Five top misinformation about Petroleum Industry Act 2021

Five top misinformation about Petroleum Industry Act 2021

The Petroleum Industry Bill, PIB, was recently passed into law by President Muhammadu Buhari, after over a decade of deliberations.

Although, there seem to be several misconceptions about the deliverability of the bill.

While others applauded the President’s decision to accent to the bill, others insisted that there is a need for clarifications of some of the terms.

Here are five pieces of misinformation about the bill

1. NNPC is being privatized?

No, NNPC is not privatized. NNPC is only becoming a limited liability company subject to CAMA, to be named NNPC Ltd (C will also now mean Company, not corporation). The share is still 100% government-owned.

READ ALSO: PIA: The $50bn investment question

A major difference is, prior to PIA, NNPC had its own law: NNPC Act 1977, which guided it. Now, NNPC Ltd will be subject to law guiding other companies in Nigeria. PIA repeals (abolishes in layman’s term) the NNPC Act

NNPC Ltd will run like a company with full profit/commercial motive (did it ever have loss motive?). 20% of its profits to be retained for its own growth and 80% remitted to government as its shareholder.

2. 30% frontier exploration fund (FEF) is bigger than 3% host community levy (HCL)

There are two things wrong with this info. First, the bases of computation are different. The base for FEF is profit oil/gas, the base for HCL is prior year operating expenses.

Second, the 30% FEF applies only on NNPC’s profit oil/gas, while 3% HCL applies on opex of all upstream companies in Nigeria and there are over 50 of them. So mere comparison of the headline % without regard to bases and # of companies in each bucket, is misinformation.

Noteworthy that I also personally think that that commitment to FEF is too big in light of country’s financial situation, dire need of revenue for other things, but the facts stated above need to be corrected.

3. NNPC to contribute 30% of its profits to FEF

This is wrong. There is a difference btw NNPC profits vs NNPC profit oil & profit gas. The former is the corporate accounting profit, as in when all its expenses as a company are deducted from its revenues, what is left.

This is not the profit the PIA is talking about as the base of the 30% of FEF. What PIA is talking about is profit oil and profit gas from NNPC’s upstream oil & gas contracts (production sharing, profit sharing & risk sharing contracts). Profit oil/gas is what is left after

royalty, tax and operating cost are deducted from crude oil or crude gas production in any of the contract types above. It’s an upstream thing, so it means profits from NNPC subsidiaries like NGC are not part of it. In short, it’s not the corporate profit of NNPC as group

4. Frontier Exploration – North

Wished I could avoid mentioning this, but section 9 that establishes FEF actually says the fund will be used for the development of “frontier acreages”. The definition section says “frontier acreages” would be as defined through regulation by Commission.

Effectively, the Commission (ie successor to DPR) will later issue a Regulation to define and say where the “frontier acreages” are. However, it is expected that frontier basins would be part of these frontier acreages and PIA listed Anambra, Dahomey, Bida, Chad & Benue trough as the basins which would effectively (but not exhaustively) be part of frontier acreages. From that list, 2 of the 5 determined frontier fields are not in the North. So frontier exploration fund use is not only for the North. Now sounding like I’m defending FG? No, just the law.

5. PIA has become effective:

No PIA is not yet in force. While the signing by the president means it has become a law, it doesn’t mean it became effective on the day it was signed. A gazetted version will be issued that says the date of commencement.

A couple of provisions there will also not start immediately. For example; the Minister of Finance will incorporate NNPC Ltd under CAMA within 6 months after the effective date.

In short, the date of signing is not necessarily the effective date. And the effective date is not yet public.

 

By: Suraj Oyeleye.

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