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PIB 2020: NNPC To Become Commercial Coy, As Two New Regulators Created

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In an effort to correct the anomaly with regulatory overlap in the management of Nigeria’s oil and gas industry, the Petroleum Industry Bill (PIB) 2020 has created two new regulatory agencies with clearly defined regulatory space and specifically assigned the Nigerian National Petroleum Corporation as a commercial entity, renaming it the Nigerian National Petroleum Company Limited.

The two new regulators to be known as the Nigerian Upstream Regulatory Commission and the Nigerian Midstream and Downstream Petroleum Regulatory Authority, shall be responsible for the technical and commercial regulation of upstream petroleum operations and the technical and commercial regulation of midstream and downstream petroleum operations respectively.

According to the bill which is presently before the National Assembly, the functions of the Authority shall be to regulate operations of petroleum liquids, domestic natural gas, export natural gas and determine appropriate tariff methodology for processing of natural gas, transportation and transmission of natural gas, transportation of crude oil, and bulk storage of crude oil and natural gas.

It shall also provide pricing and tariff frameworks for natural gas in midstream and downstream and advise the government and other stakeholders on commercial matters relating to tariff and pricing frameworks. This implies that the Authority will be responsible for advising the market and the public on fuel pricing template following the deregulation of the downstream sector.

The Authority is also responsible to grant, modify, extend, renew, suspend, cancel, reissue or terminate licences, permits and authorizations for midstream and downstream petroleum operations as well as monitor and enforce compliance, among others.

Similarly, the Upstream regulator shall be responsible for conducting oil bid rounds, issue permits and other authorizations as may be necessary for technical activities such as seismic and drilling operations, design, construction and operation of facilities for upstream petroleum operations, in an obvious takeover of the Department of Petroleum Resources (DPR) responsibilities.

It is also the Commissions responsibility to supervise and ensure accurate calibration and certification of equipment used for metering upstream petroleum operations and issue certificates of quality and quantity for petroleum produce, undertake evaluation of national reserves and develop policies for prudent reservoir management practices.

The new regulator will also be responsible for establishing, monitoring, regulating and enforcing health, safety and environmental measures and standards relating to upstream petroleum operations.

On the NNPC becoming a commercial entity, the Bill stated that “The Minister shall within 6 months from the commencement of this Act, cause to be incorporated under the Companies and Allied Matters Act, a limited liability company, which shall be called Nigerian National Petroleum Company Limited (NNPC Limited).

It said at incorporation, ownership of all shares in NNPC Limited shall be vested in the government and held by the ministry of finance incorporated on behalf of the government, adding that “NNPC Limited and any of its subsidiaries shall conduct their affairs on a commercial basis without recourse to government funds”.

All staff, assets, interests and liabilities of the NNPC will be transferred to NNPC Limited or its subsidiaries with the federal government bearing the cost of winding down the assets, the bill stated.

As against the existing practice, where the NNPC published its first audited financial report after 43years of existence, the new law requires NNPC Limited to publish an annual audit reported to be conducted by an independent and qualified auditor.

You may also be interested in: NNPC Audited Financial Statements 2018

The new NNPC will by law be required to carry out petroleum operations on a commercial basis and to lift and sell royalty oil and profit oil for commercial fees, payable by government, at the request of the Commission and pay the corresponding revenue to accounts indicated by the Commission.

It shall, at the request of the Commission, act as agent of the Commission for the management of production sharing contracts for a fee, based on the profit oil share or profit gas share to Government under such contracts between NNPC Limited and the Commission.

It is expected that this will help the NNPC measure up with the benchmarking indicators of the Natural Resource Charter (NRC). Over the years, NNPC has consistently underperformed against the NNRC’s global best practice benchmark for optimal National Oil Company (NOCs) performance. The benchmark prescribes that national oil companies be ‘accountable’ to their citizens and government, with ‘well-defined mandates and an objective of commercial efficiency’.

A comparative analysis done by the NNRC of NOCs across the world, in line with Precept 6 of its Benchmarking Exercise Report (BER), placed NNPC amongst the least profitable NOCs compared with its peers such as Brazil’s Petrobras, Norway’s Equinor and Malaysia’s Petronas. The research showed that the NNPC was one of the world’s poorest performing due to the lack of clear commercial mandate in its enabling laws.

 

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