November 30, 2021

Effects Of The Petroleum Industry Act

5 min read

By Salisu Na’inna Ɗambatta

The Petroleum Industry Act (PIA) 2021, which has lingered for around 20 years as it went through the process of enactment is now being assiduously implemented by the Federal Government through the Mele Kyari-led NNPC to meet the expectations of transforming the Nigerian Oil and Gas Industry into one of the most efficient in the world. Its effects are beginning to manifest.

The effects of the Act are profound and certainly transformative. An analyst summarized some of the features of the PIA thus: “the Petroleum Industry Act 2021 defines the legal, governance, regulatory and fiscal framework for the Nigerian Petroleum Industry and also the development of host communities.”

One of the many main changes and effects borne out of the Act is the incorporation of the Nigerian National Petroleum Company (NNPC) Limited. The Company must declare profits made from its operations just like any other limited liability company. It should pay Company Income Tax, rewards shareholders by paying them dividends. The new NNPC Limited would have no recourse to government budgetary allocation.

As the NNPC Limited becomes an independent organization doing business to make profits as provided for in the PIA for its shareholders, it will have to drop the unbearable burden of selling petroleum products at below cost-recovery rates. The Nigerian National Petroleum Corporation told the Federation Account Allocation Committee during a meeting in November 2021 that, between January and September 2021, it spent N864.07 billion cushioning the price of petrol for consumers.

The NNPC found the subsidy as unsustainable. Indeed, the Minister of Finance, Budget and National Planning, Hajiya Zainab Ahmed has announced that the federal government will remove fuel subsidies by 2022 in line with the provisions of the PIA 2021. Transportation grant of N5,000 will be paid to each of the poorest 40million Nigerians monthly. The Group Managing Director of the NNPC disclosed that the subsidy for petrol will likely end in February 2022.

By creating a Commission and the Midstream and Downstream Authority each of which has clear roles, an unwieldy single regulator with too much work to contend with, and the attendant bureaucracy and bottleneck this entails, no longer exists.

As undue bureaucratic bottleneck is removed by limiting the waiting time for approval of licenses for new operators at the upstream, midstream and downstream segments of the sector to a maximum of 90 days, the industry is expected to attract more investors. The speedy approval is a function of accountability, transparency and efficiency, all of them some of the effects of the PIA.

The envisaged expansion of the sector will most likely make it more profitable for the benefit of Nigerians and the investors. The benefits will include more earnings for the government. The greater revenue will be used to finance critical projects like transportation infrastructure, expansion of electricity generation and distribution system, and the provision of additional healthcare and educational infrastructure for the over 200 million population of Africa’s largest democracy.

The PIA promises more goodies for Nigerians as it boosts the harnessing, processing and use of the country’s abundant natural gas endowment for cooking, as autogas, thermal power generation, fertiliser production and in earning more foreign exchange for the leading African energy power house. The Ajaoukuta-Kaduna-Kano (AKK) gas pipeline project is designed to encourage gas utilisation in the country.

The ongoing construction of Train 7 for converting gas into Liquified Natural Gas, has created thousands of jobs for both skilled and unskilled labour in the long value chain inherent in the project. More direct and indirect jobs will be created when it comes into operation. The NNPC under the watch of Mele Kyari is unrelenting in pursuing the project until it reaches its logical, productive, conclusion.

Some of the provisions in the PIA are capable of enhancing peace and security in the oil bearing areas of the country. The three per cent of the operational budgets of oil companies amounting to a minimum of $500 million annually that will go to host communities to finance their development projects is a recipe for happiness and progress in the hitherto restive Niger Delta.

Additional to all these benefits promised for Nigerians by the PIA, is the provision for a mechanism to address and redress environmental destruction through oil spillage. Its emphasis on remediation without delay and the envisaged more rigorous enforcement of the penalty for gas flaring will decelerate environmental degradation and protect means of marine livelihood from destructive pollution. Gas flaring in Nigeria is scheduled to cease by 2030, for the good of the environment.

Nigerians across the country have welcomed the Petroleum Industry Act which was signed by President Muhammadu Buhari on August 16, 2021. To illustrate, the Chairman of the Imo State chapter of the Oil Mineral Producing Areas Landlords Association of Nigeria ( OMPALAN), Chibunna Ubawuike, commended the President for signing the bill into an Act of the National Assembly.

“I thank President Buhari for expeditiously assenting to the PIB after over 16 years of being in the doldrums. The political will the President demonstrated in signing the bill into law is uncommon.”

Mr. Chibunna said that implementing the provisions of the Act will end hostilities and restiveness in the Niger Delta. The establishment of the Niger Delta Development Commission, the allocation of 13 per cent of the revenue from the proceeds of crude oil to the nine oil states of the Niger Delta, the Amnesty Programme for repentant militants and the creation of the Ministry of Niger Delta Affairs, were measures aimed at ending the hostilities and restiveness in the oil bearing states.

However, it is noteworthy as clarified by the NNPC Group Managing Director, Alhaji Mele Kyari, that the royalties and taxes payable by the new NNPC Limited would be shared among the country’s six geopolitical zones, the Federal Capital Territory, and all tiers of government.

“This is very simple. This company will pay taxes and royalties, which are revenues that accrue to the federation. So every part of this country and every subnational institution or government will benefit from it,” he pointed out.

The NNPC boss, who has been in charge of the Corporation for just over two years, has midwifed several initiatives that transformed it. The enhanced transparency and accountability he engineered in its operations have led to the elimination of wasteful expenditure and the first-ever declaration of profit in the sum of N287 billion by the Corporation in its 44-year history. In the years to come, the new NNPC Limited will yield bigger profits every year, thanks to the effect of the PIA.

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