ACC 872: OIL & GAS ACCOUNTING

Assignment Submitted

By

Austin Sams Udeh

VPG/PHD/ACC/22/8790

Analyse the Petroleum Industry Act, 2021; examine the legal

requirements, evaluate the benefits and drawbacks, and assess the
response of Nigerians to the law.
Table of Contents
1.0 Introduction ............................................................................................................. 3
2.0 Analysis of Petroleum Industry Act, 2021 .............................................................. 4
2.2 Benefits of the Petroleum Industry Act 2021 ......................................................... 7
2.3 Drawbacks of the Petroleum Industry Act, 2021 .................................................. 9
2.4 Response of Nigerians to the Petroleum Industry Act, 2021 ............................. 11
3.0 Conclusion ............................................................................................................. 12
4.0 References ............................................................................................................. 13
Appendix 1: NOTOBLE RESPONSES TO PIA, 2021 ................................................................ 14
1.0 Introduction
Oil and gas is the mainstay of Nigeria’s economy. The industry contributes about 10% to
the country’s gross domestic product (NBS, 2022) and revenue from oil and gas export
represents around 86% of Nigeria’s total exports revenue. In order to reform and reposition
the Nigeria’s lucrative but chaotic oil and gas industry, in the last 20 years, successive
governments have attempted unsuccessfully to pass an all-encompassing bill to overhaul
the industry in line best international practices. As one of the key achievements of the
last administration of under President Muhammadu Buhari, on 16 August, 2021, the long-
awaited Petroleum Industry bill was signed into law, hence, Petroleum Industry Act, 2021.

The PIA 2021 has been touted by many stakeholders as one of the most audacious
attempts to overhaul the petroleum industry in Nigeria. Among others, the Act seeks to
provide robust legal, administrative, governance, regulatory and fiscal framework for the
industry. The Acts was also contemplated to reshape community relations, boost
investment, and target reduction in waste and corruption that has bedevilled the
industry.

Despite being a major source of revenue, the oil sector lags other sectors in terms of GDP
contribution (NBS,2021). It is generally believed that if diligently and effectively
implemented, the PIA promises to help facilitate Nigeria’s economic development by
attracting and creating investment opportunities for local and international investors -
with Nigeria as Africa’s largest market, with a young, growing and vibrant population.
The country population is forecast to grow by an average of 2.6% per annum (World
Bank, 2020). This population growth is expected to fuel greater energy demand.

This paper takes a comprehensive review of the PIA from legal requirements, key benefits,
drawbacks and to response of Nigerians to the law.

1.1 Nigeria Oil and Gas Industry Structure and Value Chain
Structurally, the oil and gas industry value chain are broadly categorised into upstream,
midstream and downstream activities with detailed value adding activities shown in
figure 1 below.

Figure 1: Nigeria Oil and Gas Value Chain

2.0 Analysis of Petroleum Industry Act, 2021
The Petroleum Industry Act, 2021 (PIA, 2021) is the Act that provide legal, governance,
regulatory and fiscal framework for the Nigeria petroleum industry, the development of
host communities, petroleum taxes and for related matters in Nigeria. The Act, which is
divided into five (5) Chapters and three hundred and nineteen (319) Sections, contains
landmark provisions which include the restructuring of the regulatory framework,
commercialization of the Nigerian National Petroleum Corporation, introduction of new
fiscal regimes for operators in the industry, social and economic benefit for host
communities and so on, professes lofty objectives including global competitiveness and
development of strategic infrastructure. The Act repealed some old Acts governing the
industry.

The Key objectives of the Acts

• Enhance exploration, exploitation and production of oil and gas: The Act aims
to eliminate funding bottlenecks, increase investments by comprehensive
deregulation of the downstream sector to make it attractive to investors, and
increase acreage available for investment by reclaim acreage that is not being
developed by the current owners.
• Increase domestic gas supplies: The Bill provides that all existing and future
petroleum mining lessees shall meet their domestic gas supply obligations for the
specified periods as the gas will be used for power generation and industrial
development. Failure to meet this obligation attracts a stiff penalty.
• Create a peaceful business environment: The Act target to align interest of the
host communities to those of the oil companies and the government. The
Petroleum Host Communities Fund, which will be funded with 10% of the net
profit of the oil companies operating in the communities, shall be used to
develop the economic and social infrastructure of the host communities.
Communities will forfeit contributions in the Fund when vandalism or unrest
causes damage to upstream facilities.
• Fiscal Framework for increased revenue: The Act establishes a progressive fiscal
framework that encourages further investment in the industry whilst increasing
accruable revenues to government. The Bill simplifies collection of government
revenues from the oil assets, increases the share of royalties in the case of high
oil prices, etc.
• Create a commercially viable National Oil Company: The Act provides for the
full commercialization of NNPC and the creation of other institutions that will
ensure a restructuring of the sector for improved efficiency.
• Deregulate petroleum product prices: The Act proposes the full deregulation of
the downstream oil sector. A number of the institutions will be responsible for
developing the infrastructure to support the sector, funding concessionaires and
facility management operators. The Petroleum Equalization Fund were repealed
in line with the development of the support infrastructure.

• Create efficient regulatory entities: The Act provides for the creation of two
major institutions to drive greater transparency and accountability.
• Create transparency: The Act makes public the terms of the licenses, leases,
contracts and payments in the petroleum sector transform the country from
being one of the most opaque oil industries in the world to one that sets the
standards of transparency.
• Promote Nigeria content: The Act has far‐reaching local content components.
No project will be approved without a comprehensive Nigeria Content Plan
including obligations of the investor to purchase local goods and services,
engage local companies, employ Nigerians, ensure knowledge transfer and
encourage Research and Development. The Nigeria Content Monitoring Board
will regularly verify compliance.

• Protect health, safety and environment: Every company requiring a license,

lease or permit in the upstream and downstream petroleum industry in Nigeria
shall conduct their operations in accordance with internationally accepted
principles of sustainable development which includes the necessity to ensure
that the constitutional rights of present and future generations to a healthy
environment is protected.

2.1 Review of Legal Requirements

2.1.1 Overview
The newly enacted PIA contains 5 chapters, 319 sections and 9 schedules dealing with
rights of pre-emption, incorporated joint ventures; domestic base price and pricing
framework, pricing formular for Gas price for the based industries; capital allowance;
production allowance and cost price ratio limit; petroleum fees, rents and royalty; and
creation of the Ministry of petroleum incorporated. Some of the specific PIA provisions
include the following among others.

2.1.1.1 Governance and Institutions Administration

The objective of new governance and institutions administration provisions is to ensure
good governance and accountability in the industry, creation of a commercially
oriented national petroleum company, and fostering a conducive business environment
for petroleum operations.

• Creation of Nigerian Upstream Regulatory Commission responsible for the technical

and commercial regulation of the upstream petroleum operations; and the Nigeria
Midstream and Downstream Petroleum Regulatory Authority (MDPRA) responsible for
the technical and commercial regulation of the Midstream and Downstream
operations in Nigeria. The Commission and Authority are exempted from the provisions
of any enactment relating to the taxation of companies or Trust Funds.

• Imposition of up to 1% levy on the wholesale price of petroleum products sold in the

country (0.5% each for the Authority Fund and Midstream Gas Infrastructure Fund).

• Incorporation of a commercial and profit focused NNPC Limited under CAMA within 6
months from commencement of the new law with ownership vested in the Ministry of
Finance Incorporated (and Ministry of Petroleum Incorporated) on behalf of the
 Federation to take over assets, interest and liabilities of NNPC. This Structure is expected
to pave the way for eventually sale of shares to Nigerians.

• Any assets, interest and liabilities note transferred to NNPC Limited will remain with
NNPC until extinguished or transferred to the government after NNPC shall ceased to
exist. Transfer and sale of the shares are subject to approval by the government and
endorsement by the National Economic Council.

• NNPC Limited will earn 10% of proceeds of the sale of profit oil and profit gas as
management fee while 30% will be remitted to Frontier Exploration Fund for the
development of frontier acreages in addition to 10% of rents on petroleum prospecting
licences and mining leases.

• The main objective is to promote the exploration and exploitation of petroleum

resources in Nigeria for the benefit of the Nigeria people and promote sustainable
development of the industry, ensure safe, efficient transportation and distribution
infrastructure, and transparency and accountability in the administration of petroleum
resources in Nigeria.

• Avoid economic distortions and ensure a competitive market for the sale and
distribution of petroleum products and natural gas in Nigeria; and avoid cross-subsidies
among different categories of consumers.

• The Commission is required to develop a model licence and model lease to include a
carried interest provision giving NNPC Limited the right to participate up to 60% in a
contract.

2.1.1.2 Host Communities Development

The main objective of provisions for host communities’ development is to foster
sustainable property within host communities, provide direct social and economic
benefits and enhance harmonious co-existence.

• Any company granted an oil prospecting license or mining lease an operating

company on behalf of joint venture partners (settlor) is required to contribute 3%-5%
(upstream companies) and 2% (other companies) of its actual operating expenditure
in the immediately preceding calendar year to the host community’s development
trust fund. This is in addition to the existing contribution of 3% to the NDDC. The fund is
tax exempt and any contributions by a settlor is tax deductible.

• Board of trustees and executive members of the management community may

include persons of high integrity and professional standing who may not necessarily
come from host communities.
• Available funds are to be allocated 75% for capital projects, 20% as reserved and 5%
for administrative expenses. However, a community will forfeit the cost of repairs in the
event of vandalism, sabotage and other civil unrest causing damage to petroleum
facilities or disruption of production activities.
2.1.1.3 Fiscal Framework
The key objective of the new fiscal regime is to establish a progressive fiscal framework
that encourages investment in the Nigeria petroleum industry, provide clarity, enhances
revenues for the government while ensuring a fair return for investors.

• FIRS to collect Hydrocarbon Tax of 15% - 30% on profited from crude oil production, CIT
at 30% and Education Tax at 2% which will no longer be tax deductible. The
Commission will collect rents, royalties and production shares as applicable while the
authority will collect gas flare penalty from midstream operations. Latee filing of tax
returns will attract N10m on the first day and N 2m for each subsequent day the failure
continues. A N20m fine is applicable to an offense where no penalty is prescribed.

• Generally, expenses must be wholly, reasonably, exclusively and necessarily incurred

to be tax deductible. However, a cost price ratio limit of 65% of gross revenue is
imposed for hydrocarbon tax deduction purposes, any excess cost incurred may be
carried forward.

• No tax deduction for head office cost while tax deduction of interest on monies
borrowed is subject to the satisfaction of the commission that the fund was employee
for upstream operations and the interest rates reflect market conditions.

• Royalties are payable at the rates of 15% for onshore areas, 12.5% for shallow water
and 7.5% for deep offshore and frontier basins 2.5% -5% for natural gas. In addition, a
price-based royalty ranging from 0%-10% is a payable to be credited to the Nigerian
Sovereign Investment Authority.

• Gas utilization incentive will apply to midstream petroleum operations and large-scale
gas utilization industries. An additional 5-years tax holiday will be granted to investors
in gas pipelines.

2.2 Benefits of the Petroleum Industry Act 2021

There is no doubt, that the enactment of the PIA is set a new dawn for the legal,
institutional and fiscal framework for the regulation of the nation’s oil and gas
industry. The Act ushers in some commendable innovations which include the
institutionalization of effective corporate governance, the establishment of a
strong regulatory framework, the commercialization of the NNPC and the
development of host communities among others. Some of the major benefits of
the PIA, 2021 include but not limited to the following:
• Institutionalization of Effective Corporate Governance: The PIA no doubt is
positioned to entrench effective corporate governance and proper
accountability in the nation’s petroleum industry. It is also geared towards the
creation of a commercially oriented Incorporated National Petroleum
Company, hence, the provision for the Nigerian National Petroleum
Corporation Limited (NNPC Ltd) is principally aimed at fostering a conducive
environment for petroleum operations in Nigeria. This is so because, before
2021, the NNPC as established under the NNPC Act 1997, now repealed,
operated as a corporation and not as an incorporated personality.
Accordingly, NNPC and some other institutions are now positioned so that
 their accountability, probity and commercial viability are somewhat
guaranteed.

• Streamlining and Strengthening the Institutional Framework for Effective

Regulation of the Industry: Prior to the enactment of the PIA, there existed
multiple institutional frameworks regulating different aspects of the oil and gas
industry in Nigeria with overlapping, uncoordinated, undefined and
unproductive responsibilities. Also, these institutions were minded by different
bodies, ministries and parastatals such as the Nigerian National Petroleum
Corporation, Federal Ministry of Petroleum Resources, Federal Ministry of
Environment, etc. Accordingly, with the PIA, 2021, the erstwhile duplicated
institutions like the Department of Petroleum Resources (DPR), The Nigerian
National Petroleum Corporation (NNPC),11 Petroleum Product Price
Regulation Agency (PPPRA) and Petroleum Equalization Fund among others
are now repealed, in other to provide a strong institutional framework for the
oil and gas industry, the PIA established only two (2) well- streamlined and
role-defined institutions: The Nigerian Upstream Regulatory Commission is
referred to as ‘The Commission” Statutorily, charged with the responsibility of
providing technical and commercial regulation for Upstream Petroleum
Operations and the Nigerian Midstream and Downstream Petroleum
Regulatory Authority ‘The Authority’ charged with the responsibility of
providing technical and commercial regulation for the midstream and
downstream petroleum operations in Nigeria. However, under the PIA, the
enormous power vested in the Minister of Petroleum resources has been
institutionalized as the same is now exercisable by the ‘Commission’ and the
‘Authority’ in line with the provisions of the PIA.
• Incorporation and Commercial Viability of NNPC Ltd: The PIA now provides for
the Incorporation of a commercial and profit-oriented or business-focused
NNPC Ltd. unlike under the Petroleum Act and the NNPC Act wherein NNPC
was strictly operated as a corporation. The newly incorporated NNPC Ltd is to
comply with the provision of the Companies and Allied Matters Act (CAMA)
relating to the incorporation of companies. Importantly, the PIA set a six (6)
months period reckoning from the date of the commencement of the PIA
within which the NNPC Ltd must be floated and that has been complied with.
Interestingly, the PIA vested the Government owned shares of NNPC Ltd in the
Ministry of Finance Incorporated and Ministry of Petroleum Incorporated and
the same is to be held on behalf of the Federation. Also, NNPC Ltd is statutorily
empowered to take over the assets, interests and liabilities of the NNPC. The
incorporation of NNPC Ltd and its commercial orientation/viability are indeed
worthy of commendation. However, whether or not the alter ego would
effectively manage the newly incorporated NNPC Ltd to achieve its economic
yearning and aspiration is something to watch out for as event unfolds.
• Provision for Development of Host Communities: One of the most promising
benefits of PIA is the provisions to foster sustainable development as well as
prosperity within the host communities. The PIA made provisions to ensure
direct social and economic benefit cum harmonious co-existence between
 holders of Petroleum Exploration and Prospecting or Mining Licences with their
host communities. Accordingly, companies holding or to whom Petroleum
Prospecting Licences, Mining Leases or any company operating on behalf of
a Joint Venture Partners are by the PIA required to contribute three per cent
(3%) of its actual operating expenditure in the immediate proceeding
calendar year to the ‘Host Community’s Development Trust Fund.’
Interestingly, the Fund is tax exempted and any contribution by a Settlor is tax
deductible. Importantly, Settlors are mandated to incorporate Host
Communities Development Trust, though communities will forfeit the cost of
repairs in the event of sabotage, vandalism and other restiveness or civil unrest
precipitating or causing damage to petroleum facilities, equipment or
disturbance of petroleum activities.
• Effective Fiscal Framework: Under the PIA, the percentage of deductibles and
hydrocarbon tax to be collected by the Federal Inland Revenue is clearly spelt
out and unambiguously specified. It is now well defined that the Federal Inland
Revenue Service is empowered to collect hydrocarbon tax of 15% to 30% on
profit accruing from crude oil production or exploration; Company Income Tax
at the rate of 30% and Education Tax at the rate of 2% which will no longer be
tax deductible. Similarly, the Commission is now the body charged with the
responsibility of collecting rents, royalties and production shares while the
Authority will collect gas flare penalties from the midstream operations. Again,
this clear-cut fiscal arrangement is also worthy of commendation as it has the
propensity to circumvent any form of institutional conflicts of uncertainty over
fiscal arrangements.
• Harmonization of the Legal Framework for the Oil and Gas Industry: Prior to PIA
enactment, there were multiple legislation and regulations the Nigerian oil and
gas industry. These legislations include now repealed Associated Gas
Reinjection Act, Hydrocarbon Oil Refineries Act, Motor Spirits (Returns) Act
Nigerian National Petroleum Corporation (Projects) Act, Nigerian National
Petroleum Corporation Act, Petroleum Product Price Regulation Agency
(Establishment) Act, the Petroleum Profit Tax Act, Deep Offshore and Inland
Basin Production Sharing Contract Act 2019 (as amended), Petroleum Act,
Petroleum Profit Tax Act, Oil Pipeline Act, etc. has been harmonized under the
PIA making it a giant stride worthy of an commendation. With the
harmonization, there is now one-stop-shop legal and related instruments for
regulation of oil and gas industry available for experts, researchers and
members of the general public.

2.3 Drawbacks of the Petroleum Industry Act, 2021

Some of key drawbacks or challenges highlighted by different stakeholders in the
oil and gas industry include:
1. High Cost of Doing Business: The Act also provides for multiple taxes (Nigeria
Hydrocarbon Tax, Company Income Tax), higher rents and royalties, and levies
(Niger Delta Commission Levy, Petroleum Host Community Fund, and
Education Tax). This is most noticeable in the deep offshore operations.
2. Retroactive Reversal of Contracts: The Act advocates reversal of provisions of
prior agreements and contracts, and introduces new fiscal regimes even for
old Petroleum Sharing Contracts.
3. Relinquish Acreage: The Act provides for the revocation of acreage that is yet
to be developed by the allocated owners. Opponents of this provision claim
that it is an infringement on earlier agreements while its proponents argue that
it is required to bringing new investment to the industry.
4. Calculating Payments: The Act advocates for oil and gas companies will pay
for quantities produced Instead of quantities exported. The oil companies
have argued that solving the security challenge and fixing sabotage of
logistics infrastructure is the core responsibility of government.
5. Duplication of roles: There are overlaps of roles and responsibilities with a
number of the institutions created under this Bill. For instance, the Nigerian
Petroleum Inspectorate, Petroleum Products Regulatory Agency, and
Petroleum Infrastructure Development Fund have conflicting responsibility for
funding the development of infrastructure especially for the downstream
sector of the petroleum industry.
6. Deadline for Gas flaring: In line with the provision of the Act, the deadline for
gas flaring is not realistic.
7. Lack of Regulatory Independence: The two regulators (the Commission and
Authority) need to be fully independent from supervision by the Minister of
Petroleum resources.
8. Ambiguous and imprecise language. One of the key concerns in the PIA is that
of interpretation and imprecisions in the law. For instance, it is unclear whether
host community development trust obligations are additional to existing
community levies (such as the Niger Delta development levy) or will be an
aggregation of those levies. Similarly, the law is silent on the definition of
“frontier basin” and host community, instead deferring to the NUPRC on the
definition of frontier basin and to settlors or license holders on the definition of
“host community.” These definitions are not neutral to revenue; they have
revenue implications. This lack of clarity creates uncertainty and even possible
disputes, especially if relevant parties define them differently.

9. Capacity building. This law is complex and complicated. While capacity in the
oil and gas sector has been built over the years, the new legal provisions and
fiscal framework will need new capacities to succeed. This challenge will be
particularly acute in the new regulatory institutions; in the understanding,
interpretation, and application of the law; and in the management of the
funds, including the Host Community Development Trust Fund (HCDTF).

10. Tensions over revenue sharing. The law has serious implications for the public
finances of the federation and its constituent states and local government
areas. First, the reduction in taxes and royalties will result in considerable
reduction in revenues to the three tiers of government at a time they cannot
afford it. Second, Nigeria’s revenue law requires that entities or enterprises
 owned by the federation remit their profits to a pool, the Federation Account,
for sharing among the three tiers of government. Revenue from the Federation
Account accounts for more than 80 percent of the revenues of many states
and local governments. Therefore, the stipulation that 30 percent of NNPC
Ltd.’s profits must be set aside for frontier exploration could cause a significant
decrease in its contribution to the Federation Account. In the short term,
revenues shared among the three tiers of government from the Federation
Account will fall. Many states and local governments, especially those with
very weak internal revenue-generation capacity will be unable to discharge
their duties of providing essential social services to their citizens.

11. Politics and politicking: Under the PIA, the president has the power to appoint
members of the boards of the various institutions established by the act.
Appointments to the boards of oil companies are watched keenly and could
be a source of discontent among constituent parts of the country. To manage
this discontent, it has become the norm (but is not the law) to have at least six
positions in the board of federally owned companies and parastatals,
reflecting the six geopolitical zones of the country. Unfortunately, the PIA does
not create enough board positions for this condition to be met. Not increasing
the number of board positions to manage out possible accusations of
marginalization could be politically risky. Then again, expansion of board
positions could raise the overhead of the boards and slow decision-making.

2.4 Response of Nigerians to the Petroleum Industry Act, 2021

There have been mixed responses from Nigerians on the recently passed
Petroleum Industry Act, particularly on some of the specific provisions of the law.
While many stakeholders are applauding the government for the achievement,
others have criticised the Act and the government with the following response
title:

• The New Petroleum Industry Act: Robbing Peter to Pay Paul

• ‘The PIA Must be Amended’
• PIA: Unresolved Issues of Resource Control and True Federalism
• ‘PIA: Accord Host Communities their Lawful Due’
• ‘Sort Insight on 3% Funding for Petroleum Host Communities Development Trust’ Etc
• Petroleum Industry Act, 2021: An Opportunity Missed?
• Buhari’s Assent to the PIB: A Brazen Injustice to South-South
• Host Communities’ Unrest: Is the PIA a Breather?

See (appendix 1) for detailed responses from individual stakeholders.

3.0 Conclusion
The long-awaited Petroleum Industry Act (“PIA”) is here and it is expected to be a game
changer for the petroleum industry in Nigeria. In fact, some pundits noted that the PIA
can represent the gold standard of natural resource management, with clear and
separate roles for the subsectors of the industry; the existence of a commercially-oriented
and profit-driven national petroleum company; the codification of transparency, good
governance, and accountability in the administration of the petroleum resources of
Nigeria; the economic and social development of host communities; environmental
remediation; and a business environment conducive for oil and gas operations to thrive
in the country.
The PIA is indeed robust in its provision with respect to providing a legal, institutional and
fiscal framework for the regulation of the oil and gas industry in Nigeria. However, just as
there exist many applaudable PIA benefits as enumerated above, there are several
identified pitfalls which need to be revisited to align the industry with best international
practices.
4.0 References

Akpan MJD: Petroleum Industry Act in Nigeria: An Analysis of the Impact of the Novel Host
Communities Development Trusts Provision. Global Journal of Politics and Law Research.
2021; 9(7): 30–46

Obaje A, (2022): The Nigerian Petroleum Industry Act, Frontier Basins Exploration and the
Global Energy Transition. Energy and Earth Science. 5(1): 1–5.

Bielu KJ (2021): Legal Framework for Petroleum Administration and Taxation in Nigeria: A
Legal Appraisal of Conflicting Legislations. ACARELAR.; 3: 70–80. 20.

Blythe T: C: (2021) Understanding Nigeria’s Petroleum Industry Act’. National Law Review
(XI). 2021; 235:

Mary Nwachukwu -Onuoha (2023) https: ACC872 Oil and Gas Accounting Lecture Note

Umenweke MN, Chukwuma WA: (2023): An Examination of the Petroleum Industry Act
2021 and the Quest for a New Nigeria’. Law and Social Justice Review. (2).

Petroleum Industry Act, 2021

www.brookings.edu/articles/nigerias-petroleum-industry-act-addressing-old-problems-
creating-new-ones/
https://www.thisdaylive.com/index.php/2021/08/24/the-pia-and-its-imperfections-was-niger-
delta-shortchanged
Appendix 1: NOTOBLE RESPONSES TO THE PIA, 2021

The Petroleum Industry Act (PIA,2021) and Its Imperfections: Was Niger Delta?

After so many years of waiting for the Petroleum Industry Bill to be passed, most Nigerians,
especially in the Niger Delta, expected a near perfect law from the National Assembly
(NASS) that would assuage their worries and address age long concerns about lack of
infrastructural development in the area, and environmental pollution/degradation,
resulting in a loss of livelihood for many, and chronic ailments like cancer and birth
defects emanating from oil exploration and production activities. Last month, the PIB was
finally passed into law by the NASS, and speedily assented to by the President. Alas! the
newly enacted Petroleum Industry Act (PIA) has not met the expectations of many, nor
does it seem to have addressed the concerns of Niger Deltans that have caused them
to weep over the last few decades. For many, it’s not a case of how long, but, how well;
and, disappointed, they are already talking about amendments to the PIA, even before
the ink with which President Buhari signed the PIB into law, is dry. In this discourse, Chief
Mike Ozekhome, SAN, Senator Ndoma Egba, SAN, Norrison Ibinabo Quakers, SAN, Chief
Layi Babatunde, SAN, Professor Andrew I. Chukwuemerie, SAN, Abubakar Sani, Chief Dan
Orbih and Tolu Aderemi weigh in on the contentious piece of legislation, pointing out its
many imperfections and how to possibly address them, while Taiwo Oyedele points out
20 highlights of the new law

The New Petroleum Industry Act: Robbing Peter to Pay Paul

Chief Mike Ozekhome OFR, SAN, Ph.D

The PIB just assented to as an Act of Parliament by President Muhammadu Buhari, is a

mere ruse, a monstrosity, an artifice and device, carefully crafted, incubated and
delivered, to actually do irretrievable violence to Nigeria’s progress and juris corpus. The
Act constitutes a direct assault on the age-long cherished principles of Federalism and
the Doctrine of Separation of Powers, most ably propounded in 1748 by Baron de
Montesquieu, a great French philosopher.

Unconstitutionality

The Petroleum Industry Act (PIA) seeks to frontally attack the provisions of Section 162 of
the 1999 Constitution, which state that all revenues accruing to the Federation shall be
paid into a Federation account from which sharing shall be made amongst the three
tiers of Government – the Federal Government, the 36 State Governments and the 774
Local Government Areas of Nigeria. No expenditure can be made by the Federal
Government, outside the provisions of Section 162. Nor can any monies be expended
without going through an Appropriation Bill, through submission of budgetary proposals.
See Sections 80- 84 of the Constitution. To the extent that the Act seeks to redesign the
provisions of the Constitution (the fons et origo, grundnorm, Oba, Eze and Emir of all our
laws), to that extent is the Act unconstitutional. It must therefore, be struck down with the
constitutional sledge hammer of Section 1(3) of the 1999 Constitution of Nigeria.

NNPC

In a sane clime, Nigeria’s only surviving cash cow, the NNPC, ought to be totally
unbundled to make it more viable, productive, transparent and accountable to the
Nigerian people. But, alas, most curiously, the Act has further strengthened NNPC’s hand
of non-accountability and non-responsibility. How can the Federal Government alone
have shares in the only viable milk industry of Nigeria, to the total exclusion of the other
three tiers of Government, major stakeholders, oil-bearing communities and the long-
suffering people of the Niger Delta? How can an Act of Parliament, rather than assuage
and ameliorate the sufferings of a beleaguered people, further compound them by
reaffirming the people’s perilous status as slavish hewers of wood, drawers of water,
masseurs of ego and sideline onlookers in the exploitation and use of their God-given
wealth through their natural resources? The Act is nothing but, a mere totalitarian and
draconian piece of legislation designed to rob Peter to pay Paul.

The Act is a deliberate design by state captors, to further their egoist and bacchanalian
self-interests. It was never designed to reform an institution such as the NNPC, nor passed
to advance the principles of Federalism or Doctrine of Separation of Powers. It is most
egregious, expropriatory and unfair to States, Local Government Areas, and the suffering
masses of the oil- bearing communities of the Niger Delta area of Nigeria. The panacea?
Simple. The 36 States Attorneys-General should Immediately approach the Supreme
Court, and challenge this latest Federal Government’s impunity and the outrageous acts
of executive lawlessness and legislative rascality we are beholding, by invoking the
Supreme Court’s original jurisdiction under Section 233(1) of the 1999 Constitution. That is
the way to go. Allowing the Act to stay will further cement the present misguided Unitary
system of government that Nigeria is currently operating, under our thinly garnished
disguise of a pseudo-Federalism.

‘The PIA Must be Amended’

Senator Ndoma-Egba, SAN

The Senate had in her version of the Bill, provided 3% for Host Communities, while the
House of Representatives in her version provided for 5%. For a region devastated,
despoiled, and totally polluted, one would have expected that the higher figure of 5%
will be adopted, in the harmonised version of the Bill. Surprisingly, the lower figure was
taken. This is evidence of failure of “politics”. There was a failure in engagement of
stakeholders of the Region, the Governors, NASS members, Ministers, Traditional Rulers,
the APC caucus and others.

The legislative processes are inherently political and require lobbying, horse-trading and
strategic engagement. The Region should have learnt from how the NDDC and the
Allocation of Revenue (Abolition of Dichotomy in the Application of the Principle of
Derivation) Act were passed, and used the experience as a template for engagement.
These Bills were critical to the Region, and the necessary reach out was done with the
Governors of the zone at the time in the forefront. NASS members from the Region on
their own, are constrained in how far they can go with such an important Bill. Having said
so, since there is no perfect law, the Region can still do the needful to get a better deal,
through an amendment to the just passed Petroleum Industry Act.

The percentage provided for the host communities is important; but, more important is
the use to which it is put and the mechanisms to ensure transparency and accountability
in the application of the funds. We have seen a number of historic interventions in the
Region from OMPADEC, NDDC, the Ministry of Niger Delta Affairs, the Amnesty
Programme and Ogoni Cleanup. They have all failed. For as long as you do not have a
solid stakeholder generated Masterplan for the Region to which all commit, more money
will be like pouring more water into a basket. The most important reason why the impacts
of the interventions have been very limited, is the absence of a Regional Master Plan.
Without one, there can be no meaningful development of the Region, the percentage
for Host communities notwithstanding.

PIA: Unresolved Issues of Resource Control and True Federalism

Norrison Quakers, SAN

Since the signing into law of the Petroleum Industry Act (hereinafter referred to as – PIA)
on 16th August, 2021 to provide for a legal, governance, regulatory and fiscal framework
for the Nigerian Petroleum Industry, the criticism expressed in some quarters about the
role of the legislative bomb in addressing the myriad of problems confronting our
fatherland, is best summarised by – agitations for Resource Control and true Federalism.
This equally explains concerns over the 3% Settlor’s annual operating expenditure to be
dedicated to the Host Community Trust Funds, as captured in Section 240(2) of the PIA
vis-a-vis the 30% fund for the frontier basin exploration development.

It is on this footing that – the removal of the requirement to transfer payments into the
Federation Account which is a Constitutional issue, and the setting aside of 30% profit as
the Frontier Exploration Fund under Sections 9(4), (5) and 64(c) of the PIA require judicial
pronouncements to resolve, since all legislations inclusive of this novel subject Act derive
their validity from the fons et origo of other laws, being the Constitution of the Federal
Republic of Nigeria 1999 (as amended), and as such, must not be inconsistent with same.

In the same vein, since the oil and gas industry is the mainstay of the country today,
succinctly it is not out of place from an equitable point of view, for host communities
bearing the brunt of oil exploration activities to clamour for an increased percentage
contribution from actual operating expenditure of companies granted an oil prospecting
licence, or mining lease, or an operating company, in addition to the existing contribution
of 3% to the NDDC under the NDDC Act, so long as same is not mismanaged by the
concerned States.
Further, the public sector which the NNPC exemplifies, represents the realm where the
Government operates for the benefit of the citizenry, hence, a restriction of NNPC’s
ownership under Section 50 of PIA which stipulates that ownership of all her shares shall
be vested in Government and held by the Ministry of Finance on behalf of Government
upon her being transformed into a Limited Liability Company, without States constituting
the Federation being allotted a stake in her ownership structure leaves much to be
desired, particularly when extrapolated against the background of various regional
agitations with far reaching security consequences.

Considering the transmutations the Act underwent as a foetus, one would have
expected a rather soothing sigh of relief from States constituting the Federal Republic of
Nigeria upon her nativity, with a promise of annual commemoration; regrettably, these
shortfalls are not to be termed – ‘much ado about nothing’.
Despite these grey areas, the NASS and the Presidency deserve commendation for the
eventual passage of the landmark legislation, to timeously safeguard the long-term
macroeconomic stability of the country, reform the extractive industry’s institutional
framework, and to provide better clarity for Nigeria’s economic development,
considering the importance of a framework for creating commercially oriented and
profit driven petroleum entities in accordance with international standards.

‘PIA: Accord Host Communities their Lawful Due’

Chief Layi Babatunde, SAN

In spite of the very strong reservations expressed for good reasons by the leaders of the
affected host communities, on the provisions of Section 240(2) of the PIA as it relates to
the Operating companies in the affected host communities, making an annual
contribution of an amount equal to 3% of its actual annual operating expenditure of the
preceding financial year in the upstream petroleum operations affecting the host
communities, the provision, to the extent that it constitutes an admission of a problem
that needs to be comprehensively addressed in spite of previous efforts, provides a work
in process. Foundation, upon which to build.

However, the law as it stands will take a good measure of good faith and transparent
commitment on the part of the operating companies, particularly the IOCs, and eternal
vigilance on the part of the host communities, even for its minimal objectives to be
attained.

For one, to the extent that the Operators/Settlors, who are to contribute the funds are
also given the powers to more or less constitute the Board of Trustees that will administer
the funds and also appoint the Secretary to the Board, it may constitute a present danger
to the interest of the host communities.

In the same vein, it will not be an easy task, determining the ‘actual annual operating
expenditure’ of the Operators as provided for the Act; especially against the background
of the exclusion clause provided for under Section 257 (3) of the Act; dealing with costs
of repairs of damaged or vandalised facilities or sabotage given that alleged sabotage
of oil facilities, has remained a cat and mouse affair between the Operators and the host
communities over the years. One can only hope, that all the affected parties, will see the
wisdom of acting in the greater good of all concerned.

‘Sort Insight on 3% Funding for Petroleum Host Communities Development Trust’ Etc
Professor Andrew I. Chukwuemerie, SAN
History of the PIB

Efforts for the reform of the ailing Petroleum Industry in Nigeria began in the year 2000
when the then President, Olusegun Obasanjo, constituted the Oil and Gas
Implementation Committee (OGIC). Its recommendation birthed the National Oil Policy
of 2004, which in turn metamorphosed into the Petroleum Industry Bill (PIB). The PIB was
introduced in 2008 as an Executive Bill by the President Umaru Musa Yar’adua’s
administration. The Bill proposed a 10% Dedicated Fund, for the development of host
communities. In September, 2020 President Buhari resubmitted the Bill as an Executive Bill
to the National Assembly, with some adjustments.

The Challenges of the 3% Payment into the Trust Fund

The PIB as passed by the House of Representatives retained 5% of the annual operating
expenditure of the settlor, to be paid into the Trust Fund. However, the Senate in its
section-by-section consideration of the Bill, opted to reduce it to 3%. This was after the
Senate had briefed the Group Managing Director of the NNPC, who canvassed that 3%
amounts to about half a billion dollars. There is a need to create an enabling
environment, so as to attract investors into the industry.
It is therefore simple logic that, if there are no investments there will be nothing to share.
In effect, if the fortunes of the oil companies improve, there will certainly be opportunities
for improvement in their obligations to the communities. Otherwise, if there is an
imposition of what may be difficult or impossible for them to pay, there will be friction,
which, in the end will undermine the target goals and objectives. It is therefore
appropriate, to seek to exploit the inherent benefits of the legislation, particularly in the
areas of foreign direct investments and wealth creation through a viable rural economy.
And apart from the dividends accruable to the communities, the overall Government
revenue is to be shared among the tiers of Government, for developmental activities.

The core area of misgiving is the wellbeing of the host communities, who suffer the direct
impact of oil and gas production activities; as such, the allocation of 3% of the Oil and
Gas companies profit, or annual operating expenditure as contained in Section 240(2) of
the Petroleum Industry Act 2021 (PIA). It is unjust to say the least, considering the fact that
the same PIA in Section 9(4) approved 30% of the NNPC Limited’s profit for ‘Frontier
Exploration Fund’. The fund is to be used for exploration purposes, in areas where there
are suspected oil in existence or availability.

This position simply means that the Legislature is more concerned in exploration of areas
where it is believed that there could be oil deposits, such as the Lake Chad Basin. This
seems not to take equal care of the host communities of the Niger Delta region, who
suffer the impact of actual oil exploration, from which the Fund is to be distributed
amongst host communities and the Frontier Exploration Fund. It looks more like taking
from Peter to pay Paul.

Another challenge with the allocation of the 3%, is the fact that the PIA equally placed
the responsibility of protecting the pipeline and other oil infrastructure on the host
communities. It also makes it a condition for the host communities, to forfeit their
entitlements under Section 240(2) of the Act as such. This seems to place the protection
of oil installations, in the hands of unarmed host communities. It is hardly realistic as oil
theft is mostly carried out by armed cartel hence.

Other Provisions of the PIA

Section 257(2) of the PIA is most unfortunate, as it clearly amounts to giving in one hand
and taking back through another. This is made more difficult, as the Act failed to deal
with the ambiguity, arising from integrating the host communities and the pipeline
bearing communities. That ambiguity may ultimately result in conflict, as to who the
beneficiaries of the 3% Host Community Trust Fund should be. There is an urgent need, to
amend the just assented PIA.

It may be good to state that under the PIA, any company granted an Oil Prospecting
Licence or Mining Lease or an operating company on behalf of joint venture partners
(settlor) is required to contribute 3% – 5% (upstream Companies) and 2% (other
companies) of its actual operating expenditure, in the immediately preceding calendar
year to the Host Communities Development Trust Fund. This contribution is in addition to
the existing contribution of 3% to the NDDC. The Fund is tax exempt, and any contributions
by a settlor is tax deductible.
The PIA also creates a Nigerian Upstream Regulatory Commission. It is responsible for the
technical and commercial regulation of the upstream petroleum operations. The Act
also creates the Nigerian Midstream and Downstream Petroleum Regulatory Authority,
which is responsible for the technical and commercial regulation of the midstream and
downstream operations in Nigeria. The Commission and Authority are also exempted
from tax.

Petroleum Industry Act, 2021: An Opportunity Missed?

Abubakar Sani
Legitimate Concerns

The signing into law by President Muhammadu Buhari of the much-touted Petroleum
Industry Bill has attracted mixed reactions, with the greatest reservations being expressed
(predictably) by host communities of oil installations who regard the 3% derivation
provision as not going far enough – with others questioning the classification of areas
where oil pipelines merely traverse, as ‘oil-producing’. Yet, others point out the seeming
silence of the Act on so-called ‘cleaner’ fuels, given the global shift to such alternatives.
State Governors have also weighed in with calls for correction of allegedly anti-fiscal
Federalism provisions of the Act. All these concerns are, to varying degrees, legitimate.

Subsidy

However, a greater worry, in my opinion, is the subsequent confirmation by the Minister

of State for Petroleum Resources, Chief Timipre Silva, that the new law will make no
difference to the age-long practice of subsidising petroleum products – specifically, PMS,
Premium Motor Spirit, popularly called Petrol. This is unfortunate, in my view, as everyone
agrees that the single greatest hindrance to reversing the imbalance between recurrent
and capital expenditure in both Federal and State budgets, is the fuel subsidy regime.
That practice continues to date, and it has been sustained in an opaque and
uneconomic framework which defies both legal and constitutional prescriptions. Just
what statute underpins/undergirds or justifies petroleum subsidisation? Is it the Petroleum
Products Pricing Regulatory Agency Act, the Price Control Act, the Constitution, mere
executive fiat or any combination of some of them? Beyond the first, it is shockingly
unclear. However, even that suffers from the absence of the constitutional condition
precedent of the designation of petroleum products as “essential commodities” – vide
Item 62(e) of the Exclusive Legislative List.

Far from the PPPRA Act, to my mind, the relevant applicable law is the Price Control Act
of 1977, which – notwithstanding the non-designation of petrol as essential as aforesaid
– would, if applied, have fortuitously eliminated fuel subsidies. Simply at the stroke of a
pen. This is because the provisions of Section 5 of the Act envisage the application of
economic principles in fixing petrol prices (which, by virtue of Section 6(1) of the erstwhile
Petroleum Act, 1969, the Minister of Petroleum is authorised to do. Curiously, the new Act
appears to have done away with this provision). Be that as it may, Section 5 of the Price
Control Act provides thus:

(1) The Board may by notice published in the Gazette –

(a) Fix a basic price for any controlled commodity in accordance with subsection (2)
below; and
(b) Fix the permitted variation for that commodity in respect of any State in accordance
with subsection (3) below.
(2) The basic price is the price which is the opinion of the Board properly represents –
(a) in the case of goods produced in Nigeria, the cost of production of the commodity,
plus the manufacturer’s profit; and
(b) in the case of imported goods, the duty-paid landed cost in Nigeria, plus the
importer’s profit.
(3) The permitted variation, in relation to any particular commodity, is the amount
representing transport and other costs, plus the distributor’s profit which in the opinion of
the Board ought properly to be added to the basic price in order to represent a fair
controlled price (wholesale or retail, as the case may be) in any State.

It can be seen that Section 5 of the Act obliges the Government to pass the cost of
producing/refining/importation and customs duty on fuel (and even of bridging, i.e.,
supplies to the hinterland) to the consumer at the pump – along with the
importer/producer or marketer’s profit. It is evident that this prescription not only makes
economic sense, it is sustainable in the long term.
It is important to stress that, what Item 62(e) of the Exclusive Legislative List of the
Constitution provides for is “price control” – not subsidisation; they don’t mean the same
thing. This is because whereas subsidies are monies paid by the Government to reduce
the cost of producing goods in order to keep their prices low, the Constitution gives no
such power to the National Assembly – and, thus, the Executive is under no such
obligation. In the circumstances, it is, frankly, a mystery that the latter persists in whining
about declining revenues and the unsustainability of fuel subsidies, whilst the solution is
right there staring it in the face.

Buhari’s Assent to the PIB: A Brazen Injustice to South-South

Chief Dan Orbih

The Petroleum Industry Act recently signed by President Muhammadu Buhari is not only
insensitive, but a brazen act of injustice.

The President has stayed true to character, by choosing to ignore the huge outcries of
the people of the South-South over the meagre allocation of 3% to the oil-bearing
communities in the new law.
The Buhari-led All Progressives Congress (APC) has shown, by its hurried assent to the
disputed Bill, that it did not mean well for the South-South.

Stakeholders in the South-South region have taken a critical look at the Petroleum
Industry Bill recently enacted into law by President Muhammadu Buhari, and note very
painfully that it is insensitive to the plight and demands of the people of the Niger Delta
who have, over the years, witnessed the destruction of their lands through oil exploration
and production.

One considers the concession of 3% to oil producing communities as mere tokenism, and
a brazen act of injustice which must reviewed without delay.

The President’s hasty endorsement of the Bill, while ignoring its implications for restiveness
in the zone, showed his usual disdain for rigorous debate and tacky attitude towards
issues of sustainable development. The rush to sign into law an unwholesome Bill still in
disputation is not a surprise, because the President has always shown his disdain for
rigorous debate in matters of sustainable development.

The South-South Region could become a ground for renewed agitations and heightened
tension, as restive youths mobilise for total resource control in the face of perceived
injustice and inequity. For as long as injustice persists, let the Government take heed that
the clamour for total resource control will continue, as we cannot give up on what is
rightfully ours.

Niger Delta youths must remain calm and make their agitations peaceful. The South-
South should continue to demand justice, equity and fairness, and should legally resist
any attempt to subjugate the region economically, politically and socially. Nigeria should
hold fast to a better and progressive Niger Delta built on honour, justice and equity.

Host Communities’ Unrest: Is the PIA a Breather?

Tolu Aderemi

The signing of the Petroleum Industry Bill into law by President Muhammadu Buhari, has
been heralded as a quantum leap for Nigeria on the regulation of the oil and gas
industry. It is thought that the PIA will revolutionise business activities in the upstream,
midstream and downstream sub-sectors of the oil and gas industry, by providing a
framework that incentivises investments and establishes regulatory best practices.

The historic signing of the PIA, notwithstanding the issue of compensation of the host
communities for the years of degradation, continues to be an albatross for the new PIA.
Civil societies and pressure groups in the Niger Delta, have continued to label the
provision on the derivatives for the host communities as a cheat on them. This article
examines whether indeed, the 3% host community fund is a game changer in the endless
agitation of oil producing communities for a fairer share in what they believe is their
commonwealth.

History of Failed Host Community Compensation Schemes

The regional concerns of the host community(ies) is rooted in the history of institutional
failure, environmental degradation, socio-economic deprivations and violent agitations
for resource control. Perhaps, a look into its chequered history will reveal some of the
remote and immediate cause(s) of agitations for host community recognition and
compensation, in the scheme of things.

In 1961, the Nigerian Government birthed the Niger Delta Development Board (NDDB),
with the mandate to develop the region with a 15% revenue contribution from its budget.
Although it successfully executed about 358 contracts, its success was short-lived as its
operations became characterised with inefficiency, mismanagement, political
interference and militancy.

In 1972, the Niger-Delta River Basin Development Authority (RBDA) was established to
replace the NDDB, but also suffered a similar plague like its predecessor, and was soon
to be replaced with the Oil Minerals Producing Areas Development Commission
(OMPADEC), which was established by the General Ibrahim Babangida’s military
government under Decree No. 23 of 1992, and provided for the 13% derivation pursuant
to the Allocation of Revenue (Federation Account) (Amendment Act No. 106 of 1992),
for the rehabilitation and development of the host communities based on the ratio of oil
production, and not on the basis of dichotomy of on-shore or off-shore oil production.
Like its predecessors, OMPADEC also failed.
In 2000, former President Olusegun Obasanjo birthed the Niger Delta Development
Commission (NDDC) who levies 3% from the IOCs. The International Oil Companies (IOCs)
also entered into bilateral Global Memorandum of Understanding (GMOU), and despite
all of this, the region remains plagued with acute under-development.

The philosophy underpinning the percentage share to the host communities, can be
traced to the proposal made in the first draft of the PIB under late Petroleum Minister, Dr
Rilwanu Lukman. The then Special Adviser to President Yar’adua, Eng. Emmanuel
Egboga, had championed the need to give the host communities ownership and control
of the resource. This was at a time when 10% equity was voted in favour of the host
communities. The reasoning at this time, though misconceived, was to give the host
communities ownership and control of the resource in situ. Unfortunately, this was not in
tandem with the laws governing the sector, as ownership of the resource was exclusively
in the hands of Government.

One main criticism of this proposal was that the allocation to the host community, a
faceless entity, would only amount to a misappropriation of these funds, as was with other
initiatives. Secondly, where a cash-call was made on the parties to fund exploration and
production of crude oil, to the extent that there is no entity known as the host community,
it would be impossible to hold anyone responsible for any such payment. Put simply, it
was utterly impossible to give equity to a host community.

Today, the PIA has put in place a structured machinery that prescribes the domiciliation
of the funds, the administration of the funds and a mechanism to measure performance.
The host communities, under the PIA, will also have an input in determining persons who
will administer these funds.

The National Assembly must however, embark on a post-legislative advocacy of the

benefits of the Act in the host communities, while the Federal Government should set up
a monitoring task force to ensure strict compliance.