April 4, 2016

NASS removes host communities fund from PIB

NASS removes host communities fund from PIB

By Joseph Erunke
ABUJA—A new version of the Petroleum Industry Bill, PIB, which removes the strategic Host Community Development Fund as proposed in the botched PIB is set to commence legislative deliberations in the next few days.PIB

The proposed industry wide regulatory framework titled Petroleum Industry Governance Bill, PIGB was prepared by the two chambers of the National Assembly. The removal of the Host Community Development Fund as envisaged in the original PIB is, however, set to reawaken ethnic and geopolitical fractures in the country given the immense support for the proposal in the country’s oil producing regions in the Niger Delta.

The Senate and the House of Representatives also, in their proposals in the new PIB, scrapped the Nigeria National Petroleum Corporation,NNPC, and replaced it with a body to be known as the National Petroleum Company, NPC.

The two chambers may have also bowed to pressure from the International Oil Companies, IOCs, by scrapping the aspect of the bill that emphasises local content, as the new bill is silent on the issue.

This is unlike the previous PIB in the 7th Assembly which placed so much emphasis on local content. Under the new bill, the National Petroleum Company is exempted from certain laws of the country, including exemption from provisions of the Fiscal Responsibility Act 2007 and the Public Procurement Act 2007.

In the new bill, re-christened  “Petroleum Industry Governance Bill, PIGB”, due for laying in both chambers of the National Assembly, upon resumption of lawmakers from the Easter break, the legislature equally proposed the scrapping of the Ministry of Petroleum Resources and its subsequent replacement with the Ministry of Petroleum Incorporated, MOPI.

The new bill is an Act to provide governance and institutional framework for the petroleum industry and other related matters.

The 53-page bill, exclusively obtained by Vanguard, also seeks the scrapping of the Department of Petroleum Resources, DPR, the Petroleum Products Pricing and Regulatory Agency, PPPRA and the Petroleum Inspectorate.

The three agencies, according to the new bill, are to be replaced with Nigeria Petroleum Regulatory Commission, NPRC.

A governing board is expected to be responsible for the policy and general administration of the commission, which shall consist of a non-executive chairman, one non-Executive Commissioner, three other executive commissioners and representatives of Ministries of Finance and Environment who shall not be below the rank of a director.

The New PIGB

The Petroleum Industry Governance Bill, as it would be known, also seeks the creation of National Petroleum Company and the Nigeria Petroleum Assets Management Company not only to manage commercial operations of the petroleum industry but also the assets and liabilities of the nation’s oil and gas sector of the economy.

The document also indicated that while the Nigeria Petroleum Assets Management Company “shall be responsible for the management of the assets detailed in the Fourth Schedule to this Act”, “the National Petroleum Company shall operate the assets transferred to it as fully commercial entity.”

Interestingly, the bill said at the time of incorporation of the National Petroleum Company, its initial shares shall be held in the ratio of 51% by the Ministry of Petroleum Incorporated and 41% by the Bureau for Public Enterprises on behalf of the government.

“The National Petroleum Company shall not be subject to the provisions of the Fiscal Responsibility Act 2007 and the Public Procurement Act, 2007.”

But the bill empowers the Minister of Petroleum Incorporated to, in addition to the incorporated entities, incorporate other entities, as may be necessary to assume and manage some of the liabilities of the NNPC.

The objectives of the bill being enacted by the National Assembly, according to the document, are to create efficient and effective governing institutions with clear and separate roles for the petroleum industry, establish a framework for the creation of commercially oriented and profit- driven petroleum entities that ensure value addition and internationalization of the petroleum industry.

Others are to promote transparency and accountability in the administration of the petroleum resources of Nigeria and foster a conducive business environment for petroleum industry operations.

One of the highlights of the revised bill, which ex-President Goodluck Jonathan   re-submitted on July 17, 2012, to the National Assembly was the inclusion of the establishment of a Petroleum Host Community Fund, PHCF.

According to section 116 of the revised PIB of former President Jonathan,”there is established a fund to be known as the Petroleum Host Communities Fund”. Section 117 states that the “fund shall be utilized for the development of the economic and social infrastructure of the communities within the petroleum producing area”.

The Petroleum Host Communities Fund,  PHCF, contained in the botched bill, prescribed 10 per cent of the net profit of upstream oil companies to be paid into the fund, a development that had drawn the ire of the North, which had noted that the way the PIB was structured won’t benefit them.

The Petroleum Host Communities Fund was contained in section 116 of the old PIB. The bill, in its section 117 states that the fund shall be utilised for the development of the economic and social infrastructure of the communities within the petroleum producing communities.

In section 118(1), it further states that “each upstream petroleum company shall remit, on a monthly basis, 10 per cent of the net profit as follows (a) for profit derived from petroleum operations in onshore areas and in the offshore shallow water areas, all of such remittance directly into the PHC Fund; (b) for profit derived from upstream petroleum operations in deepwater areas, all of the remittance directly into the Fund for the benefit of the petroleum producing littoral states.

Sub-section (2) states that ‘net profit’ means the adjusted profit less royalty, allowable deductions and allowances, less Nigerian Hydrocarbon Tax less Companies Income Tax.

Subsection (5) states “where an act of vandalism, sabotage or other civil unrest occurs that causes damage to any petroleum facility within a host community, the cost of the repair of such facility shall be paid from the PHC fund entitlement, unless it is established that no member of the community is responsible.’’

The IOCs were against the old bill because it emphasized local content, contrary to their preference to export gas, and reluctance to produce it for the Nigerian market.

The old PIB gave the companies great reasons to produce gas for Nigerian consumers, including tax breaks, but the IOCs in protest, made it clear that they still favoured export to America and Europe.

The draft PIB 2012 contained two new taxes at fixed rates – the Nigerian Hydrocarbon Tax and the Companies Income Tax. But though these tax rates are fixed in the PIB, royalty rates – the amount of profit that the IOCs get – were going to be set at a later time, in more detailed regulations.

Contrast this with the 1993 deep water regulations, in which oil companies gained an 80 per cent share of profits, and it’s clearer why the IOCs are dissatisfied with the new PIB model.

For the IOCs, this new deal enforces a standard of fairness that defends the Nigerian taxpayer and the underdeveloped communities of the Delta, asking a little more from the IOCs’ generous profit margins.

Recall that the Senate President, Bukola Saraki, had two weeks ago, while declaring open the 8th National Assembly Business Environment Roundtable, hinted that the PIB would soon be re-presented in the National Assembly for consideration.

He added that the Senate and House of Representatives had resolved to do a joint work on the Bill.

The development is coming after many years of non-passage of the bill by both chambers of the National Assembly.

Saraki said: “The National Assembly, comprising the Senate and the House of Representatives, is working very closely together.

“As part of this commitment, we would all see next week when we lay down the Petroleum Industry Bill; you will see that the bill we are going to lay in each House is the same.

“We are going to lay the same version in the Senate and the House of Representatives because that is going to be the first time we are open to our words.”