HB 477: Petroleum Industry Governance Bill, 2016

Bill Analysis:

SHORT TITLE

Petroleum Industry Governance Bill, 2016

OBJECTIVE OF THE BILL

The objectives of the Bill are as follows: -

• To create efficient and effective governing institutions with clear and separate roles for the petroleum industry;
• To establish a framework for the creation of commercially oriented and profit driven petroleum entities that ensures value addition and internationalization of the petroleum industry;
• To promote transparency and accountability in the administration of the petroleum resources of Nigeria; and
• To foster a conducive business environment for petroleum industry operations.

NUMBER OF CLAUSES/PARTS

The Bill has 7 parts and 93 clauses, including an interpretation clause and schedules

CONTENTS

The Bill has the following contents: -

• Part 1: - Lists and specifies the objectives of the Bill;

• Part II: - Details the full description of the role of the Minister of Petroleum Resources, including his power to delegate his function to any other person or institution;
• Part III: - Establishment of the Nigeria Petroleum Regulatory Commission which shall be a corporate body with perpetual succession; a Commission which shall replace 3 existing petroleum agencies; its functions, powers and objectives;
• Part IV: - Incorporation of the Nigeria Petroleum Assets Management Company
• Part V: - Establishment and Governance of commercial entities, transfer of assets and liabilities and duties of the Minister
• Part VI: - The incorporation of the National Petroleum Company and the transfer of obligations, assets and liabilities
• Part VII: - Repeals, Transitional and Savings Provisions
• Interpretation
• Schedules

APPLICATION OF THE BILL

The Bill applies to the rights, interests, obligations and liabilities of the Petroleum Industry in Nigeria as well as its development, management and governance.

EFFECTS OF PASSING THE BILL

When the Bill is passed, the following will ensue in effect:

1. A Nigeria Petroleum Regulatory Commission (NPRC) will be created to replace the Petroleum Pricing & Products Regulatory Agency (PPPRA) and the Department of Petroleum Resources (DPR),
2. A Fund (The Fund) will be established to defray the expenditures of the Commission
3. Incorporation of two companies - Nigeria Petroleum Assets Management Company (the Management Company) or such name as may be available and National Petroleum Company, which shall be vested with certain assets and liabilities of the Nigerian National Petroleum Corporation (NNPC).
4. Establishment of the Ministry of Petroleum Incorporated (MOPI) under the Federal Ministry of Petroleum
5. The Laws (or Acts) setting up the PPPRA and the NNPC are repealed
6. A transfer order shall be issued by the Minister of Petroleum Resources for the transfer of employees, assets, liabilities, rights and obligations of the NNPC to the incorporated entities.
7. Any contract entered into by the DPR, PPPRA or NNPC prior to the Bill being passed into law shall be of the same force and effect against or in favour of the entity to which their obligations, assets and liabilities are being transferred.

GENERAL PROVISIONS OF THE BILL

1. Responsibilities of the Minister

The Minister under Clause 2 has the various responsibilities in the petroleum industry, which include:

• Determination, formulation and monitoring of government policy;
• Exercise supervisory functions over its operations;
• Advise the government on all pertinent matters;
• Promote and develop local content;
• Negotiate and execute international petroleum treaties and agreements on behalf of the government;
• Grant, amend, renew, extend and revoke licenses on recommendation of the Nigerian Petroleum Regulatory Commission (the Commission);
• Do all other things that are incidental and necessary for the performance of the functions of the Minister.

The Minister may delegate any of these functions to anyone or any other institution in writing.

2. Minister’s Right of Pre-emption: -

In the event of a national emergency as stipulated under the 1999 Constitution (as amended), the Minister shall have the right of pre-emption of all petroleum products obtained, marketed or otherwise dealt with under any license or lease. While the Constitution outlays the circumstances that may lead to the President declaring a national emergency, this Bill seeks to confer on the Minister, the right of first refusal over the petroleum products obtained by licensees at any time a national emergency is declared only.

3. Establishment of the Nigeria Petroleum Regulatory Commission: -

The Bill seeks to establish under Clause 4(1) of the Bill, the Nigeria Petroleum Regulatory Commission (the Commission). The Commission shall be vested with all assets, funds, resources and properties, which before the establishment were held by the Department of Petroleum Resources (DPR), Petroleum Inspectorate, and Petroleum Products Pricing Regulatory Agency (PPPRA). The commencement date shall be on the date that this Bill becomes law.

The rights, liabilities, interests and obligations of the above named agencies shall, effective from the date of commencement be vested in the Commission. The Commission shall be structured into departments as its Board may from time to time, deem appropriate for the effective discharge of its functions under this Bill (Clause 4(5))

4. Objectives of the Commission: -

The Commission shall in addition to several objectives listed under Clause 5(a) – (i), ensure strict implementation of the environmental policies, laws and regulations as pertains to oil and gas operations, as well as promote enabling environment for investments in the petroleum industry.

Clause 5(e) provides that the Commission will execute government policies assigned to it by the Minister of Petroleum subject to the provisions of this Bill (when passed into law). Where the Bill is seeking to establish a Commission, which shall attract investments and maintain standards in line with global best practices; executing policies assigned by the Minister (a political office holder) may from time to time conflict with these standards.

5. Functions of the Commission: -

The Bill under Clause 6 lists up to 65 functions of the Commission, some of which are similar to the objectives. The functions contained in this Clause cover monitoring, inspecting, reporting, and supervision of the sale of products; contracting, licensing, and regulating sectors, as well as collaborating and consulting with other agencies (foreign and national). Also ensure, monitor and regulate health and safety. Providing and ensuring security shall also be a function of the Commission, according to the Bill.

Apparently Clause 6(5) places the responsibility of the environmental safety on the Commission as a function, though without prejudice to the overall responsibility of the Federal Ministry of Environment, and further stipulates that any directive in respect of environmental safety in the Petroleum Industry, shall not conflict with any regulation or directive issued by the Federal Ministry of Environment.

To facilitate the provisions of this Clause, the Bill stipulates that the Commission may in conjunction with the Federal Ministry of Environment set up a joint committee to facilitate collaboration. And since a key function is collaboration with other agencies, it gives the Commission the leverage it requires to perform the so many diverse functions the Bill ascribes to it.

6. Powers of the Commission: -

The Bill under Clause 7 provides that the Commission shall have powers over all matters regarding licenses, permits and leases pursuant to the provisions of this Bill; tariff methodology and pricing framework; issue penalties, fines and fees pursuant to the provisions of this Bill; institute legal proceedings; make and issue guidelines and regulations as well as enforce them.

The Bill also gives adjudicating powers to the Commission under Clause 7(b), to mediate disputes in respect of third party access. This power offers an alternative form of dispute resolution, which may help settle matters quicker and reduce recourse to the Courts for every dispute.

The import of these powers of the Commission is that it is a regulator with oversight functions with specific oversight functions over the conduct of the actors engaged in businesses in the Petroleum Industry in Nigeria.

7. The Commission’s Regulation Making Process: -

Pursuant to the provisions of this Bill, the Commission can make regulations necessary to give proper effect to the provisions of the Bill. The process under Clause 8(2) requires conducting a public hearing prior to making a regulation. The notices of such a hearing are published in two national dailies and the Commission’s website. The findings of the public hearings shall be considered in making any regulations.

 Stakeholder-consultation is a democratic undertaking aimed at bringing relevant actors to the table and soliciting their opinions. Considering the findings of a public hearing in making a regulation would reflect transparency and inclusion within the Commission. It is a welcome characteristic that could attract investors and keep them, which is part of the functions of the Commission.

However, due to exigent circumstances, the Commission may make regulations without a public hearing. Although, the regulation may have effect for up to 6 (six) months from the commencement date unless confirmed at a public hearing (Clause 8(5)).

8. Orders or Decisions of the Commission: -

The Commission under Clause 10(1) may hold public hearing on any matter, which the Commission determines to be of significant interest to the general public. Stakeholders are usually notified of such hearings and given opportunities to make representations, if they so wish. If any question of law arises from an order or decision of the Commission, the Commission may on its own initiative or at the request of another affected by the order, reserve the question for the decision of the Federal High Court (Clause 12(1)).

Where the question has been reserved under Clause 12(1), the Commission shall state the question in the form of a special case and file it with the Registrar of the Federal High Court.

9. Governing Board of the Commission: -

Clause 13 of the Bill creates a Governing Board to oversee the affairs of the Commission. Membership of the Board is described to include representatives of the Ministries of Petroleum Resources, Finance and Environment. The appointment of the Chairman and non-executive Commission shall be done by the President, with due regard to a fair representation of technical, legal and commercial experience. The non-executive members shall serve for a term of 4 years, renewable for another 4 years

10. General Policy Directions: -

The Bill under Clause 15 stipulates that the Minister may issue general policy directions to the Commission on matters concerning the petroleum industry and the Commission shall implement same, provided they do not conflict with the provisions of the Bill when passed into law. The Bill also states that the Commission shall be independent in the performance of its functions and duties, and the exercise of its powers.

The Minister’s power to issue general directives to the Commission from time shall be subject to the provisions of the Bill when passed into law. In effect, where a directive is in conflict with any provision, the provision shall prevail, which goes to underscore the ‘independence’ provided for under Clause 15(3)

11. Removal or Suspension of a Board Member: -

The Bill under Clause 17 (1)(a) – (e) lists the grounds for the removal or suspension of a board member. This list includes misconduct, inability to perform their duties and exit from the Ministry they represent. A board member may also be removed if they fail to attend 3 consecutive meetings.

The President shall inform the Commissioner prior to suspension or removal by written notice as soon as practicable, and provide reasons. The Commission shall have a reasonable opportunity to make written submissions to the President within a specified time period not less than 14 days from the date of the notice (Clause 17(3)).

12. Resignation of a Board Member: -

A member of the Board may resign from office after a 2-month notice in writing to the President (Clause 18).

13. Governance Structure of the Commission: -

The Commission shall have a Chief Executive Commissioner and 3 Executive Commissioners to be appointed by the President subject to the confirmation by the Senate. The Chief Executive is appointed for a five years, renewable for another five; while the Executive Commissioners will have four years each, renewable for another four years.  

While the role of the Chief Executive is necessary as the Head of the Commission, the roles of the Executive Commissioners are not clear in the Bill. Perhaps the reason why the Executive Commissioners are 3 in number is because 3 existing agencies will be collapsed into one when the Bill is passed. The Bill needs to be clear on the roles of these President’s appointees in other to understand the necessity of those offices.

14. Establishment of the Fund of the Commission: -

The Bill under Clause 26 provides that the Commission shall establish and maintain a fund (“the Fund) from which all expenditures incurred by the Commission shall be defrayed. The funding sources shall include: -

• A percentage of the revenue generated by the Commission and appropriated by the National Assembly;
• Grants, loans, grants-in-aid or grants of land from communities;
• Penalties and fines levied by the Commission;;
• Fees charged for the sale of data acquired by the Commission
• Income derived from publications, etc.

The monies accruing to the Fund shall be used to meet the administrative and operating costs of the Commission, salaries and property maintenance, etc.

15. Power to Accept Grants: -

The Commission may accept grants of money or other property upon such terms and conditions as may be specified by the person or entity making the gift provided they are not inconsistent with the objectives and functions of the Commission. No member of the Board or staff shall accept such grants for their personal use (Clause 27(2)). This Clause makes it illegal for any staff or board member to collect a grant on behalf of the Commission for their personal use.

16. Accounts Audit: -

The Commission shall cause its account to be audited within 6 months after the end of each year by auditors appointed by the Commission in accordance with the guidelines supplied by the Auditor-General of the Federation (Clause 28). The audited account report and the annual report summary shall be published on the website of the Commission for public notice not later than July 31 of each year. However, they shall be submitted to the Minister not later than May 31 of the following year.

Accounts audit, operations reporting and online publication of reports are elements of institutional transparency, which the Bill seeks to achieve as part of its objective (Clause 1(c)).

17. Exemption from Taxation: -

Clause 30 provides that the Commission is not subject to taxation. The Commission shall generate revenue for the Federation (Clause 26(2)(a)), so there is no reason for taxation.

18. Limitation of Suits against the Commission: -

The provisions of the Public Officers Protection Act shall apply subject to the provisions of this Bill when passed into law, therefore no suit shall lie against the Commission, any member of the board or staff for any act done in the execution of their duties under this Bill (when passed into law), unless it is commence within 12 months after the act. Where an injury is caused, the case shall commence within 6 months after the injury or damage.

A written one-month notice is required stating the intention to commence a suit, and served to the Commission by the intending plaintiff or his agent (Clause 31(3)).

19. Judgment Enforcement Through Garnishee Proceedings: -

Any judgment against the Commission may be enforced through garnishee proceedings. In any suit against the Commission, no execution, attachment of its physical property shall be issued. A notice of not less than 3 months of intention to commence a garnishee proceeding is required. The judgment debt in this case shall be obtained from a 3rd party who owes an obligation to the Commission.

Where a judgment debt is a sum of money, the amount shall be paid from the Fund of the Commission (Clause 33).

20. Establishment of a Special Investigation Unit: -

The Commission shall have a Special Investigative Unit for the effective conduct of its functions. The Unit shall have powers to investigate acts, which may constitute offences under this Bill; keep surveillance of oil and gas installations, premises and vessels; collaborate with government agencies in relation and prosecution of offences relating to petroleum operations; make an arrest with a warrant in conjunction with the Nigerian Police of any person reasonably believed to have committed an offence under the Bill when it is passed into law.

21. Indemnity of Staff and Board Members: -

Every staff or board member of the shall be indemnified out of the assets of the Inspectorate against any liability incurred in defending any proceeding against the Commission, as long as the person was acting in their capacity as board or staff member. However, the Commission shall not indemnify any board or staff member for any liability incurred as a result of willful negligence.

22. Establishment of Ministry of Petroleum Incorporated (MOPI): -

The Bill under Clause 36 establishes a Ministry of Petroleum Incorporated (MOPI) as a body with a corporate seal and perpetual succession. The corporate seal may be altered from time to time as MOPI deems fit, but until a seal is provided, a stamp bearing inscription “Federal Ministry of Petroleum” may be used as a corporate seal.

Under Clause 36, the MOPI shall:

• Hold on behalf of the government, shares in the successor commercial entities incorporated pursuant to the provisions of this Bill when passed into law;
• Have powers to do all such other things necessary for the performance of its functions;
• Have all deed and other instruments requiring the seal of the corporation sealed with the seal of MOPI in thee presence of the Permanent Secretary and signed by the Permanent Secretary

23. Powers of the Minister of Petroleum: -

23.1. Vest Property to any Authority or Company: - The Minister of Petroleum may vest any movable or immovable assets or properties vested in MOPI, in any other authority or company without conveyance, transfer or assignment

23.2. Incorporate Two Companies: - The Minister of Petroleum shall have the power to incorporate two entities under the Companies and Allied Matters Act (CAMA) within 6 months of the date this Bill is passed into law and becomes effective. The first may be called the Nigeria Petroleum Assets Management Company (the Management Company) or such name as may be available and the second shall be the National Petroleum Company, which shall be vested with certain assets and liabilities of the Nigerian National Petroleum Corporation (NNPC).

The Bill used the term “certain’ to describe the degree of assets to be transferred to the incorporated company from NNPC. In effect, the remainder of its assets shall be vested on other entities. This provision requires clear explanation on how the assets will be divided between the National Petroleum Company and any other entities provided under this Bill. 

23.3. Incorporate ‘Other’ Entities: - The Minister of Petroleum also has powers to incorporate ‘other’ entities as may be necessary to assume and manage some liabilities of the NNPC (Clause 37(3)). This Clause used the term ‘some’ and not ‘all’. The ambiguity here is that there is no clear provision on the specific percentage that will be share among the entities.

The initial shares or other ownership interest of such entities shall be held in ratio of 51% by MOPI and 49% by the Bureau of Public Enterprises (BPE) on behalf of the government. However, Clause 36(3) provides that MOPI shall hold shares in the successor commercial entities incorporated pursuant to this Bill (when passed into law) on behalf of the government. If 51% shares of the entities, which the Minister may incorporate shall vest in MOPI and the remaining percentage is held by BPE on behalf of the government, it shall mean that the government shall own 100% of the shares of the other entities to be incorporated, but being held on its behalf by agencies.

23.4. Set Timeline for Transition: - The Minister shall put in place the plan and timeline for transitioning into the new entities to prevent disruption of industry operations. It is the duty of the Minister to cause the publication on the Gazette, the starting date on which the assets of the Management Company are transferred.

24.4. Issue a Transfer Order: - The Minister shall within 12 months of incorporation issue a binding transfer order for some employees, assets, liabilities, rights and obligations of the NNPC to the Management Company (Clause 41) and to the National Petroleum Company (Clause 67). The Minister may also further amend a transfer order at any time within 1 (one) year of making the transfer order (Clause 50). However, Clause 67(4) states that the transfer order may specify employees, assets, liabilities, etc. to be transferred. Employees not listed on the order may not be required to be transferred.

24.  Governance: -

The entities shall be governed and managed on the basis of the provisions of the Companies and Allied Matters Act, and the Securities and Exchange Commission’s Code of Corporate Governance (Clause 37(4)(b).

25. Repeals: -

Under Clause 87, from the effective date of this Bill (when it becomes law), the Petroleum Products Pricing Regulatory Agency (Est) Act, CAP P43, LFN, the Nigerian National Petroleum Corporation Act Cap N123, LFN 2004, the Nigerian National Petroleum Corporation (Projects) Act CAP N124 and the Nigerian National Petroleum Corporation Amendment Act N123 shall be deemed repealed.

26. Adaptation of Laws: -

The relevant provisions of all existing enactments, including the CAMA, Petroleum Act, Oil Pipelines Act and Hydrocarbon Oil Refinery Act, etc. shall be read with such modification as to bring them into conformity with the provisions of this Act. This means that where a provision of any existing enactments is inconsistent with any provision of this Bill (when it becomes law), it shall to the extent of that inconsistency be void. In matters provided for in this Bill, where any provision of any other law conflicts with the provisions of this Bill, the provisions of this Bill (when passed into law) will prevail.

The regulatory powers conferred on the Minister pursuant to other Petroleum industry Act, shall be deemed to have transferred to the Commission, from the commencement of this Bill, when passed into law.

27. Delisting of Assets: -

The assets of the subsidiaries of the NNPC listed under the Public Enterprises Privatization and Commercialization Act shall be de-listed from effect of this Bill when passed into law and the power of attorney earlier assigned to the BPE shall stand vacated (Clause 77).

28. Exemption From Stamp Duty & Other Charges: -

Under Clause 53(1), the Bill provides that there shall be no stamp duty shall be chargeable during the incorporation of the Management Company and any successor company. There shall also not be any increase in the authorized share capital prior to the transfer of an interest to one or more private investors.

The Corporate Affairs Commission (CAC) shall not charge any fees in respect of incorporation of any company pursuant to this Bill when passed into law.

No capital gains tax shall be chargeable under the Capital Gains Tax Act in respect of any transfer made or transaction entered into pursuant to this Bill when passed into law.

29. Status of Contracts after Transfer: -

The transfer of assets, employees, etc. to the Management Company shall not be deemed to constitute a breach, frustration, termination or repudiation of a contract, including employment contract and insurance. In effect all contracts entered into by the NNPC before the coming into effect of this Bill (when it becomes law), shall remain valid even after the transfer to the Management Company. Clause 41 of the Bill expressly states that some employees, rights and obligations, etc. of the NNPC shall be transferred to the Management Company by a transfer order of the Minister.

However contracts entered into with the NNPC after the execution of the transfer order by the Minister pursuant to this Bill (when it becomes law), shall be void ab initio. The reason for this is that Clause 43 of the Bill releases the NNPC from any further obligations or liabilities after the transfer is completed.

30. Dividend Policy: -

The Dividend Policy of the Management Company shall be determined by the Board of Directors in accordance with the provisions of the CAMA. All dividends accruable in respect of the shares held on behalf of the government shall be paid directly into the Federation Account.

31. Further Amendment of Order: -

The Minister may at any time within one year after making a transfer order, amend the order in any way that the Minister considers necessary or advisable. This may include such order necessary to rectify the transfer of any of the employees, assets, liability, rights and obligations pursuant to a verification or an audit of the employees, assets and liabilities of the NNPC (Clause 74).

ANY SIMILAR EXISTING BILL

• A similar Bill is the Nigerian Petroleum Industry Bill, 2015 (HB 336) sponsored by Hon. Daniel Reyenieju and 14 others;
• Another similar Bill is the Petroleum Industry Bill 2016 (SB 237) sponsored by Senator Donald O. Alasoadura

CONCLUDING ISSUES

The Petroleum Industry Governance Bill (PIB) seeks to reform the petroleum industry in Nigeria and establish a governance structure to ensure transparency and efficiency.  The framework, which the PIB seeks to establish, is expected to create commercially oriented and profit driven petroleum entities for value addition and internationalization of the petroleum industry.

Several other Bills before the National Assembly are geared towards amending the agencies that this Bill seeks to dissolve by repealing the Acts establishing them. They are the Petroleum Pricing & Products Regulatory Agency (Amendment) Act 2015 (HB 245), which passed in May 2016; and a Bill to amend the Nigerian National Petroleum Corporation (Est.) Act that is before the House of Reps (HB 571). The passage of these Bills may be of no effect once the PIB passes and is signed into law, as it seeks to repeal these Acts.

 The general structure of the Bill can be improved and repetitions like Clause 38 and Clause 37(4)(a); and Clauses 61, Clause 38 & 37(4)(a) could be revised to convey their meanings better.

As there have been various calls by stakeholders for the passage of this Bill, its importance can no longer be ignored. The PIB has become long overdue for passage and requires accelerated attention to be passed into law.

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