On Monday, President Muhammadu Buhari signed the Petroleum Industry Bil into law, ending several years of advocacy for reform in the Nation’s petroleum sector.
Before its final passage by the National Assembly in July, the bill was first passed in 2018 as the Petroleum and Industry Governance Bill, but the President denied it assent over constitutional concerns.
While the new law raises hopes of more investment in Nigeria’s oil and gas industry, it might trigger serious challenges such as militancy and fuel price hike.
NIGER DELTA MILITANCY
Unlike the 13percent currently committed to oil-rich states as derivation royalty, the bill provides for the allocation of 3percent to host communities. This will be deducted from the annual operations expenses of oil companies allocated to the Host Communities Development Trust.
During the passage by the National Assembly, stakeholders in Southern Nigeria with the Pan-Niger Delta Forum and other groups in the South-South, South-West and South-East criticized the arrangement. While the NASS Joint Committee on Petroleum proposed 5percent, Nigeria Delta Host Community Agitators demanded 10percent.
The Niger Delta Revolutionary Crusaders (NDRC) also threatened to resume attacks on oil installations in the region if the royalty was not increased. With the new law in effect, the Nigerian Government may have the resurgence of Niger Delta militancy to deal with.
LOOMING FUEL PRICE HIKE
In July, Mele Kyari, the Group Managing Director of NNPC, said Nigeria could not afford to implement the market reality in the crude oil industry because the product could sell for N256 per litre if the exchange rate was put into consideration.
“What we sell today is N162, so the difference is at a cost to the nation. The difference comes back to as much as N140 billion to N150 billion cost to the country monthly,” he had said.
“As long as the volume goes up, that money continues to increase and we have two sets of stress to face: the stress of supply and stress of foreign exchange for the NNPC.”
The new law is about to introduce more commercial features to the operations of the NNPC. The Board of NNPC Limited is to be constituted in accordance with the provisions of the Companies and Allied Matters Act (‘CAMA’) and the company’s Articles of Association.
Like every private investor in the oil sector, NNPC will have to prioritize making more profit and reducing the cost incurred on financing “under-recovery” of oil price. When this happens, fuel price is likely to go up.
However, the new law is expected to make the Nigerian environment more conducive for foreign investment and increase the country’s chances of producing more than the current benchmark of 100 million litres per day.
By transferring the power to grant, issue, modify, cancel, or terminate all licences, permits and authorisations for midstream and downstream petroleum operations, from the Minister of Petroleum Resources to the Nigerian Midstream and Downstream Petroleum Regulatory Authority, the Petroleum Industry Act is expected to boost the issuance of licences to potential investors.
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