By Felix Ayanruoh

The economic development of a country is inseparably linked to its energy sector. Therefore, in emerging economies such as Nigeria, the regulatory framework pertaining to petroleum exploration, development, production and distribution constitute an important component of the overall energy policy shaping the commercial environment of the private economic sector. With the ongoing reform of the petroleum industry, the congruity of its regulatory exactness deserves serious attention.

The PIB, in an attempt to address the variegated problems facing the industry, strive among other things, to enhance oil and gas development by reshaping the regulatory frameworks. Section 8 of the PIB provides for the replacement of the existing motley of assortment and almost ineffectual regulatory agencies, with new ones – the upstream and downstream regulatory agencies.

Furthermore, sections 13 and 43, propose the establishment of the Upstream Petroleum Inspectorate (the Inspectorate) and the Downstream Petroleum Agency (the Agency) respectively. The Inspectorate will be responsible for all upstream regulatory functions hitherto performed by the Department of Petroleum Resources (DPR) of the petroleum ministry.

On the other hand, the Agency will be responsible for all downstream regulatory function, hitherto performed by the DPR and the Petroleum Products Pricing and Regulatory Agency (PPPRA). The main objectives of both institutions are to ensure the efficient, safe, effective and sustainable infrastructural development of the petroleum industry.

These agencies would be established with the functions of ensuring and enforcing policies, laws and regulations relating to all aspects of petroleum operations and also ensuring and enforcing compliance with the terms of all leases, licenses and permits issued by these bodies.

Each of these agencies would have boards made up of a director general, two directors and representatives, appointed from the ministries of Petroleum Resources and Finance. The board will also include representatives from the National Union of Petroleum and Natural Gas Workers (NUPENG), Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN), and other persons of high integrity and substantial professional experience.

The members of these boards shall be appointed by the President on the recommendation of the Minister. The boards shall appoint a secretary, who shall be responsible to the director general.

Once a law is passed, it seldom includes all the details needed to explain how an individual, business, state or local government or others might follow the law. The law not specify, for example, the enforcement and monitoring processes of oil and gas health and safety legislation. In order to make the law pragmatic, the law would authorize the regulatory agencies to create regulations in this respect.

Regulations set specific requirements about what is legal and what isn’t. For example, a regulation pursuant to crude oil transportation and shipments would explain the procedure for shipments, and measures that would be taken to adequately protect human health and the environment among others. It would tell industries what is permissible and what is not, as well as the penalty for non-compliance. Once the regulation becomes effective, the regulatory agency then works to the industry with the law and enforcement.

When developing regulations, the first thing the regulatory agencies do is ask if a regulation is needed at all. Every regulation is developed under slightly different circumstances, but this is the general process. The agencies research the issues, and if necessary, propose a regulation.

Good oil and gas regulation and striving for efficiency is always worthwhile but the recent energy crisis, including the oil subsidy scandal, has raised the stakes for getting the design of regulatory frameworks right.

To be continued