People & Money

Buhari Gives Nod to the Petroleum Industry Bill, Sends Draft to Senate

The core laws governing oil and gas exploration and production in Nigeria have not been significantly revised since the 1960s. Nigeria announced that the laws on oil taxes will be revised after the country exited military rule in 1999 but several attempts to enact new legislation have failed in the following 20 years. The ensuing uncertainty of having oil and laws that may change anytime has had a far more deleterious impact than having archaic laws, deterring billions of dollars in new investments.

President Muhammadu Buhari has indicated that he is comfortable with the Petroleum Industry Bill, which seeks to overhaul the regulatory and legal architecture of Nigeria’s oil and gas industry, the country’s biggest foreign exchange earner and source of about 65% of the government’s revenue. He has asked the draft to be sent to the Senate next week.

The core laws governing oil and gas exploration and production in Nigeria have not been significantly revised since the 1960s. Nigeria announced that the laws on oil taxes will be revised after the country exited military rule in 1999 but several attempts to enact new legislation have failed in the following 20 years. The ensuing uncertainty of having oil and laws that may change anytime has had a far more deleterious impact than having archaic laws, deterring billions of dollars in new investments.

The Context

Nigeria has tried to pass an omnibus Petroleum Industry Bill several times in the last 20 years which aimed for a total overhaul of the oil sector, seeking to establish the basis for taxing oil production, partial privatization of the Nigerian National Petroleum Corporation (NNPC), definition of host communities, delineation of commercial player and regulator roles for government agencies etc.

In 2018, the National Assembly took the initiative to break down the PIB into separate bills and was able to pass the Petroleum Industry Governance Bill (PIGB), which concentrated on the functions of state entities in the oil and gas sector. President Mohammadu Buhari refused to sign the bill into law, a decision widely interpreted either as a preference for preserving the dominance of the sector by the government-owned NNPC or a refusal to give political capital to former Senate President Bukola Saraki, a politician with whom he had adversarial relations, who had led the legislative initiative to draft and pass new oil and gas sector legislation.

The version of the legislation that the National Assembly is now expected to pass is an Executive Bill i.e. developed by the Presidency working with relevant Ministries. President Buhari was able to handpick the leadership of the current National Assembly, it is hence easy to coordinate legislation with the lawmakers. Nigeria has lost billions of dollars in investment in oil exploration and production as investors waited for clarity on industry legislation, especially on fiscal terms i.e. how their profits will be taxed. Experts feel that Nigeria would have gotten a lot more investment if it had never announced the intention to pass new legislation.

In August, the Petroleum Resources Ministry had sent a draft copy to Buhari, following months of talks between Nigerian officials, industry stakeholders and energy firms. Oil and gas industry watchers who have seen the draft legislation say it would create incentives and penalties to stimulate investment in gas-gathering. It is not as hostile to investment as feared.

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