After so many years of waiting for the Petroleum Industry Bill to be passed, most Nigerians, especially in the Niger Delta, expected a near perfect law from the National Assembly (NASS) that would assuage their worries and address age long concerns about lack of infrastructural development in the area, and environmental pollution/degradation, resulting in a loss of livelihood for many, and chronic ailments like cancer and birth defects emanating from oil exploration and production activities. Last month, the PIB was finally passed into law by the NASS, and speedily assented to by the President. Alas! the newly enacted Petroleum Industry Act (PIA) has not met the expectations of many, nor does it seem to have addressed the concerns of Niger Deltans that have caused them to weep over the last few decades. For many, it’s not a case of how long, but, how well; and, disappointed, they are already talking about amendments to the PIA, even before the ink with which President Buhari signed the PIB into law, is dry. In this discourse, Chief Mike Ozekhome, SAN, Senator Ndoma Egba, SAN, Norrison Ibinabo Quakers, SAN, Chief Layi Babatunde, SAN, Professor Andrew I. Chukwuemerie, SAN, Abubakar Sani, Chief Dan Orbih and Tolu Aderemi weigh in on the contentious piece of legislation, pointing out its many imperfections and how to possibly address them, while Taiwo Oyedele points out 20 highlights of the new law
The New Petroleum Industry Act: Robbing Peter to Pay Paul
Chief Mike Ozekhome OFR, SAN, Ph.D
The PIB just assented to as an Act of Parliament by President Muhammadu Buhari, is a mere ruse, a monstrosity, an artifice and device, carefully crafted, incubated and delivered, to actually do irretrievable violence to Nigeria’s progress and juris corpus. The Act constitutes a direct assault on the age-long cherished principles of Federalism and the Doctrine of Separation of Powers, most ably propounded in 1748 by Baron de Montesquieu, a great French philosopher.
The Petroleum Industry Act (PIA) seeks to frontally attack the provisions of Section 162 of the 1999 Constitution, which state that all revenues accruing to the Federation shall be paid into a Federation account from which sharing shall be made amongst the three tiers of Government – the Federal Government, the 36 State Governments and the 774 Local Government Areas of Nigeria. No expenditure can be made by the Federal Government, outside the provisions of Section 162. Nor can any monies be expended without going through an Appropriation Bill, through submission of budgetary proposals. See Sections 80- 84 of the Constitution. To the extent that the Act seeks to redesign the provisions of the Constitution (the fons et origo, grundnorm, Oba, Eze and Emir of all our laws), to that extent is the Act unconstitutional. It must therefore, be struck down with the constitutional sledge hammer of Section 1(3) of the 1999 Constitution of Nigeria.
In a sane clime, Nigeria’s only surviving cash cow, the NNPC, ought to be totally unbundled to make it more viable, productive, transparent and accountable to the Nigerian people. But, alas, most curiously, the Act has further strengthened NNPC’s hand of non-accountability and non-responsibility. How can the Federal Government alone have shares in the only viable milk industry of Nigeria, to the total exclusion of the other three tiers of Government, major stakeholders, oil-bearing communities and the long-suffering people of the Niger Delta? How can an Act of Parliament, rather than assuage and ameliorate the sufferings of a beleaguered people, further compound them by reaffirming the people’s perilous status as slavish hewers of wood, drawers of water, masseurs of ego and sideline onlookers in the exploitation and use of their God-given wealth through their natural resources? The Act is nothing but, a mere totalitarian and draconian piece of legislation designed to rob Peter to pay Paul.
The Act is a deliberate design by state captors, to further their egoist and bacchanalian self-interests. It was never designed to reform an institution such as the NNPC, nor passed to advance the principles of Federalism or Doctrine of Separation of Powers. It is most egregious, expropriatory and unfair to States, Local Government Areas, and the suffering masses of the oil- bearing communities of the Niger Delta area of Nigeria. The panacea? Simple. The 36 States Attorneys-General should Immediately approach the Supreme Court, and challenge this latest Federal Government’s impunity and the outrageous acts of executive lawlessness and legislative rascality we are beholding, by invoking the Supreme Court’s original jurisdiction under Section 233(1) of the 1999 Constitution. That is the way to go. Allowing the Act to stay will further cement the present misguided Unitary system of government that Nigeria is currently operating, under our thinly garnished disguise of a pseudo-Federalism.
Chief Mike Ozekhome OFR, SAN, Ph.D
‘The PIA Must be Amended’
Senator Ndoma-Egba, SAN
The Senate had in her version of the Bill, provided 3% for Host Communities, while the House of Representatives in her version provided for 5%. For a region devastated, despoiled, and totally polluted, one would have expected that the higher figure of 5% will be adopted, in the harmonised version of the Bill. Surprisingly, the lower figure was taken. This is evidence of failure of “politics”. There was a failure in engagement of stakeholders of the Region, the Governors, NASS members, Ministers, Traditional Rulers, the APC caucus and others.
The legislative processes are inherently political and require lobbying, horse-trading and strategic engagement. The Region should have learnt from how the NDDC and the Allocation of Revenue (Abolition of Dichotomy in the Application of the Principle of Derivation) Act were passed, and used the experience as a template for engagement. These Bills were critical to the Region, and the necessary reach out was done with the Governors of the zone at the time in the forefront. NASS members from the Region on their own, are constrained in how far they can go with such an important Bill. Having said so, since there is no perfect law, the Region can still do the needful to get a better deal, through an amendment to the just passed Petroleum Industry Act.
The percentage provided for the host communities is important; but, more important is the use to which it is put and the mechanisms to ensure transparency and accountability in the application of the funds. We have seen a number of historic interventions in the Region from OMPADEC, NDDC, the Ministry of Niger Delta Affairs, the Amnesty Programme and Ogoni Cleanup. They have all failed. For as long as you do not have a solid stakeholder generated Masterplan for the Region to which all commit, more money will be like pouring more water into a basket. The most important reason why the impacts of the interventions have been very limited, is the absence of a Regional Master Plan. Without one, there can be no meaningful development of the Region, the percentage for Host communities notwithstanding.
Senator Victor Ndoma-Egba OFR, CON, SAN Leader of the 7th Senate of the Federal Republic of Nigeria, and former Chairman, NDDC
PIA: Unresolved Issues of Resource Control and True Federalism
Norrison Quakers, SAN
Since the signing into law of the Petroleum Industry Act (hereinafter referred to as – PIA) on 16th August, 2021 to provide for a legal, governance, regulatory and fiscal framework for the Nigerian Petroleum Industry, the criticism expressed in some quarters about the role of the legislative bomb in addressing the myriad of problems confronting our fatherland, is best summarised by – agitations for Resource Control and true Federalism. This equally explains concerns over the 3% Settlor’s annual operating expenditure to be dedicated to the Host Community Trust Funds, as captured in Section 240(2) of the PIA vis-a-vis the 30% fund for the frontier basin exploration development.
It is on this footing that – the removal of the requirement to transfer payments into the Federation Account which is a Constitutional issue, and the setting aside of 30% profit as the Frontier Exploration Fund under Sections 9(4), (5) and 64(c) of the PIA require judicial pronouncements to resolve, since all legislations inclusive of this novel subject Act derive their validity from the fons et origo of other laws, being the Constitution of the Federal Republic of Nigeria 1999 (as amended), and as such, must not be inconsistent with same.
In the same vein, since the oil and gas industry is the mainstay of the country today, succinctly it is not out of place from an equitable point of view, for host communities bearing the brunt of oil exploration activities to clamour for an increased percentage contribution from actual operating expenditure of companies granted an oil prospecting licence, or mining lease, or an operating company, in addition to the existing contribution of 3% to the NDDC under the NDDC Act, so long as same is not mismanaged by the concerned States.
Further, the public sector which the NNPC exemplifies, represents the realm where the Government operates for the benefit of the citizenry, hence, a restriction of NNPC’s ownership under Section 50 of PIA which stipulates that ownership of all her shares shall be vested in Government and held by the Ministry of Finance on behalf of Government upon her being transformed into a Limited Liability Company, without States constituting the Federation being allotted a stake in her ownership structure leaves much to be desired, particularly when extrapolated against the background of various regional agitations with far reaching security consequences.
Considering the transmutations the Act underwent as a foetus, one would have expected a rather soothing sigh of relief from States constituting the Federal Republic of Nigeria upon her nativity, with a promise of annual commemoration; regrettably, these shortfalls are not to be termed – ‘much ado about nothing’.
Despite these grey areas, the NASS and the Presidency deserve commendation for the eventual passage of the landmark legislation, to timeously safeguard the long-term macroeconomic stability of the country, reform the extractive industry’s institutional framework, and to provide better clarity for Nigeria’s economic development, considering the importance of a framework for creating commercially oriented and profit driven petroleum entities in accordance with international standards.
Norrison Ibinabo Quakers, SAN, Constitutional Lawyer, Lagos
‘PIA: Accord Host Communities their Lawful Due’
Chief Layi Babatunde, SAN
In spite of the very strong reservations expressed for good reasons by the leaders of the affected host communities, on the provisions of Section 240(2) of the PIA as it relates to the Operating companies in the affected host communities, making an annual contribution of an amount equal to 3% of its actual annual operating expenditure of the preceding financial year in the upstream petroleum operations affecting the host communities, the provision, to the extent that it constitutes an admission of a problem that needs to be comprehensively addressed in spite of previous efforts, provides a work in process. Foundation, upon which to build.
However, the law as it stands will take a good measure of good faith and transparent commitment on the part of the operating companies, particularly the IOCs, and eternal vigilance on the part of the host communities, even for its minimal objectives to be attained.
For one, to the extent that the Operators/Settlors, who are to contribute the funds are also given the powers to more or less constitute the Board of Trustees that will administer the funds and also appoint the Secretary to the Board, it may constitute a present danger to the interest of the host communities.
In the same vein, it will not be an easy task, determining the ‘actual annual operating expenditure’ of the Operators as provided for the Act; especially against the background of the exclusion clause provided for under Section 257 (3) of the Act; dealing with costs of repairs of damaged or vandalised facilities or sabotage given that alleged sabotage of oil facilities, has remained a cat and mouse affair between the Operators and the host communities over the years. One can only hope, that all the affected parties, will see the wisdom of acting in the greater good of all concerned.
Chief Layi Babatunde, SAN, Multiple Legal Author, Publisher of Lawbreed Weekly Law Reports
‘Sort Insight on 3% Funding for Petroleum Host Communities Development Trust’ Etc
Professor Andrew I. Chukwuemerie, SAN
History of the PIB
Efforts for the reform of the ailing Petroleum Industry in Nigeria began in the year 2000 when the then President, Olusegun Obasanjo, constituted the Oil and Gas Implementation Committee (OGIC). Its recommendation birthed the National Oil Policy of 2004, which in turn metamorphosed into the Petroleum Industry Bill (PIB). The PIB was introduced in 2008 as an Executive Bill by the President Umaru Musa Yar’adua’s administration. The Bill proposed a 10% Dedicated Fund, for the development of host communities. In September, 2020 President Buhari resubmitted the Bill as an Executive Bill to the National Assembly, with some adjustments.
The Challenges of the 3% Payment into the Trust Fund
The PIB as passed by the House of Representatives retained 5% of the annual operating expenditure of the settlor, to be paid into the Trust Fund. However, the Senate in its section-by-section consideration of the Bill, opted to reduce it to 3%. This was after the Senate had briefed the Group Managing Director of the NNPC, who canvassed that 3% amounts to about half a billion dollars. There is a need to create an enabling environment, so as to attract investors into the industry.
It is therefore simple logic that, if there are no investments there will be nothing to share. In effect, if the fortunes of the oil companies improve, there will certainly be opportunities for improvement in their obligations to the communities. Otherwise, if there is an imposition of what may be difficult or impossible for them to pay, there will be friction, which, in the end will undermine the target goals and objectives. It is therefore appropriate, to seek to exploit the inherent benefits of the legislation, particularly in the areas of foreign direct investments and wealth creation through a viable rural economy. And apart from the dividends accruable to the communities, the overall Government revenue is to be shared among the tiers of Government, for developmental activities.
The core area of misgiving is the wellbeing of the host communities, who suffer the direct impact of oil and gas production activities; as such, the allocation of 3% of the Oil and Gas companies profit, or annual operating expenditure as contained in Section 240(2) of the Petroleum Industry Act 2021 (PIA). It is unjust to say the least, considering the fact that the same PIA in Section 9(4) approved 30% of the NNPC Limited’s profit for ‘Frontier Exploration Fund’. The fund is to be used for exploration purposes, in areas where there are suspected oil in existence or availability.
This position simply means that the Legislature is more concerned in exploration of areas where it is believed that there could be oil deposits, such as the Lake Chad Basin. This seems not to take equal care of the host communities of the Niger Delta region, who suffer the impact of actual oil exploration, from which the Fund is to be distributed amongst host communities and the Frontier Exploration Fund. It looks more like taking from Peter to pay Paul.
Another challenge with the allocation of the 3%, is the fact that the PIA equally placed the responsibility of protecting the pipeline and other oil infrastructure on the host communities. It also makes it a condition for the host communities, to forfeit their entitlements under Section 240(2) of the Act as such. This seems to place the protection of oil installations, in the hands of unarmed host communities. It is hardly realistic as oil theft is mostly carried out by armed cartel hence.
Other Provisions of the PIA
Section 257(2) of the PIA is most unfortunate, as it clearly amounts to giving in one hand and taking back through another. This is made more difficult, as the Act failed to deal with the ambiguity, arising from integrating the host communities and the pipeline bearing communities. That ambiguity may ultimately result in conflict, as to who the beneficiaries of the 3% Host Community Trust Fund should be. There is an urgent need, to amend the just assented PIA.
It may be good to state that under the PIA, any company granted an Oil Prospecting Licence or Mining Lease or an operating company on behalf of joint venture partners (settlor) is required to contribute 3% – 5% (upstream Companies) and 2% (other companies) of its actual operating expenditure, in the immediately preceding calendar year to the Host Communities Development Trust Fund. This contribution is in addition to the existing contribution of 3% to the NDDC. The Fund is tax exempt, and any contributions by a settlor is tax deductible.
The PIA also creates a Nigerian Upstream Regulatory Commission. It is responsible for the technical and commercial regulation of the upstream petroleum operations. The Act also creates the Nigerian Midstream and Downstream Petroleum Regulatory Authority, which is responsible for the technical and commercial regulation of the midstream and downstream operations in Nigeria. The Commission and Authority are also exempted from tax.
Professor Andrew I. Chukwuemerie, SAN, FCIArb (UK), FICIArb
Petroleum Industry Act, 2021: An Opportunity Missed?
The signing into law by President Muhammadu Buhari of the much-touted Petroleum Industry Bill has attracted mixed reactions, with the greatest reservations being expressed (predictably) by host communities of oil installations who regard the 3% derivation provision as not going far enough – with others questioning the classification of areas where oil pipelines merely traverse, as ‘oil-producing’. Yet, others point out the seeming silence of the Act on so-called ‘cleaner’ fuels, given the global shift to such alternatives. State Governors have also weighed in with calls for correction of allegedly anti-fiscal Federalism provisions of the Act. All these concerns are, to varying degrees, legitimate.
However, a greater worry, in my opinion, is the subsequent confirmation by the Minister of State for Petroleum Resources, Chief Timipre Silva, that the new law will make no difference to the age-long practice of subsidising petroleum products – specifically, PMS, Premium Motor Spirit, popularly called Petrol. This is unfortunate, in my view, as everyone agrees that the single greatest hindrance to reversing the imbalance between recurrent and capital expenditure in both Federal and State budgets, is the fuel subsidy regime.
That practice continues to date, and it has been sustained in an opaque and uneconomic framework which defies both legal and constitutional prescriptions. Just what statute underpins/undergirds or justifies petroleum subsidisation? Is it the Petroleum Products Pricing Regulatory Agency Act, the Price Control Act, the Constitution, mere executive fiat or any combination of some of them? Beyond the first, it is shockingly unclear. However, even that suffers from the absence of the constitutional condition precedent of the designation of petroleum products as “essential commodities” – vide Item 62(e) of the Exclusive Legislative List.
Far from the PPPRA Act, to my mind, the relevant applicable law is the Price Control Act of 1977, which – notwithstanding the non-designation of petrol as essential as aforesaid – would, if applied, have fortuitously eliminated fuel subsidies. Simply at the stroke of a pen. This is because the provisions of Section 5 of the Act envisage the application of economic principles in fixing petrol prices (which, by virtue of Section 6(1) of the erstwhile Petroleum Act, 1969, the Minister of Petroleum is authorised to do. Curiously, the new Act appears to have done away with this provision). Be that as it may, Section 5 of the Price Control Act provides thus:
(1) The Board may by notice published in the Gazette –
(a) Fix a basic price for any controlled commodity in accordance with subsection (2) below; and
(b) Fix the permitted variation for that commodity in respect of any State in accordance with subsection (3) below.
(2) The basic price is the price which is the opinion of the Board properly represents –
(a) in the case of goods produced in Nigeria, the cost of production of the commodity, plus the manufacturer’s profit; and
(b) in the case of imported goods, the duty-paid landed cost in Nigeria, plus the importer’s profit.
(3) The permitted variation, in relation to any particular commodity, is the amount representing transport and other costs, plus the distributor’s profit which in the opinion of the Board ought properly to be added to the basic price in order to represent a fair controlled price (wholesale or retail, as the case may be) in any State.
It can be seen that Section 5 of the Act obliges the Government to pass the cost of producing/refining/importation and customs duty on fuel (and even of bridging, i.e., supplies to the hinterland) to the consumer at the pump – along with the importer/producer or marketer’s profit. It is evident that this prescription not only makes economic sense, it is sustainable in the long term.
It is important to stress that, what Item 62(e) of the Exclusive Legislative List of the Constitution provides for is “price control” – not subsidisation; they don’t mean the same thing. This is because whereas subsidies are monies paid by the Government to reduce the cost of producing goods in order to keep their prices low, the Constitution gives no such power to the National Assembly – and, thus, the Executive is under no such obligation. In the circumstances, it is, frankly, a mystery that the latter persists in whining about declining revenues and the unsustainability of fuel subsidies, whilst the solution is right there staring it in the face.
Abubakar D. Sani, Legal Practitioner, Kano
Buhari’s Assent to the PIB: A Brazen Injustice to South-South
Chief Dan Orbih
The Petroleum Industry Act recently signed by President Muhammadu Buhari is not only insensitive, but a brazen act of injustice.
The President has stayed true to character, by choosing to ignore the huge outcries of the people of the South-South over the meagre allocation of 3% to the oil-bearing communities in the new law.
The Buhari-led All Progressives Congress (APC) has shown, by its hurried assent to the disputed Bill, that it did not mean well for the South-South.
Stakeholders in the South-South region have taken a critical look at the Petroleum Industry Bill recently enacted into law by President Muhammadu Buhari, and note very painfully that it is insensitive to the plight and demands of the people of the Niger Delta who have, over the years, witnessed the destruction of their lands through oil exploration and production.
One considers the concession of 3% to oil producing communities as mere tokenism, and a brazen act of injustice which must reviewed without delay.
The President’s hasty endorsement of the Bill, while ignoring its implications for restiveness in the zone, showed his usual disdain for rigorous debate and tacky attitude towards issues of sustainable development. The rush to sign into law an unwholesome Bill still in disputation is not a surprise, because the President has always shown his disdain for rigorous debate in matters of sustainable development.
The South-South Region could become a ground for renewed agitations and heightened tension, as restive youths mobilise for total resource control in the face of perceived injustice and inequity. For as long as injustice persists, let the Government take heed that the clamour for total resource control will continue, as we cannot give up on what is rightfully ours.
Niger Delta youths must remain calm and make their agitations peaceful. The South-South should continue to demand justice, equity and fairness, and should legally resist any attempt to subjugate the region economically, politically and socially. Nigeria should hold fast to a better and progressive Niger Delta built on honour, justice and equity.
Chief Dan Orbih, National Vice Chairman, Peoples Democratic Party
Host Communities’ Unrest: Is the PIA a Breather?
The signing of the Petroleum Industry Bill into law by President Muhammadu Buhari, has been heralded as a quantum leap for Nigeria on the regulation of the oil and gas industry. It is thought that the PIA will revolutionise business activities in the upstream, midstream and downstream sub-sectors of the oil and gas industry, by providing a framework that incentivises investments and establishes regulatory best practices.
The historic signing of the PIA, notwithstanding the issue of compensation of the host communities for the years of degradation, continues to be an albatross for the new PIA. Civil societies and pressure groups in the Niger Delta, have continued to label the provision on the derivatives for the host communities as a cheat on them. This article examines whether indeed, the 3% host community fund is a game changer in the endless agitation of oil producing communities for a fairer share in what they believe is their commonwealth.
History of Failed Host Community Compensation Schemes
The regional concerns of the host community(ies) is rooted in the history of institutional failure, environmental degradation, socio-economic deprivations and violent agitations for resource control. Perhaps, a look into its chequered history will reveal some of the remote and immediate cause(s) of agitations for host community recognition and compensation, in the scheme of things.
In 1961, the Nigerian Government birthed the Niger Delta Development Board (NDDB), with the mandate to develop the region with a 15% revenue contribution from its budget. Although it successfully executed about 358 contracts, its success was short-lived as its operations became characterised with inefficiency, mismanagement, political interference and militancy.
In 1972, the Niger-Delta River Basin Development Authority (RBDA) was established to replace the NDDB, but also suffered a similar plague like its predecessor, and was soon to be replaced with the Oil Minerals Producing Areas Development Commission (OMPADEC), which was established by the General Ibrahim Babangida’s military government under Decree No. 23 of 1992, and provided for the 13% derivation pursuant to the Allocation of Revenue (Federation Account) (Amendment Act No. 106 of 1992), for the rehabilitation and development of the host communities based on the ratio of oil production, and not on the basis of dichotomy of on-shore or off-shore oil production. Like its predecessors, OMPADEC also failed.
In 2000, former President Olusegun Obasanjo birthed the Niger Delta Development Commission (NDDC) who levies 3% from the IOCs. The International Oil Companies (IOCs) also entered into bilateral Global Memorandum of Understanding (GMOU), and despite all of this, the region remains plagued with acute under-development.
The philosophy underpinning the percentage share to the host communities, can be traced to the proposal made in the first draft of the PIB under late Petroleum Minister, Dr Rilwanu Lukman. The then Special Adviser to President Yar’adua, Eng. Emmanuel Egboga, had championed the need to give the host communities ownership and control of the resource. This was at a time when 10% equity was voted in favour of the host communities. The reasoning at this time, though misconceived, was to give the host communities ownership and control of the resource in situ. Unfortunately, this was not in tandem with the laws governing the sector, as ownership of the resource was exclusively in the hands of Government.
One main criticism of this proposal was that the allocation to the host community, a faceless entity, would only amount to a misappropriation of these funds, as was with other initiatives. Secondly, where a cash-call was made on the parties to fund exploration and production of crude oil, to the extent that there is no entity known as the host community, it would be impossible to hold anyone responsible for any such payment. Put simply, it was utterly impossible to give equity to a host community.
Today, the PIA has put in place a structured machinery that prescribes the domiciliation of the funds, the administration of the funds and a mechanism to measure performance. The host communities, under the PIA, will also have an input in determining persons who will administer these funds.
The National Assembly must however, embark on a post-legislative advocacy of the benefits of the Act in the host communities, while the Federal Government should set up a monitoring task force to ensure strict compliance.
Tolu Aderemi, Partner, Perchstone & Graeys LP, Lagos, Nigeria
The PIA: Top 20 Changes You Should Know!
The PIB seeks to provide a legal, governance, regulatory and fiscal framework for the Nigerian Petroleum Industry and development of Host Communities. It contains Five Chapters, 319 Sections, and Eight Schedules.
Below are the key changes:
Chapter 1 – Governance and Institutions
1.The key objective is ensuring good governance and accountability, creation of a commercially oriented national petroleum company, and fostering a conducive business environment for petroleum operations.
2. Creation of the Nigerian Upstream Regulatory Commission, responsible for the technical and commercial regulation of the upstream petroleum operations; and the Nigerian Midstream and Downstream Petroleum Regulatory Authority, responsible for the technical and commercial regulation of the midstream and downstream operations in Nigeria. The Commission and Authority are exempted from the provisions of any enactment relating to the taxation of companies, or Trust Funds.
3. Imposition of up to 1% levy on the wholesale price of petroleum products sold in the country (0.5% each for the Authority Fund and Midstream Gas Infrastructure Fund).
4. Incorporation of a commercial and profit focused NNPC Limited under CAMA within six months from commencement of the new law, with ownership vested in the Ministry of Finance Incorporated (and Ministry of Petroleum Incorporated) on behalf of the Federation to take over assets, interests and liabilities of NNPC. This structure is expected to pave the way for the eventual sale of shares to Nigerians.
5. Any assets, interest and liabilities not transferred to NNPC Limited will remain with NNPC until extinguished or transferred to the Government, after which NNPC shall cease to exist. Transfer and sale of the shares are subject to approval by the Government, and endorsement by the National Economic Council.
6. NNPC Limited will earn 10% of proceeds of the sale of profit oil and profit gas as management fee, while 30% will be remitted to Frontier Exploration Fund for the development of frontier acreages in addition to 10% of rents on petroleum prospecting licences and mining leases.
Chapter 2 – Administration
7. The main objective is to promote the exploration and exploitation of petroleum resources in Nigeria for the benefit of the Nigerian people, and promote sustainable development of the industry, ensure safe, efficient transportation and distribution infrastructure, and transparency and accountability in the administration of petroleum resources in Nigeria.
8. Avoid economic distortions and ensure a competitive market for the sale and distribution of petroleum products and natural gas in Nigeria; and avoid cross-subsidies among different categories of consumers.
9. The Commission is required to develop a model licence and model lease, to include a carried interest provision giving NNPC Limited the right to participate up to 60% in a contract.
Chapter 3 – Host Communities Development
10. The main objective is to foster sustainable prosperity within host communities, provide direct social and economic benefits and enhance harmonious co-existence.
11. Any company granted an oil prospecting licence or mining lease or an operating company on behalf of joint venture partners (settlor), is required to contribute 3% – 5% (upstream Companies) and 2% (other companies) of its actual operating expenditure in the immediately preceding calendar year to the host communities development trust fund. This is in addition to the existing contribution of 3%, to the NDDC. The Fund is tax exempt, and any contributions by a settlor is tax deductible.
12. Board of trustees and executive members of the management committee may include persons of high integrity and professional standing, who may not necessarily come from any of the host communities.
13. Available funds are to be allocated 75% for capital projects, 20% as reserve and 5% for administrative expenses. However, a community will forfeit the cost of repairs in the event of vandalism, sabotage and other civil unrest causing damage to petroleum facilities or disruption of production activities.
Chapter 4 – Fiscal Framework
14. The key objective is to establish a progressive fiscal framework that encourages investment in the Nigerian petroleum industry, provides clarity, enhances revenues for the Government while ensuring a fair return for investors.
15. FIRS to collect Hydrocarbon Tax of 15% – 30% on profits from crude oil production, CIT at 30% and Education Tax at 2% which will no longer be tax deductible. The Commission will collect rents, royalties, and production shares as applicable, while the Authority will collect gas flare penalty from midstream operations. Late filing of tax returns will attract N10m on the first day and N2m for each subsequent day the failure continues. A N20m fine is applicable to an offence, where no penalty is prescribed.
16. Generally, expenses must be wholly, reasonably, exclusively and necessarily incurred to be tax deductible. However, a cost price ratio limit of 65% of gross revenue is imposed for hydrocarbon tax deduction purposes; any excess cost incurred may be carried forward.
17. No tax deduction for head office costs, while tax deduction of interest on monies borrowed is subject to the satisfaction of the Commission that the fund was employed for upstream operations and the interest rates reflect market conditions.
18. Royalties are payable at the rates of 15% for onshore areas, 12.5% for shallow water, and 7.5% for deep offshore and frontier basins, 2.5% – 5% for natural gas. In addition, a price-based royalty ranging from 0% – 10% is payable to be credited to the Nigerian Sovereign Investment Authority.
19. Gas utilisation incentive will apply to midstream petroleum operations and large-scale gas utilisation industries. An additional 5-years tax holiday, will be granted to investors in gas pipelines.
Chaptewr 5 – Miscellaneous Provisions
20. The PIA repeals about 10 laws including the Associated Gas Reinjection Act; Hydrocarbon Oil Refineries Act; Motor Spirit Act; NNPC (Projects) Act; NNPC Act (when NNPC ceases to exist); PPPRA Act; Petroleum Equalisation Fund Act; PPTA; and Deep Offshore and Inland Basin PSC Act. It amends the Pre-Shipment Inspection of Oil Exports Act, while the provisions of certain laws are saved until termination or expiration of the relevant oil prospecting licences and mining leases, including the Petroleum Act, PPTA, Oil Pipelines Act, Deep Offshore and Inland Basin PSC Act.
Taiwo Oyedele, Africa Tax and Legal Services Leader, PwC Nigeria