Petroleum industry bill to overhaul NNPC
The National Assembly has finally passed the petroleum industry bill, with reform of NNPC a principal target of the new legislation
London, 19 January (Argus) — Nigeria's National Assembly has passed the Petroleum Industry Governance Bill, a key piece of legislation aimed at reforming state-owned NNPC and the country's oil and gas regulatory bodies.
The bill, which was approved by the Senate in May last year, was passed by the House of Representatives on 17 January, and only requires signing by President Muhammadu Buhari to come into effect. The legislation will split NNPC into two distinct branches. National Petroleum (NPC) will be responsible for the state's majority stakes in upstream joint ventures with foreign partners such as Shell and ExxonMobil, while Nigeria Petroleum Assets Management (NPAM) will oversee Abuja's interests in offshore production-sharing contracts.
NPC will be "an integrated oil and gas company operating as a fully commercial entity" allowed to raise financing independently of government to fund its majority stake in the joint ventures, the bill says. NNPC has built up debts of over $5bn to its joint-venture partners because the government has struggled to meet its financing obligations, delaying oil and gas projects. NNPC has entered a series of "alternative financing" arrangements with its upstream partners to clear debts. Allowing NPC to raise finance from banks and other sources will free Abuja from the need to fund the joint ventures from the national budget. NPC will be allowed to list and sell part of its shares "at a later date", according to the bill.
NPAM will be tasked with "management of the federation oil and gas investments in assets where government is not obliged to provide funding". NPAM will have responsibility for NNPC's offshore production-sharing contracts. A third company could be created out of NNPC to hold NNPC's financial liabilities.
The bill aims to "enhance the commercial focus, performance, transparency and accountability as well as provide the necessary platforms for a lasting solution to the perennial [joint venture] funding [issue]". The plan is for NPC and NPAM to be incorporated within six months of the bill passing into law, with the transfer of assets from NNPC to the new firms within 12 months of incorporation.
The bill will create a new regulator, the NPRC, which would assume the functions carried out by a host of often overlapping state bodies, including the Department of Petroleum Resources and pricing agency the PPPRA. The power to grant exploration and production licences and hold bidding rounds will transfer to the NPRC from the oil ministry. Nigeria has been plagued by flawed licence awards and bidding rounds, with upstream blocks assigned to politically well-connected domestic companies with little or no oil sector experience. NNPC's main foreign upstream partners — Shell, Total, Italy's Eni, ExxonMobil and Chevron — have not participated in Nigeria's licensing rounds for over a decade.
Take and pay
The bill allows the president to intervene in the sector and retain the position of oil minister. Day-to-day control of the country's oil and gas portfolio falls under the authority of the minister of state for oil, Emmanuel Ibe Kachikwu, at present.
Legislators are reviewing other bills that aim to reform Nigeria's oil and gas operations. These include the petroleum industry fiscal bill, the petroleum host community bill and the petroleum industry administration bill. The fiscal bill aims to establish a new financial framework to encourage further investment while raising government revenues through increasing its tax take. Foreign firms warn that planned changes to fiscal terms could further harm investment.
The National Assembly has been debating the new petroleum laws for more than 10 years. Uncertainty over future legislation has contributed to a steady slowdown in upstream investment in Africa's largest oil exporter.