Unpicking Nigeria’s new draft oil law

25 Jul 2012 admin

This guest blog was written by Jeremy Weate. He runs Naijablog and is on twitter.

Over the past few years, Nigeria’s Petroleum Industry Bill (PIB) has acquired a mythic, if not theological framing. It’s as if the document, once gazetted, will provide a final judgement on the direction of reform of the sector. No matter the content of the final version of the bill (for there have been many), the eschatological hope projected onto the law will be misplaced, for a simple reason. In no country, should governance reform begin with a new law.  Far from putting the cart before the horse, this approach puts the cart before the building of the road. Governance reform should begin with a vision and a strategy, which all concerned can debate and discuss. Once a strategy is generally agreed, it can be captured in a policy document. Only once the policy document has been given air to breathe and circulate, been chewed on and updated by all stakeholders, should the sensitive matter of law-making begin. Thrashing out policy issues via successive and sometimes parallel drafts of a hefty piece of legislation, while nice work for lawyers and consultants, is hardly an efficient way of developing the new governance framework that is required.

However, global good practice at this stage is irrelevant. Here, in this present moment, we have a bill that has been passed by the National Executive Council, and now has returned to the National Assembly for consideration. The work ahead for the National Assembly in this parliament is to unpick the policy implications buried within the bill in order to conclude with legislation which best balances the interests of oil companies and the concerns of Nigerian citizens. Let’s start with the good news. 

In terms of transparency provisions, the bill does mention NEITI as an institution with oversight over the agencies and companies defined within the legislation. However, transparency gets scant mention in the rest of the bill, except for a reference to NEITI monitoring bid rounds and for there to be transparency in gas transactions.  Placing transparency at the top of the deck offers the veneer of respectability, while neatly sidestepping any practical transparency and accountability measures that could have been embedded in the details.

The other positive news is that the new regulator, the Petroleum Inspectorate, will be funded directly via the Federal budget. A previous version of the bill included the regulator being funded via 2.5% of royalties, which would have granted the regulator further autonomy. Unfortunately, this provision has disappeared from the latest version.  As lessons from elsewhere have shown (not least the astonishing rise of Petrobras in the past decade in Brazil), dramatic sector growth driven by a national oil company depends on a strong and autonomous regulator. In this respect, it’s a pity the 2.5% provision has been excised.

There is also some good news on gas flaring penalties – the penalty is now determined by the market price of the lost gas; however, the date for an end to all gas flaring in Nigeria is now at the discretion of the Minister of Petroleum. The bill stands in contradiction with itself on flaring penalties, because elsewhere in the same document it is stated that the Minister will determine the gas penalty amount.

The less rosy news is that the bill is weak on practical forms of transparency and accountability, such as a transparent metering system that will counter the illegal bunkering trade, that is now estimated to be at least 400,000 barrels per day. An unfortunate detail is that the bill also permits governance institutions (including the regulator) to collect monetary gifts. This comes across as poor legislation, plain and simple.

Again, as with earlier versions, the latest PIB defines a “Petroleum Host Community Fund” which allocates 10% of net profits to host communities. Unfortunately, host communities are not defined, which is a recipe for conflict. If host communities are more precisely defined, this provision could nonetheless be salvaged and potentially be a force for the good.  In the context of an amnesty programme that is looking increasingly unsustainable, direct distribution of revenues might work, but the legal definitions need to be very carefully worked and in tune with realities on the ground. Here, the issue of sequencing raises its head once again. A policy on host community funding should have been developed in advance of the law.

There isn’t space to explore all the other aspects of this complex proposed legislation. It is now up to civil society actors, beginning with members of the National Assembly, to unpick in much greater detail the pros and cons of the draft PIB. Let’s hope that as many voices as possible have their say in the debate. 

However, regardless of what version of the PIB eventually becomes law, Nigeria will still have the same political economy features, and more or less the same people will be working in differently named institutions (the National Oil Company will inherit the staff of the NNPC). It is not clear what attitudinal or institutional reform is planned on the back of a new PIB, just as it isn’t clear what the governance arrangements of the new national oil company will be. The real work of transforming the oil and gas sector in Nigeria to create a more efficient, transparent and accountable industry structure is not a legislative matter.  Once the PIB is passed into law, all the work of reform will still lie ahead.


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