Petroleum industry bill 2008 - combustible but curable

Written by Bamidele Aturu Esq
Tuesday, 28 July 2009 18:02
Introduction: The Petroleum Industry Bill pending before the National Assembly has been greeted with all sorts of controversies. There have been allegations and counter allegations by vested interests on the real motives for the Bill and whether or not some persons have been commissioned to kill the Bill. We are not concerned with these controversies but rather we aim at doing a broad examination of the Bill in order to raise policy issues that may help in improving the Bill as presented.

Structure of the Bill
The Bill is a massive, ponderous text of 495 sections divided into ten parts. The Bill deals with Fundamental Objectives, Institutions, Upstream Petroleum Joint Ventures, Downstream Licensing, Downstream Products, Indigenous Oil Companies and Nigerian Content, Health, Safety and Environment, Fiscal Provisions, Repeals and Transitional Provisions and Interpretation. It is proper for a modern legislation to state clearly the objectives underpinning it as the Bill has done. It is a practice that ought to be encouraged.The decision to bring together all the institutions in the petroleum industry might have been informed by the need to have all the laws relating to the industry in one single text for accessibility. Nevertheless, the size of the text could have been considerably reduced if the administrative provisions relating to the institutions such as pension, restriction on suits, funds, power to accept gifts/or to borrow, power to sue and be sued, disqualifications, secretary, other staff, service, indemnity et cetera which are similar if not identical are not repeated for each and every one of the institutions. For example the provision on disqualification could just be in one section for all the different institutions. It could read thus: ‘No one shall be appointed as a member or head of any of the Institutions created by this Act, if….’ instead of repeating a similar provision for each and every institution created by the Bill. The Bill can benefit from some technical surgery in this regard. The processes for the different kinds of licenses also need not be repeated since they are similar.The language of the Bill is refreshingly gender sensitive. One does not get the impression that the Bill is made only for the males as the drafters use the two pronouns, ‘he’ and ‘she’ generously, although in many of the sections gender neutrality is possible and would have been preferable.

Fundamental Objectives of the Bill
The objectives generally appear well reasoned. It includes freedom to apply for grant or award of leases and licences for the exploration and production of petroleum. The Bill also states that the management of petroleum resources shall be conducted in accordance with the principles of transparency, good governance, and sustainable development of Nigeria. It makes a commitment to ensuring community development, and participation of Nigerians in the industry fundamental objectives. The government shall also ensure compliance with international standards on the protection of the environment. These objectives are doubtless laudable. However, the restatement of the sovereignty of the Nigerian state over petroleum on behalf of Nigerians is bound to generate its own controversy. Agitation for resource control has always focused on attacking provisions of this nature. As recently as 2005, the National Political Reform Conference recommended that communities should be involved in the ‘management and control of the resources in their communities by having assured places in the Federal Government mechanisms for the management of the oil and gas exploration and marketing’. The absolute sovereignty of Nigeria over pertoleum is bound to be an explosive issue during the readings of the Bill.

Multiplicity of Institutions
The long title of the Bill makes it explicit that the Bill sets out to create institutions and regulatory authorities for the Nigerian petroleum industry. The Bill proposes six or seven institutions, namely: National Petroleum Directorate (s. 12); Nigerian Petroleum Inspectorate (s.37); Petroleum Products Regulatory Authority; National Petroleum Assets Management Agency (s. 113); Nigerian Petroleum Research Centre (s.148); National Frontier Exploration Service (s.174); Petroleum Technology Development Fund (s. 223) and Petroleum Equalisation Fund (s.199).Many of these bodies are existing under various Acts. It is therefore tidier that they should all be included in just one statute for ease of reference. Here we are referring to Petroleum Equalisation Fund, Petroleum Technology Development Fund and to a limited extent the

Petroleum Products Regulatory Authority.
The question can nevertheless be asked whether some of the bodies are not a mere replica of one another or whether the functions of the institutions cannot be conveniently performed by just three institutions. With the National Petroleum Directorate (NPD) it is difficult to fathom what the Ministry of Petroleum will be doing. Indeed section 13(s) of the Bill is indicative of the overlapping functions of some of the institutions. The paragraph provides that the NPD shall ‘promote compliance with all legislation by all participants and stakeholders in the industry’. That exactly is the function of the Nigerian Petroleum Inspectorate unless one is interested in the needless hairsplitting exercise of distinguishing between enforcing and promoting compliance with the laws. The country can conveniently do without the National

Petroleum Directorate with its full complement of bureaucracy and Board.
At a time when the proposal to establish a Petroleum University is at an advanced stage, it is difficult to see the necessity for the Nigerian Petroleum Research Centre. The functions of the National Petroleum Assets Management Agency and the National Frontier Exploration Service can be undertaken, indeed should be undertaken by the Ministries of Finance and Petroleum Resources respectively. There is a need to spend some more quality time in streamlining these institutions. On a technical note the objects and functions of the institutions can also be harmonized and reduced in order to reduce the size of the Bill. Creating more bureaucracies has not proved an effective solution to our problems in this country if the truth must be told.

Funding of the Proposed Institutions
Section 28 of the Bill provides that a portion of fiscalised crude or gas shall be paid into an account of the Directorate to be shared by the proposed institutions for the purpose of their operations. This provision is likely to be misunderstood by many. In the first place, the fiscalised crude or gas proposed to be paid into the account of the Directorate is supposed to be part of the revenues accruing to the Federation which ought to be paid into the Federation Account. Thus, section 28 of the Bill may be declared unconstitutional if challenged in a court of law. Second, there is no justification for creating bodies or institutions that cannot be funded in the normal course of governance. The extra-governmental funding proposed reflects a tendency to spend money accruing from the upstream sector before any serious accounting or reflection on how to spend the money is done. It is as if these institutions are being created simply because we can get the oil companies to fund them. That is not right at all.

Restriction on Suits against the Proposed Institutions
The Bill follows in the Nigerian tradition of either creating special limitation in respect of the period within which suits can be filed against statutory bodies or of requiring that pre-action notice be given to such bodies before they can be sued. Although the Supreme Court has repeatedly affirmed the constitutionality of such provisions and laws, there is little doubt that they restrict rather than grant access to the courts. On this score such provisions are objectionable. The National Assembly would be rendering an invaluable service to this country if it crosses out such provisions which dot the present Bill. Section 61 of the Bill contains the two types of restrictions.

Resolution of Disputes
Some of the new institutions notably the Inspectorate and the Petroleum Products Regulatory Authority are saddled with resolving disputes between persons coming under its operations (s. 68). The Bill stipulates that disputes cannot be referred to the Inspectorate unless parties have attempted to negotiate. One can understand the desire to ensure that matters are conciliated to prevent needless recourse to courts with the attendant acrimony and delay. But the point is that these bodies are not suited for settling disputes. It would have been preferable to have a provision which makes it mandatory for parties to attempt to resolve disputes by conciliation and arbitration before having recourse to the courts. In that case the arbitration would be governed by the relevant Arbitration and Conciliation Act. There is the tendency for the bodies to lose focus if this aspect of the Bill is not tinkered with. It is also needless to state as is done in section 72of the Bill that parties aggrieved by the determination of the bodies can seek judicial review. That is a right conferred by the Constitution that needs no restating in an inferior statute.

Transparency and Openness
The Bill makes serious and noteworthy attempts at granting public access to the activities of the proposed institutions. Sections 306 and 344 are typical in this regard. Section 306 makes it clear that registers of technical licences issued under sections 301 and 302 should be made to members of the public who can also receive certified true copies of the documents upon payment of the prescribed fee.Section 259 voids confidentiality clauses in respect of royalties, bonus, taxes and any other financial matters that directly affect the revenues derived by the State from exploration and production of petroleum. This provision should enhance accountability and openness. At the present time, most production sharing agreements and Joint Venture Agreements between the NNPC and the oil companies are shrouded in baffling secrecy. The provision in section 259(3) which states that the determination of the Directorate as to whether a piece of information is proprietary and so outside the openness clause in section 259 shall be final is however likely to detract from the benefits to be derived from the clause. The Bill should attempt to lay down objective criteria for determining such an important question.

Privatisation of NNPC
Section 136 of the Bill creates the Nigeria National Petroleum Company Limited to succeed the NNPC and inherit the latter’s assets and liabilities. At inception ownership of the Company shall be vested in the Federal Government, but after two years of its incorporation government may divest its interest in the company and sell same to members of the Nigerian public through the Nigerian Stock Exchange. It appears that the privatization of the Corporation is being done outside the existing system supervised by the National Council on Privatisation and under a different statute. The reason for using this procedure is unclear, but it may raise concern as to the genuineness of the ultimate privatization of the corporation, particularly as the petroleum industry is a major sector of the economy which privatisation section 16 of the Constitution forbids.

Redundant Provisions
Provisions relating to the incorporation of Joint Ventures as Limited liability companies are largely redundant as the issues are already covered by the Companies and Allied Matters Act. We have in mind such provisions to the effect that the Board of the companies shall be accountable to shareholders, act in good faith, treat shareholders equally et cetera (s. 252). The same consideration applies to the specified functions of the Board and the rights of shareholders in sections 253 and 254 respectively. Section 408 which deals with prohibition of forced labour and child labour and also the upholding of the right to collective bargaining are matters which have been adequately dealt with in our Labour Statutes. Repeating them in the Bill may lead to the unintended result that the operators may carry on as if the other provisions in the Labour laws which are not repeated are to be disobeyed or do not carry the same weight which is not the case.

Indefensible Environmental Remediation Levy
States and Local Governments are required to pay 1% and 0.5% of their annual derivation allocation into Remediation Fund under the custody of the Inspectorate to restore the environment in cases of dames caused to the environment as a result of sabotage (s. 286). This proposal is likely to be contested by the States and the Local Governments as making them vicariously liable for the crime of sabotage. This is a fundamental negation of our criminal jurisprudence. The Bill does not make any provision for refund in any year when there is no act of sabotage. No reason was also proffered for not making the Federal Government to pay any percentage of the royalties received by it for remediation in cases of sabotage. After all, the Federal Government controls the security agencies that ought to be responsible for preventing sabotage in the first place. There is no justificato for the levy. It should be deleted from the Bill. However, the financial provision required in section 285 of licensees for remediation is justifiablesince it is more or less like a caution fee that may be returned to the licensees if not used up. It is hoped that it would make the activities of operators more environment-friendly.

The Bill, the Environment and the Communities
The proposal in section 283 that every licensee shall within three months of the coming into effect of the Bill submit an environmental programme or an environmental quality management Plan dealing with such specific matters as its environmental objectives, commitment to comply with relevant laws and regulations and also remediation of environmental degradation is clearly well motivated. It is without doubt based on an awareness of the devastating effect of untrammeled exploitation of oil and gas on the environment. Nevertheless, the provisions inexplicably and inexcusably exclude the communities which bear the brunt of environmental degradation from its purview (see also 405(3). Indeed section 284 categorically states that the Inspectorate shall ‘consult with the Federal Ministry of the Environment and the State Ministries of Environment within which the licence or lease is situated and with any other relevant bodies within which the licence or lease is situated’. Communities are conspicuously omitted. Modern global thinking in environmental protection recognizes that without the communities environmental plans tend to be shallow and protective only of the interests of a few local collaborators of business concerns. This aspect of the Bill needs to be reworked to make it align with the interest of the oil-bearing communities.The processes of awarding licenses are by competitive and open bidding process. This speaks to years of abuse and cronyism when mining and prospecting licences are given to people who lack the technical knowhow or the means to drill boreholes near the lagoons (s. 270). It is heartwarming that the Bill specifically prohibits discretionary awards (s. 270(2)).

Some Positive Features of the Bill
The Bill has some useful or rather potentially (as all depends on enforcement) useful provisions. These include, among others, consumer protection (s.386), provision of service to customers (s. 387), competition and market regulation (s.391), encouraging indigenous participation in the petroleum sector (ss398-402), Nigerian Content (ss. 403-404). Indeed the Bill sets minimum limits for Nigerian board membership and managerial and professional cadre.

Conclusion
The Bill seeks to bring together the provisions of many laws regulating the petroleum industry. That may make the legal framework more accessible if the technical issues raised above are dealt with. It is also hoped that the substantive concerns raised here will inform a reconsideration of the relevant provisions. If this is done the Bill may help address certain aspects of the industry. As may be apparent, we have left out a detailed consideration of the fiscal provisions in sections 414-432 or so as they are essentially contained in existing laws that are now more or less codified in the Bill. Ditto the provisions on licences and leases.As we noted earlier implementation has always been a problem with us. One may craft the best law but if the will to enforce it is lacking it would not be worth more than the paper on which it is written. On a technical note, we are of the opinion that if some of the drafting suggestions we made in this presentation are taken into consideration the Bill can be pruned to about half its present prolix length.