THE 2012
PETROLEUM
INDUSTRY BILL(PIB):
AN OVERVIEW
Chika Onuegbu JP,FCA
PENGASSAN National Industrial Relations Officer
The Nigeria Petroleum Industry Reforms started long time
ago
24th Apr
7th Sept
Inauguration
of OGIC
2000
2001
Re-Inauguration
of OGIC
2002
2003
2004
Draft
National Oil
& Gas Policy
2004
2005
2006
2007
Approval of
National Oil
& Gas Policy
5th Sept, 2007
PIB
2008
2009 2010-12
OGIC Report
completed
May 2008
Phase-1
Phase-2
Policy
Legislation
Unfortunately the PIB was not passed during the 6th
National Assembly
PIB
FEC
Submission
2008
Public
Hearings
Senate
Committee
Recommenda
tions
NASS
Passage
3
Mar 2011
Dec 2010
Jul 2009
Memoranda; IAT SB 236
House
Committee
Recommen
dations
IAT
HB 159 (+170 clauses)
NASS
Harmonisation
Presidential
Assent
… and so the Fed Govt was advised to re-start the whole process
over
…Journey to the


2012 Petroleum Industry Bill(PIB)
Special PIB Task Force led by Senator Udo Udoma was set in January 2012 to work with
relevant government bodies to produce a new version of the PIB for presentation to the
National Assembly. The PIB Technical Committee was headed by the Director of DPR Osten
Oloronsola.
The Task Force was directed to consult with key stakeholders and to liaise with the National
Assembly to ensure the quick passage of the 2012 PIB

The Special Task Force on PIB submitted its report in June 2012 to the Presidency

Federal Executive Council of Nigeria approved the PIB on 11 July 2012

The Presidency upon the approval of the Federal Executive Council (FEC)forwarded the 2012
PIB to the National Assembly on 18th July 2012

The bill is now before the National Assembly

Any moment from now the National Assembly will call for public hearing.
… So how ready is PENGASSAN for the public hearing?
…Journey to the 2012 Petroleum Industry Bill (PIB) cont’d




PENGASSAN National Secretariat set up a PIB Committee made up as follows:
1.
Comrade Chika Onuegbu
Chairman
2.
Comrade Zaid Kolawole
Member
3.
Comrade M. B. Saidu
Member
4.
Comrade (Rev.) S. F. Oginni
Member
5.
Comrade Chinedu Ajabor
Member
6.
Comrade Tony Nwoha
Member
7.
Comrade Seyi Gambo
Member
8.
Comrade Azubuike M. Azubuike
Member
9.
Comrade Emmanuel Onuorah
Member
10.
Comrade Bayo Olowoshile
Co-opted Member
11.
Comrade Babatunde Oke
Secretary
The PENGASSAN PIB Committee had an interactive session with the Senator Udo Udoma
Federal Govt Task Force on PIB and the Osten Oloronsola Technical Committee on PIB on
April 11, 2012 in FCT Abuja.
The PENGASSAN PIB Committee obtained and circulated the PIB submitted by the Presidency
to the Senate to all our branches and members for their review and inputs.
However the response was not encouraging as many branches did not respond. For instance
among the PF family only Total E&P submitted a position to the PENGASSAN PIB Committee.
Overview of the 2012 PIB
The 2012 PIB:







Is a 223 page document ;comprises 363 sections divided into 9 parts with 5 schedules. Provides for
the legal, fiscal and regulatory framework for the oil and gas industry. Note that some sections of
the PIB were not correctly numbered. E.g. no section 119
Create two regulatory entities. The Upstream Petroleum Inspectorate and the Downstream
Petroleum Regulatory Agency Provides for Host Community Fund ; Upholds in its entirety the
Nigerian Oil and Gas Industry Content Development Act 2010
Split the NNPC into three entities; two incorporated, one not.
Subjects the Petroleum industry to heavy political manipulations &interference, which could lay
foundation for unrivalled corruption .e.g. Presidential power to grant licenses and leases without
competitive process or any other process; Excessive powers of the Minister of Petroleum including
the power to determine rentals and royalties by regulation; recommend all persons to the boards;
chairman most of the boards ;make regulations without public hearing etc.; power to receive gifts
by the agencies; non application of fiscal responsibility and public procurement acts for many
agencies
Introduces new fiscal framework for the oil and gas industry; NHC, CIT and Royalties
No mention of refining or refining operations other than in Section 220 (2)(b) which mentions that
regulations may be made for these operations. Meanwhile there is a refinery Bill in the senate.
Its outcome will determine the future of the Nigerian oil and gas industry , as well as the Nigerian
workers. Most influential and important legislation after the Nigerian constitution
Overview of the 2012 PIB cont’d

The 9 parts of the PIB are:

Part I.
Objectives (Sections 1 to 4)

Part II.
Institutions (Sections 5 to 169)

Part III.
Upstream Petroleum (Sections 170 to 205)

Part IV.
Downstream Licensing (Sections 206 to 220)

Part V.
Downstream Petroleum (Sections 221 to 283)

Part VI.
Indigenous Petroleum Companies (Sections 284 to 288)

Part VII. Health Safety and Environment (Sections 289 to 298)

Part VIII Provisions on Taxation in the Petroleum Industry (299
to 353)

Part IX
Repeals, Transitional and Savings Provisions (Sections
354 to 363)
Overview of the 2012 PIB cont’d

The 5 Schedules of the PIB are:

First Schedule.
Rights of Pre-emption

Second Schedule. Supplementary Provision Relating to the
Proceedings of the Boards of institutions under
this Act:

Third Schedule.
Powers and Duties of the services under the
Act:

Fourth Schedule.
Capital Allowances

Fifth Schedule.
Production Allowances
OBJECTIVES OF THE 2012 PIB (s.1)




Create a conducive business environment for petroleum operations;
Enhance exploration and exploitation of petroleum resources in Nigeria for the benefit of the
Nigerian people
Optimize domestic gas supplies, particularly for power generation and industrial development
Establish a progressive fiscal framework that encourages further investment in the petroleum
industry while optimizing revenues accruing to the Government

Establish commercially oriented and profit driven oil and gas entities;

Deregulate and liberalize the downstream petroleum sector;

Create efficient and effective regulatory agencies;

Promote transparency and openness in the administration of the petroleum resources of
Nigeria

Promote the development of Nigerian content in the petroleum industry

Protect health, safety and the environment in the course of petroleum operations; and

Attain such other objectives to promote a viable and sustainable petroleum industry in Nigeria
2012 PIB:
BROAD POLICY THRUST
FOR
PENGASSAN
1
0
2012 PIB – Broad Policy Thrust for PENGASSAN
Transparency and Accountability :
 Competitive, non-discretionary licensing and tender processes for all
contracts and licenses.
 Specific provisions for Voiding ALL confidentiality clauses for oil revenue
and payment information
 The reduction to the barest minimun of all discretionary powers and political
interference in the running of the agencies set up by the PIB
 Sincere and genuine pursuit of transparency and accountability as key
enabler of business growth in the nation’s petroleum industry and sustained
economic development of Nigeria
 Specific provisions for Publication at least on a quarterly basis the
comprehensive production, export and import figures
 Specific provisions for Publication of NNPC/ NOC/ National Petroleum
Asset Management Corporation/Host Community Funds annual reports
and audits online as the case with the multinationals
2012 PIB – Broad Policy Thrust for PENGASSAN
cont’d
Balance b/w Government Take & Industry Growth:





PENGASSAN believes that there should be a good balance between government take
(royalties, Tax etc) and industry growth.
The PIB should optimise the returns to Nigeria from its oil and gas resources without
stifling investments and growth of the industry.
Our position is informed by the lessons presented in Economic theory by Laffer curve.
The PIB should provide a fiscal regime that is competitive and that will encourage
investments in critical areas of the Nigerian oil and gas sector.
This position is furthered strengthened by the discovery of oil and gas in the Gulf of
guinea , Dahomey regions and similarly close regions; and the urgent need for the
development of gas and power, local refining capacity etc.
2012 PIB – Broad Policy Thrust for PENGASSAN
Cont’d
Labour Issues : PENGASSAN supports the PIB in principle, provided the following are
fully met :



There is mandatory recognition of the right to freedom of association and effective
collective bargaining by all companies operating or doing business in the Nigeria oil
and gas industry irrespective of where they are located .
The PIB ensures that all companies operating in the Nigerian oil and Gas industry
comply with all international labour conventions that have been ratified by Nigeria;
the collective agreements with the labour unions and the extant labour laws as a
minimum in all their dealings with the Nigerian workers and their representatives.
All Workers in the NNPC and ALL other government agencies to be impacted by the
PIB shall transit to the new companies/agencies on same terms and conditions. This
is crucial to the successful take-off of these agencies, the NOC and the PIB itself.
2012 PIB – Main Policy Thrust for PENGASSAN
cont’d
Labour Issues Contd :



Proper arrangements should be made in the PIB to ensure that the liabilities of the
NNPC and other agencies to their staff such as pensions to retired and existing
employees are adequately provided for prior to the effective commence date of the
PIB.
Ensure that companies operating in the oil and gas industry do not use the PIB as a
ploy to disengage Nigerians. To this end, the PIB should give the Upstream Petroleum
Inspectorate (UPI) the power to protect the jobs of Nigerians working in the oil and
gas industry such that no Nigerian will be relieved of his/her job in the Nigerian oil
and gas industry without the approval in writing of the Upstream Petroleum
Inspectorate (UPI). This will ensure the reduction of anti-labour practices and
engender industrial peace and harmony
Strengthen the Nigerian Content Act and policies especially as relates to labour,
training and manpower development
2012 PIB – Broad Policy Thrust for PENGASSAN cont’d
Membership of All Boards in the PIB :

Workers and their unions are strategic partners and stakeholders
whose participation, initiatives, drive and inputs are important
for the successful operations of the oil and gas industry.

Consequently we demand for
one representative EACH of
PENGASSAN and NUPENG, in ALL the boards and
committees set up in the PIB as strategic partners with cognate
industry knowledge
2012 PIB:
INSTITUTIONS
1
6
Structure of Institutions under the PIB
NPAMC
NGC Assets
NPDC Assets
REFINERIES
PSCs, PPMC,
NLNG, ETC
6 JVs
PTDF, PEF, PTI,
NCDMB, PHCF
PIB Institutions
1.
The Minister - Supervision + Policy
2.
Petroleum Technical Bureau – PTB; Special Unit of the Office of the Minister
3.
Upstream Petroleum Inspectorate – UPI; Independent? Regulator, Upstream
4.
Downstream Petroleum Regulatory Agency – DPRA; Independent? Regulator,
Downstream
5.
Petroleum Technology Development Fund - PTDF; Capacity development
PIB Institutions Cont’d
6.
Petroleum Equalisation Fund - PEF;…..Collects net surplus revenue from
petroleum products marketing companies . Will manage subsidy fund post PIB
7.
Petroleum Host Community Fund – PHCF; FTO issues, security of facilities
8.
National Petroleum Assets Management Corporation- NPAMC;………JV
Operations
9.
National Oil Company – NOC; Commercial
10.
National Gas Company Plc.; Commercial
PIB Institutional Alignment
1.
Minister of Petroleum
Policy
Regulation
Operations
Minister
UPI
NOC
PTB
DPRA
NGC plc.
PHCF
PTB?
NPAMC
International /
Indigenous
OCs
PIB Institutional Alignment Cont’d
2.
The Petroleum Technical Bureau (PTB)

A special Unit of the Office of the Minister

Provide technical and professional support to the Minister

Assist the minister in formulation strategies to implement government policies in the Petroleum
Industry(PI)

Assist the minister in monitoring the implementation of government policy in the PI

In addition to its other duties carry out the functions of the former Frontier Exploration Services
(FES) of the NNPC
***No information on staffing structure
PIB Institutional Alignment Cont’d
3. Upstream Petroleum Inspectorate (UPI)

Upstream Regulator

With the approval of the Minister, allocate petroleum production quotas

Execute government policies assigned to it by the Minister

Regulate all technical aspects of the upstream sector

Regulate commercial activities within the upstream sector

Determine and ensure implementation and maintenance of technical standards and
specifications

Administer and enforce policies, laws and regulations relating to upstream operations
PIB Institutional Alignment Cont’d
4. Upstream Petroleum Inspectorate (UPI)

Members to be appointed by the President on recommendation of the Minister

Structuring the Inspectorate into such number of departments as is deemed fit for the effective
discharge of its functions will be subject to the approval of the Minister

The Board shall appoint a Secretary for the Inspectorate
PIB Institutional Alignment Cont’d
***UPI Board

Chairman *

Director General

2 Directors of the Inspectorate

2 persons (min. Directors) of the Ministry of Petroleum Resources

1 person (min. Director) from the Federal Ministry of Finance

1 representative from NUPENG *

1 representative from PENGASSAN *

3 others **
***4-yr terms renewable for no more than additional 4 years
*Part-time
PIB Institutional Alignment Cont’d
5.
Downstream Petroleum Regulatory Agency (DPRA)

Downstream Regulator

With the approval of the Minister, allocate petroleum production quotas

Facilitate the supply of gas to the strategic sectors

Execute government policies assigned to it by the Minister

Regulate all technical aspects of the downstream sector

Regulate commercial activities within the downstream sector

Determine and ensure implementation and maintenance of technical standards and
specifications

Administer and enforce policies, laws and regulations relating to downstream operations
PIB Institutional Alignment Cont’d
6.
DPRA Board

Members to be appointed by the President on recommendation of the
Minister

Structuring into such number of departments as is deemed fit for the effective
discharge of its functions will be subject to the approval of the Minister
PIB Institutional Alignment Cont’d
DPRA Board

Chairman ***

Director General**

2 Directors of the Inspectorate

2 persons (min. Directors) of the Ministry of Petroleum Resources

1 person (min. Director) from the Federal Ministry of Finance

1 representative from NUPENG*

1 representative from PENGASSAN*
3 others ***
**4-yr terms renewable for no more than additional 4 years
*Part-time
PIB Institutional Alignment Cont’d
7. Petroleum Technology Development Fund (PTDF)

Develop local human capacity for the oil and gas sector through but not
limited to:

Provision of scholarships and bursaries, wholly or partially in universities,
institutions and in petroleum undertakings in Nigeria or abroad

Making suitable endowments to faculties in Nigeria universities, college, or
institutions

Liaising with research centres in Nigeria and abroad on the adaptation of
technology and innovations appropriate to the needs of the Nigerian
petroleum industry

Enhancement and development of infrastructure in tertiary institutions that
provide courses of study relevant to the petroleum industry
PIB Institutional Alignment Cont’d
PTDF Board
The Board shall appoint a Secretary for the Inspectorate
 Minister as Chairman
 1 person (min. Director) from the Federal Ministry of Finance
 1 person (min. Director) from the UPI
 1 representative from the Nigerian Content Development and Monitoring
Board (NCDMB)
 The Executive Secretary of the PTDF
 The Principal, PTI
 A representative of the Society of Petroleum Engineers
 A representative of the Society of Engineers
6 persons from the 6 geopolitical zones to be appointed by the President on
recommendation of the Minister
* Part-time 4-year terms and renewable for another 4 years.
PIB Institutional Alignment Cont’d
8. Petroleum Equalization Fund (PEF)

Shall continue to be the PEF into which shall be paid:

Any net surplus revenue recovered from petroleum products marketing
companies pursuant to this Act

Such sums as may be provided for purpose of the Equalization Fund by the
Federal Government

Manage the Subsidy fund post PIB

Exist only as long as there is subsidy on petroleum products
PIB Institutional Alignment Cont’d
PEF Board
The Board shall appoint a Secretary for the Fund
 Minister as Chairman
 The Executive Secretary of the PEF
 1 person from the Federal Ministry of Finance
 1 person from the Ministry of Petroleum Resources
 1 person from the PEF
 1 person from the National Association of Road Transport Workers
 1 representative of the Major Marketers Association of Nigeria
 1 representative of the Independent Petroleum Marketers Association of
Nigeria
 1 representative each of the NLC and the TUC of Nigerian
 3 persons to be appointed by the President on recommendation of the Minister
* Part-time 4-year terms and renewable for another 4 years.
PIB Institutional Alignment Cont’d
9. Petroleum Host Communities Fund (PHCF)

Utilized for the development of the economic and social infrastructure of the
communities within the petroleum producing areas.

Every upstream petroleum-producing company shall remit on a monthly basis
10% of its net profit:

onshore, shallow waters and offshore- remittance to be made directly into the
PHCF

Deep-water areas – remittance directly to the Fund for the benefit of the
petroleum producing littoral States
PIB Institutional Alignment Cont’d
Petroleum Host Community Fund
Profits
generated
Profits
generated
10%
10%
PPHC Fund
90%
Community
Funds (PML
cover)
1)
2)
3)
Share for
Communities Fund
10%
Strategic
Community
Fund
There shall be established a Petroleum Producing Host Communities Fund
(“Fund”). The total value of the fund will be equal to 10% of the Profits (defined
as Total Revenues minus Royalties and minus Costs minus Tax).
The fund shall consist of two main components:1)
A direct Community Fund which shall be maximum of 90% of the PPHC,
which shall be remitted to Communities covered by PMLs
2)
A Strategic Community Fund which shall be maximum of 10% of the
PPHC, to be utilized for communities not covered by PMLs.
Distribution of the funds to each community will be guided by regulations to be
promulgated by the Minister of Petroleum Resources
100%
State Governments
of 8 littoral states
The new Bill establishes
the Host Communities
Trust Fund, but does not
define “host community’
rendering that description
amenable to several
interpretations.
PIB Institutional Alignment Cont’d
10. National Petroleum Assets Management Corporation (NPAMC)
 A holding company operating fully on commercial principles:

Acquire and manage investments of the government in the Nigerian upstream
petroleum industry

Undertake such other activities as are necessary or expedient for giving full
effect for the performance of its functions e.g. acquisition and maintenance of
subsidiaries

Funding: (1) monies made available by the government for the purpose of
funding the subsidiaries (2) such monies as may be received by the Corporation
in the course of its operations

The NPAMC, though incorporated under the Companies and Allied Matters
Act, but shall not be subject to the provisions of the Fiscal Responsibility Act
and Public Procurement Act, both of 2007
Following the incorporation of the NPAMC, assets and liabilities comprising
exclusively the interest in all the unincorporated joint ventures held by the NNPC and
excluding the assets that the government may have vested in the NOC shall be vested in
the NPAMC (12-24 months)
PIB Institutional Alignment Cont’d
NPAMC Board
***UPI Board
a. Minister as Chairman
b. The PS, Federal Ministry of Finance
c. MD of the Management Company
(Subsidiary to be established by the
Corporation)
d. 2 persons to be appointed by the president
PIB Institutional Alignment Cont’d
11. National Oil Company (NOC)
 A public company limited by shares and vested with certain assets and
liabilities of the NNPC (to be incorporated no later than 3 months after the
effective date)…Initial shares to be held by a nominee of the MPR and MOF
incorporated on behalf of the Federal Government:
 Within 6 years from the date of incorporation of the NOC: up to 30% of the
authorized shares of the NOC shall be divested to the public
 Following the incorporation of the NOC, assets and liabilities held by the
NNPC except the interests in the unincorporated joint ventures and Nigerian
Gas Company Limited shall be vested on the NOC within 12-24 months from
the effective date
 The NOC shall be subject to the Governance rules of the SEC

The NOC shall not be subject to the provisions of the Fiscal Responsibility Act
and Public Procurement Act, both of 2007
PIB Institutional Alignment Cont’d
12. National Gas Company PLC (NGC Plc.)





A public company limited by shares and vested with certain assets and
liabilities of the NNPC:
Within 6 year from the date of incorporation of the NGC Plc.: up to 40% of
the authorized shares of the NGC Plc. shall be divested to the public
Following the incorporation of the NGC Plc., assets and liabilities held by the
NNPC except the Nigerian Gas Company PLC shall be vested on the NGC
Plc. within 12-24 months from the effective date
The NGC Plc. shall be subject to the Governance rules of the SEC
The NGC Plc. shall not be subject to the provisions of the Fiscal Responsibility
Act and Public Procurement Act, both of 2007
166: prior to vesting of the assets and liabilities of the NNPC on the NGC Plc., the
Minster may give to the Board of Directors of NNPC directions in writing and the
BOD shall comply with every such direction
PIB Institutional Alignment Cont’d
13. Other Institutions
1.
The Petroleum Training Institute (PTI), established by the PTI Act 2004 shall
remain a parastatal supervised by the Minister
2.
The Nigerian Content Development and Monitoring Board, established by
the Nigerian Oil and Gas Industry Content Development Act 2010, shall
remain a parastatal under the Minister
2012 PIB Institutions :COMPARATIVE ANALYSIS
AGENCIES
Petroleum
Technical Bureau
Upstream
Petroleum
Inspectorate
FUNCTIONS
BOARD
C E O’s
Specified. Pg 16 Not Specified Not Specified
sec. 10
Specified. Pg 19 Specified pg 21 Specified. Pg 24
sec. 15
sec.17 (NUPENG sec. 23
& PENGASSAN)
STAFF
Specified. Pg 17
sec. 11
Specified. Pg 26
sec. 28
COS
FUNDING
Specified. Pg 17 Not Specified
sec. 11 (2)
Specified. Pg 27 Specified. Pg 26
sec. 32
sec. 30
REMUNERATION
Specified. Pg 17
sec. 11 (2)
Specified. Pg 24
sec. 24 & pg 26
sec 29 Oil & Gas
Downstream
Petroleum
Regulatory
Agency
Petroleum
Technology
Development
Fund
Petroleum
Equalization Fund
Management
Board
Petroleum Host
Community Fund
Specified. Pg 32 Specified. Pg 36 Specified. Pg 39 Specified. Pg 40 Specified. Pg 41 Specified. Pg 42 Specified. Pg 37
sec. 45
sec. 47 (NUPENG sec. 53
sec. 58
sec. 59
sec. 62
sec. 49, pg 39
& PENGASSAN)
sec 54
PENSION
Specified. Pg 17
sec. 12 (1&2)
Specified. Pg 26
sec. 30
Specified. Pg 41
sec. 60
Specified. Pg 48 Specified. Pg 48 Specified. Pg 51 Specified. Pg 53 Specified. Pg 53 Specified. Pg 46 Specified. Pg 50 Specified. Pg 53
sec. 76
sec. 77
sec. 84
Sec. 88
Sec. 88 (3)
Sec. 74, pg 47
sec. 79, pg 52 sec Sec. 90
Sec. 75
85, pg 53 sec 89
Oil & Gas
Specified. Pg 58 Specified. Pg 57 Specified. Pg 59 Specified. Pg 60 Not Specified
Specified. Pg 60 Not Specified
Not Specified
sec. 103
Sec. 101. NLC, Sec. 105
Sec. 107
Sec. 108 (Note pg
TUC
56 sec 100 (4)
Specified. Pg 63 Not Specified
sec. 118
Not Specified
Not Specified
Not Specified
Specified. Pg 63 Not Specified
sec. 118 (a & b)
Not Specified
2012 PIB Institutions :COMPARATIVE ANALYSIS Cont’d
AGENCIES
Nigerian
Petroleum Assets
Management
Company Limited
National Oil
Company
FUNCTIONS
BOARD
Specified. Pg 64 Specified. Pg 68
sec. 120
sec. 131
C E O’s
STAFF
COS
FUNDING
Not Specified. Transfer of staff, Transfer of staff, Specified. Pg 64
However, MD as a etc pg 189 Sec etc pg 189 Sec sec. 121
board member 356
356
REMUNERATION
PENSION
Specified. Pg 52 Transfer of staff,
sec. 85, pg 53 sec. etc pg 189 Sec
89 pg 69 sec. 133, 356
Oil & Gas
Transition from Transition from Not Specified
Transfer of staff, Transfer of staff Transition from Transfer of staff, Transfer of staff,
NNPC
NNPC. Pg 76 sec.
etc pg 189 Sec etc pg 189 Sec NNPC. Pg 76 sec. etc pg 189 Sec etc pg 189 Sec
Pg 76 sec 155
155
356
356
155
356
356
National Gas
Transition from Transition from Not Specified
Transfer of staff, Transfer of staff, Transition from Transfer of staff, Transfer of staff,
Company Plc
NNPC
NNPC
etc pg 189 Sec etc pg 189 Sec NNPC
etc pg 189 Sec etc pg 189 Sec
Pg 76 sec 155
Pg 76 sec 155
356
356
Pg 76 sec 155
356
356
Petroleum
PTI Act, CAP. 16 of PTI Act, CAP. 16 of PTI Act, CAP. 16 of PTI Act, CAP. 16 of PTI Act, CAP. 16 of PTI Act, CAP. 16 of PTI Act, CAP. 16 of PTI Act, CAP. 16 of
Training Institute the Laws of the the Laws of the the Laws of the the Laws of the the Laws of the the Laws of the the Laws of the the Laws of the
Nigerian Content NOGICD Act 2010 NOGICD Act 2010 NOGICD Act 2010 NOGICD Act 2010 NOGICD Act 2010 NOGICD Act 2010 NOGICD Act 2010 NOGICD Act 2010
Development &
Monitoring Board
NB: The present NNPC will become 3 companies-National Oil Company Plc
(Government 70% ;30% will be made available to members of the public. ), National
Gas Company Plc – (present NGC, govt 51% ,49% to public) and National Petroleum
Asset Management Corporation - this will be a holding company fully-owned by the
government
2012 PIB:
FISCAL FRAMEWORK
4
1
2012 PIB: Fiscal Framework
DESIGN CONSIDERATIONS and Thrust of Federal Government:
A main objective of the PIB is to –’Establish a progressive fiscal framework that encourages
further investment in the petroleum industry while optimizing revenues accruing to the
Government’. The design considerations for Fiscal framework according to the federal
government technical subcommittee on PIB led by Osten Olorunsola are to:






Improve overall competitiveness in the oil and gas sector.
Maintain per cent government revenues from onshore/swamp and shallow offshore for
crude oil and condensate at the current level.
Increase government revenues from deep-water PSC operations, through adjusted royalty
rates.
Create attractive fiscal terms for gas in all terrains.
Improve savings index by reducing tax rate (Sole risk/JV) and eliminating investment
based fiscal incentives.
Special incentive provisions (increased production allowances) included for PSCs in
onshore/swamp/shallow offshore to partially compensate for investor value erosion
compared to sole risk operators in these terrains.
2012 PIB: Fiscal Framework Cont’d
Principles for Royalties and Tax :




Fiscal regime (Royalty and Tax) predicated on production as opposed to terrain
and investment respectively
Royalty by Production

Captures the output of a company as opposed to its location

Creates a fair balance between small and big producers operating in the
same terrain

Enables operators to continue to make fair returns during field decline
Royalty by Price

Trigger mechanism is fair to all irrespective of the terrain

Self adjusting rate based on the price of crude oil
Abrogation of Royalty by Terrain
2012 PIB: Fiscal Framework Cont’d

The Nigerian Hydrocarbon Tax (Sections 299 – 352) which shall be administered & collected by the
Federal Inland Revenue Service. S.313 provides for the following as assessable tax :

50% for onshore and shallow water areas

25% for bitumen, frontier acreages and deep water areas

Where petroleum operations fall in geographical areas that are subject to different tax rates, NHT shall
be levied on the proportionate parts of the profits arising from such operations.

The Company Income Tax ( Section353, page 184): Previously, in the upstream sector, companies’ income
tax (CIT) is only levied on gas profits. Under the PIB, CIT will be 30% of all assessable profits, and is not
deductible from NHT. There are incentives in the Companies Income Tax Act such as tax holidays which
will be retained for LNG companies. A tax holiday is also available for any company which supplies gas
solely for the domestic market.

It is important to note that the PIB does not amend/delete paragraph (h) of section 19(1) of the CIT
Act, Cap 60, LFN, 1990, which exempts “the profits of any company engaged in petroleum operations”
from CIT. It may be expedient for the Bill to specifically delete this paragraph to avoid potential
controversy on the liability of profits derived from petroleum operations to CIT.
2012 PIB: Fiscal Framework Cont’d
Royalties(Section 197):
The PIB does not specify the basis and percentage of royalties to be paid by companies
engaged in petroleum operations. However, the Bill empowers the Minister for
Petroleum Resources (‘the Minister’) to make regulations in that regard. However it is
expected that royalties will be by price and production rather than the current practice
where it is by terrain.
Contributions to the Petroleum Host Communities Fund (Sections 116 – 118):



All upstream petroleum producing companies shall remit, on a monthly basis, to the Petroleum
Host Community Fund (PHC Fund), 10% of net profits from their onshore, shallow water
and deep water operations. “Net profit” is defined in the PIB as “the adjusted profit less
royalty, allowable deductions and allowances, NHT and companies income tax.”
However under the current regime, all producing and gas processing companies operating
onshore and offshore in the Niger-Delta area are required to contribute 3% of their total
annual budget to the Niger-Delta Development Commission Fund (NDDC Fund) pursuant to
the Niger-Delta Development Commission (Establishment) Act (NDDC Act).
Since the NDDC Act is not one of the statutes listed for repeal under the PIB ,Companies will
to contribute to the PHC Fund and the NDDC Fund. Contributions made by a company to
the PHCF are to be set off against its ‘total fiscal rent obligations’. Fiscal rent is the aggregate
of royalty, Nigerian Hydrocarbon Tax and Companies Income Tax obligations arising from
upstream petroleum operations.
2012 PIB: Fiscal Framework Cont’d
Penalty for Gas Flaring (Sections 275 – 283):
The PIB prohibits the flaring of natural gas after a ‘flare-out date’ to be specified by the
Minister via regulations. Based on section 306(k) of the PIB, gas flaring penalty will not
qualify as a tax deductible expense, as is currently the case.
Payment of Renewal Bonus (Section 185):
Section 185(2) requires lessees under a PML arrangement to pay “a renewal bonus of an
amount specified in the lease” at the time of renewing the PML. Based on section 306(l)
of the PIB, renewal bonuses are specifically disallowed for NHT purposes.
2012 PIB: Fiscal Framework Cont’d

Deductions Allowed: for tax purposes are:





expenses wholly, exclusively, necessarily and reasonably incurred for
the purpose of upstream petroleum operations.
Sums ‘set aside in a fund’ as decommissioning and abandonment
expenditure have now been explicitly specified as tax-deductible. This
implies that only funded provisions would be allowable
Interest incurred on capital employed for upstream petroleum
operations is tax deductible, except where the interest relates to
operations under a Production Sharing Contract (PSC)
Contributions to the Petroleum Host Communities Fund are allowable
Contributions to pension and other similar schemes/funds are taxdeductible. The need to obtain approval for these contributions has
been removed, as long as the scheme/fund is in line with the Pension
Reform Act.
2012 PIB: Fiscal Framework Cont’d

Deductions Disallowed deductions include:

all general, administrative and overhead expenses incurred outside Nigeria
in excess of 1% of capital expenditure and 20% of any expenses incurred
outside Nigeria except for goods or services not available domestically in
the required quantity or quality.

legal and arbitration costs related to cases against the tax authorities or the
Federal Government except awarded to the company during the legal or
arbitration process .

Others include costs incurred in organising or managing any partnership,
joint venture or other arrangement between or among companies, gas
flaring charges, insurance costs payable to an affiliate of the company,

any signature or production bonuses

costs of obtaining and maintenance of a performance bond under a PSC

Any cost arising from fraud, wilful misconduct or negligence on the part of
the company
2012 PIB: Fiscal Framework Cont’d


The requirement to pay CIT (in addition to the NHT) is not new in the taxation of
petroleum companies in other jurisdictions. However,
The rates of the two tax types, together with other fiscal provisions of the PIB, will most
likely result in an increase in the effective tax rate of many companies under the PIB
regime. This is a contentious issue as the govt claim that the effective increase is just
1%. However the IOCs disagree and cite for instance that:

PSC companies that currently pay PPT at a rate of 50% of chargeable profits, will be liable
to NHT and CIT at a combined rate of about 55% (i.e., 30% CIT plus 25% NHT). This is
aside from the fact that the companies will give up the relatively more favourable
Investment Tax Credit (ITC) /Investment Tax allowance (ITA) that currently applies, for
Production Allowance (PA)and General Production Allowance (GPA)

JV companies that are yet to fully amortise their capitalised pre-production expenses are
currently liable to PPT at a reduced rate of 65.75%; whereas they will be liable to NHT
and CIT at a total rate of about 80% under the new regime.

JV companies that currently pay PPT at 85%, it would appear on the surface that they will
pay lower corporate tax at a total rate of 80% under the PIB. However, considering that the
companies will no longer enjoy PIA, will not be entitled to PAs and GPAs except for gas
operations, and may have a significant proportion of their offshore expenses disallowed,
the companies may well have a higher effective tax under the PIB.
2012 PIB: Fiscal Framework Cont’d
Offshore/Onshore/Swamp/Shallow :Tax rates and other allowances Comparison
Current Terms
Taxes/allowances
Proposed Terms
Taxes/Allowances
Petroleum Profits Tax
During cost recovery (yr1 - yr5)
After cost recovery (yr6+)
Company income tax (on gas revenues)
Rates
65.75%
85.00%
30.00%
Investment (Initial) Allowance
Onshore
Offshore
Rates
5.00%
10.00%
Capital (Annual) Allowance
Year 1 - year 4
Year 5
retention
Rates
20.00%
19.00%
1.00%
Tax credits / Allowances replaced by production
allowance under the proposed terms
5
0
Source: Osten Olorunsola PIB Technical Sub Committee
Tax Rates
Hydrocarbon tax - oil & condensate
Company income Tax
Rates
50.00%
30.00%
Capital (Annual) Allowance
Year 1 - year 4
Year 5
retention
Rates
20.00%
19.00%
1.00%
Production Allowance - crude oil & condensate
Onshore:
Lower of $30/bbl
or
30% of OSP
Lower of $12/bbl
or
30% of OSP
Shallow offshore:
Lower of $30/bbl
or
30% of OSP
Lower of $12/bbl
or
30% of OSP
0 - 10 MMBbls
10 - 75 MMBbls
0 - 20 MMBbls
20 - 150 MMBbls
2012 PIB: Fiscal Framework Cont’d
Offshore/Onshore/Swamp/Shallow :Tax rates and other allowances Comparison - cont’d
Current Terms
Taxes/allowances
Proposed Terms
Taxes/Allowances
Production Allowance - natural gas
Onshore:
Lower of $1.0 / MMBtu
or 30% of gas value
0 - 1,000 bcf
Lower of $0.3 / MMBtu
or 30% of gas value
> 1,000 bcf
Shallow offshore:
5
1
Source: Osten Olorunsola PIB Technical Sub Committee
Lower of $1.0 MMBtu
or 30% of gas value
0 - 2,000 bcf
Lower of $0.3 MMBtu
or 30% of gas value
> 2,000 bcf
PIB….Fiscal Comparison – Deepwater PSCs
Tax rates and other allowances
Proposed Terms
Taxes/Allowances
Current Terms
Taxes/allowances
Basis: Water Depth
0 - 200m
16.67%
200 - 500m
12.00%
500 - 800m
8.00%
800 - 1000m
4.00%
> 1,000m
0.00%
Taxes
Petroleum Profits Tax rate
Rates
50.00%
Investment (Initial) Allowance/Credit
1993 PSCs - Tax credits
Others - tax allowance
Rates
50.00%
50.00%
Capital (Annual) Allowance
Rates
Year 1 - year 4
20.00%
Year 5
19.00%
retention
1.00%
Crude oil & Condensate
Avg. Prod, BOPD
Deepwater
Avg. Prod, MMSCFD
Deepwater
< 50,000
5.0%
=< 500 MMSCFD
5.0%
50,001 - 100,000
12.5%
> 500 MMSCFD
12.5%
> 100,000
18.5%
Tax Rates
Hydrocarbon tax
Company income Tax
Capital (Annual) Allowance
Source: Osten Olorunsola PIB Technical Sub Committee
Condensate from natural gas
Avg. Prod, BOPD
Deepwater
=< 50,000 BOPD
5.0%
> 50,000 BOPD
12.5%
Rates
25.00%
30.00%
Rates
Year 1 - year 4
20.00%
Year 5
19.00%
Tax credits / Allowances replaced by retention
production
allowance under the proposed terms
5
2
Natural Gas
1.00%
PIB….Fiscal Comparison – Deepwater PSCs
Tax rates and other allowances
Current Terms
Taxes/allowances
Proposed Terms
Taxes/Allowances
Production Allowance:
Crude oil & condensate:
Lower of $15/bbl
or 30% of OSP
Lower of $3/bbl
or 30% of OSP
Natural Gas:
Lower of 30% of gas value
or $1.0/MMBtu
Lower of $0.50 MMBtu
or 30% of gas value
Condensate from Natural Gas:
Lower of $20/bbl
or 30% of OSP
Lower of $5/bbl
or 30% of OSP
5
3
Source: Osten Olorunsola PIB Technical Sub Committee
0 - 250 MMBbls
> 250 MMBbls
0 - 3000 bcf
> 3000 bcf
0 - 300 MMBbls
> 300 MMBbls
OTHERS
• Repeals
• Issues and Main Concerns
5
4
Existing laws that will be repealed upon passage of
PIB into law: s.354

Associated Gas Re-injection Act, CAP A25, Laws of the Federation of Nigeria 2004

Motor Spirits (Returns) Act, CAP M20, Laws of the Federation of Nigeria 2004

Petroleum Act, CAP 10 Laws of the Federation of Nigeria 2004

Petroleum Products Pricing regulatory Agency (Establishment) Act, 2003

Petroleum Equalization Fund (Management Board, etc) Act, CAP P11 Laws of the Federation of Nigeria
2004

Petroleum (Special) Trust Fund Act, CAP P14 Laws of the Federation of Nigeria 2004

Petroleum Technology Development Fund Act, CAP P15 Laws of the Federation of Nigeria 2004


Deep Offshore and Inland Basin Production Sharing Act, CAP D3 Laws of the Federation of Nigeria
2004. Except for section 16 sub-sections 1 and 2
Petroleum Profits Tax Act, CAP P13 Laws of the Federation of Nigeria 2004
NB:The NNPC act, NNPC Projects Act and NNPC amendment act shall be deemed to be repealed on the
date that the Minister signifies by legal notice in the gazette that the assets and liabilities of the NNPC are
fully vested in successor entities. For Subsidiary legislations – see s.354(3)
Issues and major concerns:
TRANSFER OF STAFF:

There is a fundamental difference in the transfer of staff for staff of DPR and PPPRA ,
from that of NNPC.





Subsection 3 PIB Provision: From the date of vesting of the assets and liabilities of NNPC in the
National Oil Company (NOC), staff performing functions relating to those assets and liabilities shall be
regarded as having transferred services to the National Oil Company. Contrast this with that of DPR
and PPPRA
All staff with duties relating to upstream operations of the DPR in the Ministry of
Petroleum Resources shall be deemed to have transferred their services to the Upstream
Petroleum Inspectorate (UPI) on terms and conditions no less favourable than those
previously obtained
From the effective date, the staff of the Petroleum Products Pricing Regulatory
Authority (PPPRA) shall be deemed to have transferred their services to the
Downstream Petroleum Regulatory Agency (DPRA) on terms and conditions no less
favourable than those previously obtained
From the date of vesting of the assets and liabilities of the NNPC (in the NOC, NGC,
and the Management Company) the staff performing the functions relating to those
assets and liabilities shall be regarded as having transferred their service
Any transfer of services by virtue of above provisions shall be regarded as continuous for
the purpose of pension and gratuity
Issues and major concerns:
TRANSFER OF STAFF cont’d :


Arising from our broad policy thrust and the fundamental difference in the transfer of
staff for staff of DPR and PPPRA , from that of NNPC. We demand that:
The bill only mentioned the staff of the NNPC, Department of Petroleum Resources
and the Petroleum Products Pricing Regulatory Agency (PPPRA) but silent on the
subsidiaries of the NNPC, such as NAPIMS, PPMC and the refineries among others.
Subsections 1, 2 and 6 clearly captured pension and gratuity of the staff of DPR and
PPPRA.
a. The bill should also take care of the issue of transfer of staff in NNPC subsidiaries, such
as NAPIMS, PPMC and the refineries
b. None of the staff that transits shall be asked to leave service until a minimum of five (5)
years after transition.
c. After the Five (5) years, the union must be involved in reorganisation/rightsizing cum
negotiation of exiting staff
d. Staff, who transit, shall transit with their union status.
Issues and major concerns: cont’d
Powers of the Minister: The powers of the Minister under the PIB are excessive and capable of
destroying the laudable objectives of the PIB. The wide powers given to the minister of
petroleum to make regulations on practically all issues including (i) gas flaring (ii)
distribution of the revenues from the Petroleum Host Communities Fund
(iii)recommendations of all persons to be appointed into all boards in the PIB(iv) power to
send persons into prison (v)determining royalties and rentals.
Equally worrisome is that this PIB grants the minister of petroleum the sole powers to
reform NNPC and associated entities even when the Privatisation and Commercialisation
Act (1999) gives the National Council on Privatisation and its secretariat, the Bureau of
Public Enterprises, this responsibility. These powers include so many discretionary powers.
These wide powers run counter to the following objectives of the PIB:
 Create efficient and effective regulatory agencies;
 Promote transparency and openness in the administration of the petroleum resources of
Nigeria
 Create a conducive business environment for petroleum operations;
 Enhance exploration and exploitation of petroleum resources in Nigeria for the benefit
of the Nigerian people
Issues and major concerns: cont’d
Powers of the Minister cont’d:
Accordingly we demand that:

The appointment and removal of the chief executives and Board members of the Upstream Inspectorate,
Downstream Petroleum Regulatory Agency, the National Oil Company, the Asset Management
Corporation should follow the process of appointment for other regulatory agencies such as the National
Electricity Regulatory Commission (NERC) or Nigerian Communications Commission (NCC) ;

The appointment and removal should be ratified by the Senate;

The appointment must be for a specific term (of Four years) and renewable for another term;

The appointment must be through competitive process of selection and open to all qualified Nigerians
either home or abroad;
Appointment to all boards of institutions in the PIB should go through the same process as outlined
above
Section 6 (2) PIB Provision: The minister may in writing delegate to any other person or institution any
power or function conferred on him by or under the Act except the power to make orders and regulations .
We think this subverts every other provision in Section 6 (1). We demand that if the Minister will delegate
his/her power or function, such delegation must be subjected to the following:


The person/delegate should have experience on any of his/her duty relating to the institution;
Duties not related to the functions of any of the institutions outlined in the Act/Bill should be delegated
to any officer not less than a director with sufficient knowledge about the subject matter of delegation.
Issues and major concerns: cont’d
Powers of the Minister cont’d :
Section 7 Right of Pre-Emption.



Section 8. Regulations (5) PIB Provision: The Minister may not publish at the same time or
in the same manner the notice of all matters referred to in subsection (4) of this section;
(6). PIB Provision: Notwithstanding the provision of subsection(2) of this section, the
Minister may, due to the exigency of the circumstances make any regulation without
conducting an inquiry, where he deems it necessary to do so.
We demand that : a. Subsection 5 & 6 should be expunged from Act because of the
tendency of their being subject to abuse and discretionary.
Section 13. Establishment of the Upstream Petroleum Inspectorate


Subsection (4) PIB provision: The Inspectorate shall be structured into departments, as its
board, with the approval of the Minister, may from time to time deem appropriate for the
effective discharge of functions under this Act.
We demand that: The phrase “with the approval of the Minister,” should be expunged from the
paragraph. The board of the Inspectorate should be responsible for its actions and inactions without the
Minister’s interference
Issues and major concerns: cont’d
Powers of the Minister cont’d :
Section 166 of the PIB Provide that: Prior to vesting of the assets and liabilities of the
NNPC on the NGC Plc, the Minister may give to the Board of Directors of NNPC
directions in writing and the BOD shall comply.
We demand that : This section should be expunged as it negates the whole essence of the Bill,
as the Minister is given all power to do and undo.
Observation: The PIB does not state which assets and liabilities will be vested with the NOC,
but it would seem likely that NPDC operated assets may be among them as well as the
country’s refineries. In the PIB, there is no mention of the fate of Production Sharing
Contracts, management of which currently sits with NAPIMS. We understand that these
may be allocated to the new NOC, rather than NPAMC on the basis that NNPC is
currently the concession holder on PSC blocks and the IOCs are the contractors. in section
166,
These matters may also include labour matters.
The End



There are so many other changes in the PIB such as the divestment of
shares of the NOC, NGC, Presidential Power to Grant Licenses and
Leases under section 191 (which inconsistent with the transparency
objectives), power to accept gift by agencies in the PIB etc.
So , I urge you to obtain a copy of the PIB and read it for your self.
Avoid reading the PIB through the opinion of others.
Nevertheless, PENGASSAN working with NUPENG and
FORSTER/CPPA will be organising an interactive session on PIB on
the 13th and 14th of November 2012. Please ensure that you attend and
participate effectively.
Thank you for your attention!