By Felix Ayanruoh

Part one and two of this article examined the regulatory framework of the Petroleum Industry Bill (PIB), and the importance of independent industry regulation.

A big part of independent regulation is discretion, what to do, ultimately, with such selective power becomes relevant. Which policy issues are within the regulatory agencies’ jurisdiction and which one should be left to politicians and bureaucrats? Answering these questions is particularly difficult where extraordinary events with major impacts on costs or demand are concerned.

Regulatory discretions are established by law and this empowers regulator with legitimacy for discretion and at the same time responsibility to the legislature for the independent exercise of its powers, rather than to the executive arm of government. The National Assembly can modify the scope of regulation and regulatory discretion by amendments to the law that established these agencies.

It is when governments try to intervene or overrule regulatory discretion by wimps and caprices that conflicts arise. Good regulatory design is about limiting the drawbacks inherent in discretionary regulation. The regulatory agencies should be independent of government interference as discussed earlier and have sufficient power to act on their own judgment.

A glaring advantage of discretionary regulation lies in its unequivocal flexibility. This makes it more buoyant to unpredictable change than a pure contractual approach, which allows for adaptability of the constant changes in the industry. The ability of discretionary regulation to cope with rapidly changing environments makes it particularly well suited to manage set-backs in the sector.

Discretionary regulatory action should not be limited to responding to complaints from stakeholders that existing rules are inadequate, but be able to act proactively on the basis of its own evaluation of the performance of the industry. Regulatory agencies should be able to act in a timely manner since they are partakers in the policy-making process, not simply enforcing a set of parochial rules.

Sectoral regulatory agencies such as the proposed Inspectorate and Agency must fill in the gaps if the objectives of economic regulation are to be achieved. Restricting the scope of such agencies to merely enforcing primary legislation, make the regulator superfluous.

It must use discretionary powers to oversee market power, licensing conditions and environmental arrangements among others in a continuous drive to improve efficiency, and deliver on any other objective(s) of the legislation establishing it.

A holistic analysis of the PIB indicates that both the Agency and the Inspectorate has discretionary functions on issues ranging from enforcing licensing conditions, effective customer services, abuse of market power (Agency) and gas flaring reports violations (Inspectorate).

However, the bill is silent about the scope of its discretionary power, as the utmost power resides with the Minister. Since the PIB grants these agencies the mandate to act in a discretionary manner, the agencies should be proactive in cases of sector setbacks.

A high level of regulatory discretion is hardly the pristine economic, unambiguous answer to the nation’s energy frameworks and petroleum industry concern. It has the potential of encouraging corruption and drive firms into the unofficial economy. Therefore, there should be checks on the extent of discretionary power.

Confidentiality in energy regulation has been described by many as encouraging corruption. Developing an effective regulatory regime to internalize transparency in the industry is a major political and economic challenge. Transparency in regulation is seminal to sustaining independent regulation, realizing infrastructural development, encourages competition, discourages illicit behaviour and attracts investment.

Setting up a transparent and justifiable oil and gas regulation takes time and expertise. It has been widely observed that regulatory transparency is often, and sometimes unavoidably, introduced with very short lead times. The result is often sub-optimal regulatory design and ultimately higher costs.

Oil production licenses and contracts are some of Nigeria’s most valuable assets. However, to maximize returns, the regulatory agencies’ licensing, anti-competitive and other related processes should be transparent and competitive. In the past, contracting and licensing have suffered from deep abuses of secrecy and discretion.

Finally, the Inspectorate and the Agency pursuant to their regulatory functions as proposed by the PIB, should establish an independent, discretionary and transparent framework open to stakeholders and the Nigerian people. Therefore, instituting a systematic publication of complaints, evidence, findings of regulatory reviews, and decisions reached should be a priority.