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29 March 2021
The enactment of the latest iteration of the Petroleum Industry Bill (PIB) will result in a separation of the regulatory, policy and commercial functions of the minister of petroleum resources. This is aligned with modern trends in the legislative reform of economic sectors, including oil and gas, in many countries. It will also mean a sea change in the minister's role and influence within the industry. While the minister's influence may be perceived to have diminished under the PIB, this may not be the reality when all of the circumstances are taken into consideration. This article highlights:
The powers of the minister of petroleum resources under the Petroleum Act extend to all segments of the industry and span the policy, regulatory and commercial spheres. For example:
The minister is the apex regulator of the industry, imbued with wide discretion. The Department of Petroleum Resources carries out the day-to-day regulation of the industry on the minister's behalf.
The culmination of the minister's powers in the commercial sphere and his obvious conflict of interest may be seen in his appointment as chair of the Nigerian National Petroleum Corporation (NNPC), the national oil company.
The PIB seeks to overhaul this system by separating the regulatory, commercial and policy functions of the state in the oil and gas industry by vesting these in separate entities, thereby updating Nigerian government practice to align with global best practices. The PIB provides for the creation of two regulatory bodies:
These regulators are designed to be highly independent of the minister of petroleum resources and are vested with extensive regulatory functions and powers, including the power to make regulations and prescribe fees and fines. The minister's wide-ranging powers to shape the fiscal regime in the upstream oil and gas sector by prescribing royalties through regulations have also been removed. Royalties are now enacted and may be changed only by primary legislation.(3) The minister's role is largely:
This might appear to be limiting but the minister is still empowered to grant upstream licences and leases, albeit on the recommendation of the commission following a competitive bidding process. Thus, the PIB has effectively removed the discretion previously exercised by the minister in the regulatory process. This is because the generally accepted interpretation of the language of the relevant sections of the PIB is that the minister cannot refuse to make the recommended grant where the winning bidder has complied with the requirements of the bid invitation. A licence or lease is deemed to be granted if the commission receives no response from the minister within 90 days.(5)
For assignments, novations and transfer of interests in licences and leases, the minister's prior written consent is still required following a recommendation by the commission. It appears that the minister may still retain some discretion in this regard, as the language of the relevant provision suggests that they may grant consent "subject to the following terms and conditions [that] the Commission may consider appropriate". The stated criteria include "that the proposed transferee is of good reputation and standing".(6) However, there is no indication of how this is to be measured and so it is safe to assume that some level of ministerial discretion is available in this regard. The minister's consent is deemed to have been granted after 60 working days of receipt of the commission's recommendation, where no formal response is received.(7)
However, beyond these provisions, the minister retains considerable influence over the industry, including over the regulators themselves, in various other ways. Some are evident in the PIB itself. For example, the PIB requires the commission and the authority to comply with general policy directives given by the minister.(8) While this may appear to limit the minister's ability to interfere in the work of the commission or the authority in a particular case, it is still a means to influence the direction of the regulatory environment. However, a combination of a wilful minister and a pliant commission or authority may still allow a minister to interfere in cases, especially where they are novel and have not yet been addressed by extant policy. The requirement that ministerial directives must be gazetted introduces transparency into the relationship between the minister and the regulators, which has until now been absent. Nonetheless, such transparency does not entirely remove the likelihood of ministerial interference in the regulatory function.
Another area of cross-functional influence retained by the minister, which creates another opportunity for regulatory control, is in the appointment and removal or suspension of regulator board members.(9) The PIB empowers the president to appoint the members of the boards (except ex officio members) subject to the confirmation of the Senate. Where the president is also the minister (as has been the case several times), board members of the commission and the authority are particularly exposed to the minister's direct influence because in their capacity as president, they may remove or suspend board members from office on the ground of "an inability to effectively perform the duties of [their] office".(10)
In the commercial sphere, the PIB has also proposed the incorporation of NNPC Limited to take over the government's interests in the sector and replace the NNPC.(11) A review of the relevant provisions shows that the PIB is silent on whether the minister will be on NNPC Limited's board. This may show that the minister's commercial functions in the Nigerian oil and gas industry have been foreclosed by what purports to be reform legislation.
The PIB substantially modifies the minister's role and powers. However, if its intention was to achieve 'best in class' status among oil and gas sector reform legislation, it falls somewhat short. It is an imperfect compromise, which aptly describes most legislative efforts. Nonetheless, the PIB ushers in unprecedented and arguably adequate changes that should make the Nigerian oil and gas sector more attractive to demanding investors in this new era of energy transition. The minister will remain an important figure in the industry, albeit with less direct impact on individual instances of regulatory oversight.
For further information on this topic please contact Chiagozie Hilary-Nwokonko or Gloria Biem at Streamsowers & Köhn by telephone (+234 1 271 2276) or email (email@example.com or firstname.lastname@example.org). The Streamsowers & Köhn website can be accessed at www.sskohn.com.
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