Agora policy calls for urgent amendment of PIA

An Abuja-based policy think tank, Agora Policy, has called for an urgent amendment of the Petroleum Industry Act (PIA) to boost the federation’s petroleum revenue.

A maiden report by the policy think-tank titled “Urgent Need to Amend the PIA to Boost Federation’s Petroleum Revenue” said it is essential that relevant sections of the PIA be re-examined and appropriate revisions made to channel more petroleum revenue to the federation.

On 16 August 2021, former President Muhammadu Buhari signed the Petroleum Industry Bill (PIB) 2021 into law. The bill thus became the Petroleum Industry Act (PIA) 2021. This effectively brought an end to a 21-year process to reform the petroleum sector in the country.

The Petroleum Industry Act provides legal, governance, regulatory and fiscal framework for the Nigerian petroleum industry, the development of host communities, and related matters.

In its report, the think tank said the PIA was supposed to attract investment into the country’s petroleum sector; enhance the regulatory and business framework; and increase revenue accruing to the federation.

In reality, however, it said none of these aims have been achieved.

“For revenue, the federation has not received more revenue, as petroleum revenue to the federation has fallen drastically after implementation of the PIA, and this is not due to just fall in oil production or prices. On the regulatory and business environment front, confusion and conflicting signals have meant the maintenance of the difficult and stifling operating environment. On the investment front, there has been an exodus of international oil companies (IOCs).

“After two years of implementing the PIA, evidence shows that the federation has received significantly lower revenues from the petroleum sector, compared to the period before the law. We focus on the interpretation of two aspects of the PIA where implementation has increased the share of petroleum revenue withheld by the Nigerian National Petroleum Company Limited (NNPC Ltd), thereby reducing the petroleum revenue accruing to the federation,” the think tank said.

With the implementation of the PIA, NNPC Ltd took over ownership of the federation’s equity holdings in Joint Venture (JV) assets. With NNPC Ltd’s interpretation of Sub-section 54 (1) of the PIA, NNPC Ltd has acquired the federation’s JV assets, and pays dividends to the federation.

However, Agora policy noted that the federation has received lower revenue from these JV assets, as the dividends declared are very low, and there have been many months in which no dividends were paid.

It explained that in 2021, the last full year before the implementation of the PIA, the federation received $10.65 billion from sales of JV crude oil and $1.252 billion from sales of JV equity gas and feedstock, amounting to a total revenue of $11.902 billion from crude oil and gas sales from JV assets.

By contrast, it said in 2023, the first full year of the PIA implementation, the federation received $399,000 from sales of JV crude oil, $701.287 million from sales of JV equity gas, and $1.13 billion as dividends from NNPC Ltd, a total revenue figure of $1.833 billion.

This, it said, is a drastic revenue reduction which clearly shows that the federation has not materially benefited from the new arrangement with its JV assets after the PIA.

“NNPC Ltd has been deducting 60 per cent of oil and gas profit from Production Sharing Contracts (PSCs). NNPCL’s interpretation of sub-sections 9 (4) and 64 (c) of the PIA has resulted in the company deducting 30 per cent for management fee, and an additional 30 per cent for the frontier exploration fund, while the federation gets the balance of 40 per cent. Again, similar to JV dividends, there were many months when the NNPCL did not remit the 40 per cent balance.

“It is also questionable why the owner of an asset, the federation, will receive only 40 per cent of the profits from such assets, and even sometimes receive nothing,” the report said.

It added that the federation had 23 revenue streams from the petroleum sector before the implementation of the PIA in 2021.

In 2021, it said the NNPC accounted for eight revenue streams, which fetched $10.284 billion, or 44.63 per cent of total federation petroleum revenue of $23.046 billion.

Thus, it said NNPC accounted for the largest proportion of petroleum revenue inflows to the federation before the PIA, adding that this has changed drastically after the PIA.

“Despite the increase in total number of revenue streams to 30, NNPC Ltd’s contribution has been reduced from eight to three streams. In 2023, NNPCL’s three revenue streams brought in $5.01 billion, or 16.23 per cent of total federation petroleum revenue of $30.862 billion. It is important to note that the reduction in revenue from NNPC Ltd is as a result of NNPC Ltd retaining most of the petroleum revenue, rather than lower gross petroleum revenue,” it said.

Recommendations

Evidence, according to the report, shows that contrary to a key objective of the PIA, the federation has received lower revenue from the petroleum sector.

This, it said, is attributable to the implementation of the PIA where interpretation of certain sections of the Act have given the NNPC Ltd a larger share of oil and gas revenue at the expense of the federation.

“Thus, post-PIA, the federation is not deriving maximum benefits from the petroleum sector. We have identified two areas of the PIA that need to be revisited to increase federation revenue: The interpretation of Sub-section 54 (1) which led to NNPC Ltd acquiring Federation JV assets and the interpretation of subsections 9 (4) and 64 (c) which led to NNPC Ltd withholding 30 per cent from profit oil and gas for management fee, and 30 per cent from profit oil and gas for frontier exploration fund.”

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To address these issues and increase federation’s revenue from the petroleum sector, Agora policy recommends that the Sub-section 54 (1) of the PIA should be revisited to ensure the JV assets are returned to the federation.

In line with the collection fees of other revenue-generating agencies, it said sub-section 64 (c) of the PIA should be revisited to reduce the management or collection fee of NNPC Ltd from PSCs from 30 per cent to between 4 per cent and 7 per cent.

The think tank said, President Bola Tinubu, in his role as the Minister of Petroleum Resources, should revisit the huge capital expenditure on frontier basins exploration, and decide if explorations in the frontier basins are a priority for the country at the moment.

“Revisit Sub-sections 64 (c) 9 (4) of the PIA, Frontier Exploration Fund Administration Regulations 2022, the Frontier Basins Exploration Administration Regulations 2023: following from the last recommendation, there will be the need to amend, revise, or completely overhaul these laws relating to the Frontier Exploration Fund.

“Revisit the Private or Public Status of NNPC Ltd: there is the argument that an entity such as the NNPC Ltd that manages federation’s assets should be subject to appropriate oversight by relevant federation entities. Converting NNPC Ltd to a private company has created confusion at FAAC where oversight of NNPC Ltd has become extremely difficult. NNPC had a history of opaqueness and secrecy, which has only been compounded by the change to a private company, and the illusion that NNPC Ltd is not answerable to questions about its operations,” it said.