With the President signing of the Petroleum Industry Bill, PIB,
into law and now to be known as Petroleum Industry Act, PIA, the
entire framework for doing business in the oil sector changes
fundamentally. Emmanuel Addeh brings out the
highlights of the new Act that will now govern operations in the
sector going forward.
![image](/2021/07/Justice-Ejembi-Eko-1.jpg")
![image](/2021/08/lawp.jpg")
• FG to Conclude Commercialisation of NNPC by February 2022
![image](/2021/07/escrow-service1.jpg")
• Act retains 3% for host communities, 30% for frontier
basins
• New law creates two regulatory agencies for oil industry
• Commission to collect rents, royalties, production share
• Downstream authority to collect gas flare from midstream
• PIA imposes 1% levy on wholesale price of petroleum
products
• Corporation to retain 10% of profit oil, gas as management
fee
• Oil companies to be sanctioned for understating profits,
overstating losses
• New legislation repeals 10 existing laws
• BoT, executive members of host communities’ board may not be
indigenes
• Oil areas to distribute funds for capital projects (75%),
reserve (20%), administrative (5%)
• Bill divided into fiscal, administrative, governance and
institutions as well as host communities
• Host communities’ fund to be set up within 12 months from
yesterday
• All employees of NNPC deemed new staff of NNPC limited
• When incorporated, board appointments to be made by
shareholders, not the president alone
• Host communities to forfeit entitlement to extent of damage in
cases of vandalism
The new Petroleum Industry Act mandates that the Nigerian
National Petroleum Corporation (NNPC) will be commercialised within
the next six months, effectively transforming the national oil
company into a limited liability company.
Added to that is the establishment of the Nigerian Upstream
Petroleum Regulatory Commission (NUPRC), which shall be responsible
for the technical and commercial regulation of upstream petroleum
operations.
According to the new law, the commission will ensure compliance
with all applicable laws and regulations governing upstream
petroleum operations in a manner to minimise waste and achieve
optimal government revenue as well as promote healthy, safe,
efficient and effective conduct of upstream petroleum
operations.
But despite the hue and cry from some groups in the Niger Delta
on the need to increase the host communities’ fund, the new Act
retained three per cent of total expenditure by the oil companies
for the previous year for oil-producing areas and 30 per cent of
NNPC Limited’s profit oil and gas in product sharing, profit
sharing and risk service contract for frontier basins
exploration.
Also established is the Nigerian Midstream and Downstream
Petroleum Regulatory Authority (NMDPRA) which shall be responsible
for the technical and commercial regulation of midstream and
downstream petroleum operations in the petroleum industry.
Furthermore, the NMDPR, which effectively means the extinction
of the Department of Petroleum Resources (DPR) will ensure
efficient, safe, effective and sustainable infrastructural
development of midstream and downstream petroleum operation as well
as promote healthy, safe, efficient and effective conduct of
midstream and downstream petroleum.
Among others, the new body will promote a competitive market for
midstream and downstream petroleum operations; promote the supply
and distribution of natural gas and petroleum products and ensure
the security of natural gas supply for the domestic gas market as
well as ensure crude oil supply for domestic refineries.
Also to be floated is the Midstream and Downstream Gas
Infrastructure Fund (MDGIF) which shall be funded from 0.5 per cent
of the wholesale price of petroleum products and natural gas sold
in Nigeria, which shall be collected from wholesale customers.
Other sources of funding for the new body are grants accruing
from multilateral agencies, bilateral institutions and related
sources dedicated partly or wholly for the development of
infrastructure for midstream and downstream gas operations in
Nigeria and interest payable in respect of money in the fund.
Also, monies received from gas flaring penalties by the
commission for the purpose of environmental remediation and relief
of the host communities of the settlor on which the penalties are
levied and any other sum freely donated shall be paid into the
fund.
On the commercialisation of the NNPC, it states: “The minister
shall within six months from the commencement of this Act, cause to
be incorporated under the Companies and Allied Matters Act, a
limited liability company, which shall be called the Nigerian
National Petroleum Company Limited (NNPC Limited).
“The Minister shall at the incorporation of NNPC Limited,
consult with the minister of finance to determine the number and
nominal value of the shares to be allotted, which shall form the
initial paid-up share capital of NNPC Limited and the government
shall subscribe and pay cash for the shares.
“Ownership of all shares in NNPC Limited shall be vested in the
government at incorporation and held by the ministry of finance
incorporated and the ministry of petroleum incorporated in equal
portions on behalf of the federation and the ministry.”
The document further states that assets, interests and
liabilities of NNPC not transferred to NNPC Limited or its
subsidiary under subsection (1), shall remain the assets, interests
and liabilities of NNPC until they become extinguished or
transferred to the government in six months following the
determination while the minister of finance and the attorney
general of the federation shall develop a framework for the payment
of the liabilities.
According to the new law: “NNPC shall cease to exist after its
remaining assets, interests and liabilities other than its assets,
interests and liabilities transferred to NNPC Limited or its
subsidiaries under subsection (1) shall have been extinguished or
transferred to the government.”
To allay the fears expressed by beneficiaries of host community
funds that oil companies may continue to under-declare expenses or
profits and overstate losses, the law also set out appropriate
punishments for any person who makes incorrect accounts by omitting
or understating any profits or overstating any losses of which he
is required under the act to make accounts.
It added: “A person who prepares or causes to be prepared any
incorrect schedule or statement required to be prepared under
section 277 of this Act by overstating any expenditure or
overstating any royalties or other sums or by omitting or
understating any amounts repaid, refunded, waived or released, or
gives or causes to be given any false;
“Or misleading information in relation to any matter or thing
affecting his liability to hydrocarbon tax is liable to an
administrative penalty of the sum of N15,000,000 or 1 per cent of
the amount of tax which has been undercharged in consequence of
such incorrect account.”
As part of the implementation process, the law mandated the
minister to within 24 months of the effective date cause an inter
agency transfer of any staff of the institutions to the commission,
the authority or NNPC Limited based on skills and competence
requirements of the new institutions.
It stated that every settlor shall transfer any existing host
communities development project or scheme under its corporate
social responsibility or memorandum of understanding or any other
agreement to a host communities development trust established under
the act.
“Every applicable settlor shall notify the commission or
authority, as the case may be, upon completion of any transfer
under subsection (1) to any one or more host communities
development trusts of any of its existing host communities
development projects or schemes.
“Any financial contribution made by a settlor from the effective
date until the date falling 12 months after the effective date to
any ongoing host communities development project or scheme in
accordance with their terms, shall be deemed to constitute a
contribution made by such holder or holder nominee under section
240 (2) of this act,” it stated.
It stressed that rules, orders, notices or other subsidiary
legislation made under the Petroleum Act, the Petroleum Profits Tax
Act and the Deep Offshore and Inland Basin Production Sharing
Contract Act shall continue to have effect as if made under the
corresponding provisions of the Act.
The new act further mandated each settlor through its operator
to make the 3 per cent available for the host communities, with
each of the trusts allowed to receive donations, gifts, grants or
honoraria that are provided to such host communities development
trust for the attainment of its objectives.
“Each settlor, where applicable through the operator, shall make
an annual contribution to the applicable host communities
development trust fund of an amount equal to 3 per cent of its
actual annual operating expenditure of the preceding financial year
in the upstream petroleum operations affecting the host communities
for which the applicable host communities development trust fund
was established, ” it said.
With the President signing of the Petroleum Industry Bill, PIB,
into law and now to be known as Petroleum Industry Act, PIA, the
entire framework for doing business in the oil sector changes
fundamentally. Emmanuel Addeh brings out the
highlights of the new Act that will now govern operations in the
sector going forward.
• FG to Conclude Commercialisation of NNPC by February 2022
• Act retains 3% for host communities, 30% for frontier
basins
• New law creates two regulatory agencies for oil industry
• Commission to collect rents, royalties, production share
• Downstream authority to collect gas flare from midstream
• PIA imposes 1% levy on wholesale price of petroleum
products
• Corporation to retain 10% of profit oil, gas as management
fee
• Oil companies to be sanctioned for understating profits,
overstating losses
• New legislation repeals 10 existing laws
• BoT, executive members of host communities’ board may not be
indigenes
• Oil areas to distribute funds for capital projects (75%),
reserve (20%), administrative (5%)
• Bill divided into fiscal, administrative, governance and
institutions as well as host communities
• Host communities’ fund to be set up within 12 months from
yesterday
• All employees of NNPC deemed new staff of NNPC limited
• When incorporated, board appointments to be made by
shareholders, not the president alone
• Host communities to forfeit entitlement to extent of damage in
cases of vandalism
The new Petroleum Industry Act mandates that the Nigerian
National Petroleum Corporation (NNPC) will be commercialised within
the next six months, effectively transforming the national oil
company into a limited liability company.
Added to that is the establishment of the Nigerian Upstream
Petroleum Regulatory Commission (NUPRC), which shall be responsible
for the technical and commercial regulation of upstream petroleum
operations.
According to the new law, the commission will ensure compliance
with all applicable laws and regulations governing upstream
petroleum operations in a manner to minimise waste and achieve
optimal government revenue as well as promote healthy, safe,
efficient and effective conduct of upstream petroleum
operations.
But despite the hue and cry from some groups in the Niger Delta
on the need to increase the host communities’ fund, the new Act
retained three per cent of total expenditure by the oil companies
for the previous year for oil-producing areas and 30 per cent of
NNPC Limited’s profit oil and gas in product sharing, profit
sharing and risk service contract for frontier basins
exploration.
Also established is the Nigerian Midstream and Downstream
Petroleum Regulatory Authority (NMDPRA) which shall be responsible
for the technical and commercial regulation of midstream and
downstream petroleum operations in the petroleum industry.
Furthermore, the NMDPR, which effectively means the extinction
of the Department of Petroleum Resources (DPR) will ensure
efficient, safe, effective and sustainable infrastructural
development of midstream and downstream petroleum operation as well
as promote healthy, safe, efficient and effective conduct of
midstream and downstream petroleum.
Among others, the new body will promote a competitive market for
midstream and downstream petroleum operations; promote the supply
and distribution of natural gas and petroleum products and ensure
the security of natural gas supply for the domestic gas market as
well as ensure crude oil supply for domestic refineries.
Also to be floated is the Midstream and Downstream Gas
Infrastructure Fund (MDGIF) which shall be funded from 0.5 per cent
of the wholesale price of petroleum products and natural gas sold
in Nigeria, which shall be collected from wholesale customers.
Other sources of funding for the new body are grants accruing
from multilateral agencies, bilateral institutions and related
sources dedicated partly or wholly for the development of
infrastructure for midstream and downstream gas operations in
Nigeria and interest payable in respect of money in the fund.
Also, monies received from gas flaring penalties by the
commission for the purpose of environmental remediation and relief
of the host communities of the settlor on which the penalties are
levied and any other sum freely donated shall be paid into the
fund.
On the commercialisation of the NNPC, it states: “The minister
shall within six months from the commencement of this Act, cause to
be incorporated under the Companies and Allied Matters Act, a
limited liability company, which shall be called the Nigerian
National Petroleum Company Limited (NNPC Limited).
“The Minister shall at the incorporation of NNPC Limited,
consult with the minister of finance to determine the number and
nominal value of the shares to be allotted, which shall form the
initial paid-up share capital of NNPC Limited and the government
shall subscribe and pay cash for the shares.
“Ownership of all shares in NNPC Limited shall be vested in the
government at incorporation and held by the ministry of finance
incorporated and the ministry of petroleum incorporated in equal
portions on behalf of the federation and the ministry.”
The document further states that assets, interests and
liabilities of NNPC not transferred to NNPC Limited or its
subsidiary under subsection (1), shall remain the assets, interests
and liabilities of NNPC until they become extinguished or
transferred to the government in six months following the
determination while the minister of finance and the attorney
general of the federation shall develop a framework for the payment
of the liabilities.
According to the new law: “NNPC shall cease to exist after its
remaining assets, interests and liabilities other than its assets,
interests and liabilities transferred to NNPC Limited or its
subsidiaries under subsection (1) shall have been extinguished or
transferred to the government.”
To allay the fears expressed by beneficiaries of host community
funds that oil companies may continue to under-declare expenses or
profits and overstate losses, the law also set out appropriate
punishments for any person who makes incorrect accounts by omitting
or understating any profits or overstating any losses of which he
is required under the act to make accounts.
It added: “A person who prepares or causes to be prepared any
incorrect schedule or statement required to be prepared under
section 277 of this Act by overstating any expenditure or
overstating any royalties or other sums or by omitting or
understating any amounts repaid, refunded, waived or released, or
gives or causes to be given any false;
“Or misleading information in relation to any matter or thing
affecting his liability to hydrocarbon tax is liable to an
administrative penalty of the sum of N15,000,000 or 1 per cent of
the amount of tax which has been undercharged in consequence of
such incorrect account.”
As part of the implementation process, the law mandated the
minister to within 24 months of the effective date cause an inter
agency transfer of any staff of the institutions to the commission,
the authority or NNPC Limited based on skills and competence
requirements of the new institutions.
It stated that every settlor shall transfer any existing host
communities development project or scheme under its corporate
social responsibility or memorandum of understanding or any other
agreement to a host communities development trust established under
the act.
“Every applicable settlor shall notify the commission or
authority, as the case may be, upon completion of any transfer
under subsection (1) to any one or more host communities
development trusts of any of its existing host communities
development projects or schemes.
“Any financial contribution made by a settlor from the effective
date until the date falling 12 months after the effective date to
any ongoing host communities development project or scheme in
accordance with their terms, shall be deemed to constitute a
contribution made by such holder or holder nominee under section
240 (2) of this act,” it stated.
It stressed that rules, orders, notices or other subsidiary
legislation made under the Petroleum Act, the Petroleum Profits Tax
Act and the Deep Offshore and Inland Basin Production Sharing
Contract Act shall continue to have effect as if made under the
corresponding provisions of the Act.
The new act further mandated each settlor through its operator
to make the 3 per cent available for the host communities, with
each of the trusts allowed to receive donations, gifts, grants or
honoraria that are provided to such host communities development
trust for the attainment of its objectives.
“Each settlor, where applicable through the operator, shall make
an annual contribution to the applicable host communities
development trust fund of an amount equal to 3 per cent of its
actual annual operating expenditure of the preceding financial year
in the upstream petroleum operations affecting the host communities
for which the applicable host communities development trust fund
was established, ” it said.