The oil and gas sector is a crucial part of the Nigerian economy, perhaps even more crucial than most people realize. Crude oil amounts to 90% of the country’s current export earnings, so this sector is the mainstay of our economy.
How we have been able to meet up with export demands over the years isn’t also far-fetched. Nigeria is blessed with the largest oil reserve in sub-Saharan Africa, yet for decades, the sector has been plagued due to numerous factors, some of which include bad leadership, corruption, environmental degradation, lack of required refining capacity, sabotage, pipeline destruction, and the likes.
Since the 1960s (after the country gained its Independence), several administrations have made efforts but failed to pass an all-inclusive Petroleum Industry Bill (PIB). All attempts made to do so in the past have resulted in repeated failure. Evident inadequacies in prior Laws and Acts all led up to the development of the new PIB.
On 28th September 2020, President Muhammadu Buhari sent a new PIB to the National Assembly where the Senate, alongside the House of Representatives, must sign off on the bill before passing it as Law.
The new bill aims to introduce necessary changes to the governance, administration, and fiscal structure of the Nigerian oil and gas sector in a bid to ensure transparency, strengthen government bodies and attract more investment capital.
Let’s now consider how this new bill could affect potential investors (foreign and local alike), as well as the average Nigerian.
Implications of the New Petroleum Industry Bill
The new PIB covers many vital sectors, but we would be considering the ones briefly at the forefront in this section of the article.
- Based on pre-existing laws, a company could operate in more than one of the three oil sectors (upstream, midstream, and downstream). A company involved in upstream activities (production of crude oil) can also engage in the processing of its other substituents (midstream/downstream). But according to the new PIB, a company shall not be involved in more than one sector, and if at all they are to be involved in more than one, a separate company would have to be registered for each stream.
- Companies engaged in upstream production will now run a dual income tax regime: Hydrocarbon Tax (HT) and Companies Income Tax (CIT). The CIT rate would remain in line with the provisions of the CIT Act, but the HT rate, on the other hand, will be dependent on the area of operation and the period the mining lease was issued.
- The bill also plans for selling off shares in NNPC; as such, NNPC is on its way to becoming a commercial, profit-driven national petroleum company independent of the government and would undergo periodic auditing.
Fallout Of The New Petroleum Industry Bill
While the new PIB offers better clarity and structuring of the oil and gas sector, its many restrictions and taxation could deter potential investors.
There is currently intense tax competition between countries worldwide to attract investors; thus, more work has to be done in this regard so the country doesn’t lose investors.
Another vital role the new bill plays is addressing the shortcomings of NNPC through sustainable public-private relations. This would promote better transparency in the administration of petroleum resources, hence reducing the rate of corruption and fraudulent activities.
Likewise, the new PIB has more provisions that would protect our environment from the harmful effects of oil spillage.
The bill passed its first reading in the Senate on 1st October 2020, and although mixed reactions still trail its intended release, the Speaker has promised to pass the bill as quickly as possible, but in his words, “We would not sacrifice thoroughness at the altar of speed.”