouse Cooper’s study of the 100 largest listed oil and gas companies in the world found that women occupy only 11 percent of seats on the board of directors. Out of the 11 percent, most of them are in non-executive positions, while only 1 percent of executive board seats are held by women. Alarmingly too, only a tiny proportion of women sitting on company boards have any executive power. Nigeria’s national oil company, the Nigerian National Petroleum Corporation (NNPC) currently has an all-male leadership, comprising the group managing director, and the four group executive directors in charge of four new directorates.

Petroleum reform policies respond inadequately to these inequalities. Institutional reorganisations that ignore deeply embedded social discrimination and economic inequalities heighten women’s exclusion from energy decision-making. Best practice examples from Norway indicate that gender-responsive energy decision-making and financing do not only bring about the empowerment of women, but also help companies grow sustainably, improve their bottom lines and maximise shareholder gains. McKinsey confirms this when it found that companies with the highest gender diversity teams, as compared to the industry average, see a much higher Return on Equity (10 percent), a higher operating result (48 percent), and a stronger stock price growth (70 percent).

The PIGB presents a window of opportunity to redress the historical under-representation of women in energy sector decision-making. In appointing the chairman and the non-executive commissioners, the president shall have due regard for a fair representation on the basis of the gender, technical, legal and commercial experience, of prospective nominees. Including gender among the listed requirements serves to draw the appointing authority’s attention towards balancing the disparities in gender representation and participation in the petroleum industry. Consistent with the objective of enthroning gender balance, the use of a male-specific language in HB477’s recommendations in 13(5) should be replaced with a gender-responsive language. Therefore, HB477’s Section 13(5) recommendation should read: ‘… unless he/she has graduated from a tertiary institution and he/she has a university degree and a minimum of 15 years’ post-qualification experience.’ This type of language inspires confidence that the role of commissioners is not exclusively reserved for men.

Furthermore, redressing the power imbalances that traditionally exist on the basis of gender can be achieved by modifying the requirement for divesting 40 percent of the shares of the national petroleum company to the public, in a transparent manner, within ten years from the date of incorporation. This might take the form of inserting a clause that requires women to get issued a certain percentage of the total shares divested to the public. A variety of measures such as quota system, dedicated share category, and targeted subsidies could be used to ensure that women are issued no less than one-third of the 40 percent shares divested to the public. These approaches hold enormous potential to significantly remove the barriers and disadvantages women face in confronting the structural constraints that inhibit their visibility and participation in the energy sector.

Victoria Ibezim-Ohaeri is the executive director of SPACES FOR CHANGE | S4C, Nigeria. She can be reached through Victoria@spacesforchange.org.