By Cynthia Alo

The Institute of Directors (IoD) Nigeria has called on the federal government and other relevant agencies to review the Petroleum Industry Act (PIA) with a view to closing the loopholes.

The Act, which was signed into law on August 16, 2021 seeks to improve transparency and accountability in the Nigerian Petroleum industry.

But in a position paper titled, ‘Making the Petroleum Industry Act work: A Position Paper’ President & Chairman of Council, IoD, Dr. (Mrs.) Ije Jidenma, said that while there was no such thing as a perfect legislation, recent events pointed to implementation ‘headwinds.

She said: “Following our review of the PIA, this Position Paper attempts to provide feedback on areas of concern and matters of interest to the Institute and its members, who are on the receiving side of its implementation.”

Jidenma stressed that the position paper contains pointers of what the authorities can do to give the new legislation the bite it deserves.

She further outlined concerns of the institute to include stalled downstream deregulation, implementation complexities, Incentivising Investment in gas, Environmental, Social and Governance (ESG) issues.

According to her, the decision of the Federal Government raises further questions on section 53 (7) which require NNPC Limited and any of its subsidiaries to conduct their affairs on a commercial basis in a profitable and efficient manner without recourse to government funds. This she said resorted to the sum of $341 billion (or N1.43 trillion) which was reported to have been spent in Year 2021 on petroleum subsidy.

She stated that for this to work, the FG must create an enabling environment that makes implementation of deregulation easier and readily acceptable noting that pending their full privatisation, fast-track the ongoing full rehabilitation of refineries to ensure that the import freight element in the price of product is minimised;

“Government should review the current fuel pricing mechanism: Government should as a matter of urgency, work on removing all the inefficiencies and distortions that are negatively impacting the landing costs of products.

She noted that feedback from the business community suggested that some aspects of the Act might prove difficult to implement in practice because of inherent complications like the hydrocarbon tax and Company Income Tax (CIT) overlap and conversion from existing Oil Prospecting License (OPLs) to the new Petroleum Prospecting License (PPLs).

“Section 92 (1) allows for the voluntary conversion of existing oil prospecting license (OPL) to a petroleum prospecting license (PPL).

“However, the OPLs cover a larger size of 2,950 square kilometres while the new PPLs depending on terrain cover 300 square kilometres (onshore and shallow offshore) and 1,000 square kilometres (deep offshore). “Conversion may not be as straight- forward as anticipated by the Act. “To reduce the pain from implementation complexity, IoD Nigeria is putting forward the need to develop a uniform template for dealing with overlaps; and provide greater clarity on voluntary lease conversion and a clear timeline,” she said.

She recommended the exemption of non-associated gas producers and developers from disallowing borrowing cost for the purpose of CIT computations. “State an objective basis for determining the length of the transition from a regulated regime to a ‘willing-buyer, willing-seller’ gas market

“Except where it is strictly in the public interest, undue price regulation should be avoided,” she said.

The IoD President noted that while there was evidence that the PIA attempted to incorporate ESG principles, there were many ‘missing links. She said that the Act failed to encourage or mandate sustainability reporting.

Jidenma added that the NNPC Ltd Board reflected a degree of gender diversity but that might not be true of the Commission and Authority.

According to her, a review reveals that only one in six appointees in the boards of NNPC and the two regulatory authorities, put together, are women.

She said that there was no prescription on the matter for other boards of companies in the petroleum operations space.

“In view of Nigeria’s declared commitment to Net-Zero 2060 at the CoP26 held in Glasgow, UK , three months after the Act was signed , it is important that urgency implied by the commitment is reflected in the speed and implementation of the PIA.

“The Act ought to include a specific penalty for failure to comply with section 103 and for environmental damages.

“While it is commendable to have in place trusts and plans that cater for host communities, it is important to ensure related funds are well-managed and properly accounted for, if the desired socio- economic growth will result. “Equally important is for all players, as a matter of good practice, to incorporate sustainability reporting as part of applying ESG principles.

“The Act should prescribe what companies engaged in petroleum operations (upstream, midstream and downstream) should consider adequate gender balance,” she said.

She noted that Nigeria does not have clear fiscal terms which made many foreign investors divert their investment to countries with greater clarity and fiscal certainty.

“The inability of the country to in recent times fully meet its OPEC production quota is one such casualty from years of absence of fiscal certainty.

She said, “To prevent a situation whereby Nigeria’s fiscal terms are largely uncompetitive relative to other jurisdictions, the Institute is of the view that a Monitoring Committee needs to be established solely for studying and periodically communicating the investment impact of the piece of legislation, going forward.

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