File: Under new draft legislation, Nigeria's state oil giant NNPC will
be split in two including a National Oil Company that will be run on
commercial lines and partly privatised.
ABUJA - Nigeria's government is breaking up an all-encompassing oil
bill that has been stuck in parliament for years, replacing it first
with a law to overhaul the state sector which aims to close loopholes
that bred corruption, according to a draft seen by Reuters.
Under the draft legislation, the state oil giant NNPC will be split in two - rather than a series of units as envisaged by the stalled 2012 bill - including a National Oil Company that will be run on commercial lines and partly privatised.
Africa's biggest oil producer has been trying to pass a new oil law
for years but lawmakers have never agreed on every aspect of the
200-page Petroleum Industry Bill (PIB).
In November, the petroleum minister said the government was working
on a new PIB that would probably be passed in sections, particularly the
thorny issue of a new tax regime that has been criticised by major
international oil firms.
The inability to pass a law and uncertainty around taxation has
stunted investment in the west African nation, particularly in
deep-water oil and gas fields. Now the government hopes that by
submitting a series of bills, individually more modest in scope than the
2012 PIB, it will have a better chance of winning parliamentary
approval and reforming the sector.
The first new bill, drafted by the Senate and overseen by the oil
ministry, is entitled "Petroleum Industry Governance and Institutional
Framework Bill 2015" and aims to create "commercially oriented and
profit driven petroleum entities".
It is expected to be presented to senators this week.
The bill repeals the act that created NNPC that contained legal grey
areas that allowed mismanagement to go unchecked and billions of dollars
in revenues to go seemingly unaccounted for as operating costs
rocketed.
Some noticeably problematic amendments are absent from this bill,
such as allowing the oil minister to decide what to do with any surplus
or allowing the Nigerian president to allocate oil blocks for
exploration.
But it remains to be seen whether further add-ons to the bill or
later decisions will reconcile the conflict between what the new state
oil companies need to run and what they should remit to the treasury.
"The bill leaves open lots of questions around what roles the new
national oil companies will play in the sector, and how they will
receive and manage money," Aaron Sayne, a US lawyer who focuses on the
Nigerian energy sector, said.
"But one can sense more strategic thinking behind it than in past
drafts, and the bill does a better job than its predecessors of saying
who will take key decisions after it becomes law."
Under the Nigerian constitution, NNPC is supposed to hand over its
revenues to the federal government, which then returns what the firm
needs to operate based on a budget approved by parliament. However, the
act establishing the state firm allows it to cover costs before
remitting funds, in effect enabling it to do what it wants with the
cash.
Shortly after taking office in May, President Muhammadu Buhari
described state coffers as "virtually empty" despite years of record
high oil prices that lasted until mid-2014. Oil sales account for 70
percent of government revenues.
The institutional changes in the new draft have been greatly
simplified from the 2012 PIB that created many new regulators and broke
up the oil company into separate downstream (refining and retail),
upstream oil and gas companies.
Instead, NNPC will be split into two: the Nigeria Petroleum Assets Management Co (NPAM) and a National Oil Company (NOC).
REMOVING STATE OBSTACLES
The NOC will be an "integrated oil and gas company operating as a
fully commercial entity", the document states, and will run like a
private company.
The onus will be on its board to make profits and raise its own
funding. The NOC will keep its revenues, deduct costs directly and pay
dividends to the government, although the bill does not elaborate on the
details.
In theory, trimming NNPC down into two leaner companies could solve a
chronic funding problem. Part of Nigeria's oil output comes from joint
ventures with foreign and local companies in which NNPC holds the
majority stake. However, NNPC is always behind on covering its share of
costs owing to the slow pace of government approvals.
To start off, the NOC will receive about $5 billion, or at least the
five-year average of the amount of money NNPC had to put into joint
venture operations. In October, NNPC estimated it owed around $6 billion
to oil companies.
The new NOC will also be partially privatised. At least 30 percent of
NOC shares will be divested within six years of its incorporation.
NPAM is expected to manage assets "where the government is not
obligated to provide any upfront funding". These include oil licences
run under production-sharing agreements in which independent oil
companies cover operating costs and pay tax and royalties on output.
Compared with previous PIB drafts, the law curtails ministerial
powers as board appointments are made by the Nigerian president and
confirmed by the Senate.
If passed, the law would also create a Nigeria Petroleum Regulatory
Commission (NPRC) to oversee everything from oil licence bid rounds to
fuel prices. Previously, regulation was split between many bodies with
ill-defined roles, leading NNPC to act in part as its own watchdog in a
conflict of interest.
A Special Investigation Unit would also be set up under the NPRC with
the powers to seize items and make arrests without a warrant.
