CHAPTER FOUR
4.0 THE PETROLEUM INDUSTRY BILL, 2012 (PIB)
The
much anticipated Petroleum Industry Bill, 2012 (the “PIB”) was presented by the
Executive arm of the Nigerian government to the 7th session of the
National Assembly on 18 July 2012 to enable the commencement of legislative
deliberations on the PIB, a prerequisite for its eventual passage into Law.
The presentation of the PIB
followed the submission to the presidency by the special task force on the PIB
(the “Task force”) Set up for the purpose, of its report in June 2012 and the
subsequent approval of the reviewed PIB by the Federal Executive Council.
The
PIB’s journey began as far back as the year journey began as far back as the
year 2000 with the inauguration of the Oil and Gas Sector Reform Implementation
Committee (“OGIC”)[1] by
Nigerian government to carryout a comprehensive reform of the Nigerian oil and
gas industry (the “industry”), i.e. to cover the upstream, midstream and
downstream sectors of the industry. Over the years different versions of the
precursors to the PIB had been the subject of intense debate among various
interest groups with out any concrete progress been recorded in its enactment
process.
Indeed,
there are indications that the delay in the passage of the PIB has resulted in
a significant reduction in investments in the industry.
Particularly,
investments in upstream assets have dwindled as investors have become extremity
caution in the face to changes to the fiscal and regulatory regime of the
industry expected to trail the passage of the PIB into law.
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Most
recently, the government renewed its efforts to ensure the speedy enactment of
the new law when it speedy enactment of the new law when it inaugurated the
task force in January, 2012 to work with relevant government bodies to produces
a new version of the PIB for presentation to the National Assembly within the
shortest time possible.
The
task force was mandated to consult with stakeholders and to liaise with the
National Assembly for the passage of the PIB.
While
the industry and its many players and regulators awaits the new laws, this
review seeks to provide a summary of the PIB and to high lights its most
notable innovations.
The
PIB compresses three hundred and sixty-three (363) sections[2]
(divided into nine (9) parts[3]
together with five (5) schedules [4]Generally,
the PIB provides for a legal, fiscal and regulatory framework for the industry
by (re) establishing regulatory institutions and commercial entities for the
upstream and downstream sectors which are bound by the provision of the
Nigerian Extractive Industries Transparently Initiative Act 2007[5].
In
addition, the PIB aims to ensure that the management and allocation of
petroleum resources in Nigeria
are in line with the principles of good governance, transparency and
sustainable developing for an order, fair and completive system, an effective
legal and institutional framework, and a fiscal regime that offers fair returns
on investments and benefit to Nigerians. It provides for there imposition,
assessment collection of the Nigerian Hydrocarbon Tax (NHT) and the application
of the Companies Income Tax (CIT) Prescribed under the extant Companies Income
Tax Act (CITA).[6]
4.1 REGULATORY AND INSTITUTIONAL FRAMEWORK
a. The
minister
Supervisory Responsibility
over all Operations and Institutions in the Industry.
b. Petroleum
Technical Bureau (PTB).
c. Upstream
Petroleum Inspectorate (UPI).
ASSUMES
UPSTREAM ROLE OF CURRENT (DPR).
Special
investigation unit
d. Downstream
Petroleum Regulatory Agency (DPRA).
e. Petroleum
Technology Development fund (PTDF).
f. Petroleum
Equalization Fund (PEF).
g. Petroleum
Host Community Fund (PHCF).
4.1.1 The Minister and the Petroleum Technical Bureau
(“PTB”)[7]
The minister of petroleum
resources (the “minister”) remains the head of the regulatory structure for the
industry. The minister is responsible for the coordination of the activities of
the industry and shall exercise general supervision over all operations and all
intuitions in the industry[8].
The
major functions of the office of the minister include: the formulation,
determination and monitoring of government policy for the industry. Advising
the government on all negotiations and execution of international petroleum
treaties and obligation; and having unrestricted right of access over all
commercial arrangement in the industry[9].
The minister can delegate any of his powers, save for the power to make orders
and regulations, to any person or institution. The minister may best be
described as the chief executive officer of the industry.
The
PTB is established as a special unit in the office of the minister to carry out
the functions of the former frontier exploration service of the current
Nigerian National petroleum corporation (“NNPC”) and to provide technical and
professional support to the minister on matters relating to the upstream and
downstream sectors of the industry.
The
PTB shall assist the minister in the formulation and development of strategies
to implement government policies in industry[10].
The
PTB is expected to be staffed by professionals whom the ministry may appoint
and whose remuneration are expected to reflect the salaries paid in the private
sector to persons wit equivalent responsibly, expertise and skills.
4.1.2 The Upstream Petroleum Inspectorate (UPI)[11]
The
UPI is established under the PIB as a body corporate with perpetual succession
and a common seal, with powers to enter into contracts, acquire and deal with
property and to sue and be sued in its corporate name. The UPI shall be vested
with the functions, assets and liabilities of the current department of
petroleum resources (“DP”) relating to the upstream petroleum sector.
The
objective of the UPI is essentially to promote the efficient, safe, effective
and sustainable infrastructural development of the upstream sub-sector[12].
To
this end, the UPI shall issue, ensure and enforce compliance with the terms and
conditions of all upstream leases, licences, permits and authorizations,
including standards for all upstream plants, installations and facilities
pertaining to and in line with national and applicable international
environmental standards. It is responsible for issuing licences, permits or
authorizations, including standards for all upstream plants, installations and
facilities pertaining to and in line with national and applicable inter
national environmental standards. It is responsible for issuing licences,
permits or authorizations required for seismic and drilling activities, and the
design and construction of facilities for upstream operations. It will manage
and administer all upstream petroleum data for all unallocated average.
The fiscal responsibilities of the UPI include:
- The computation and assessment of royalties, rentals,
fees, and other charges for upstream operations;
- Developing and publishing tariffs and prices relating to
third party access to upstream petroleum facilities form time to time[13];
and
- In conjunction with the Federal Inland Revenue Service
(“FIRS”), monitoring the cost deductions relating to the taxation of E & P
companies which are not involved in petroleum arrangements with the National/oil
company (i.e. the successor to NNPC) or with the Nigeria Petroleum asset
management company Limited (which will be incorporated joint Ventures).
The
UPI will have a “special investigation Unit” which will have power to
investigate any person or organization and ascertain any regulatory violations.
In this regard, the special investigation Unit shall have Powers to detect and
prosecute offences, to conduct surveillance on oil and gas installations,
premises and vessels, to enter and search suspected premises and vessels and
the power of seizure and arrest.
4.1.3 Downstream Petroleum Regulatory Agency (“DPRA”)[14]
Like
the UPI, the DPRA is established under the PIB as a body corporate with
perpetual succession and a common seal, with perpetual succession and a common
seal, with powers to enter into contracts, acquire and deal with property and
to sue and be sued in its corporate name. The DPRA is vested with the
functions, assets and liabilities of the current DPR relating to the downstream
petroleum sector and the petroleum Products Pricing and Regulatory Agency
(“PPPRA”)[15].
The
DPRA will be the technical regulator for downstream activities and the
commercial regulator as may be specified by the minister. It will promote,
among things, the sustainable infrastructural development of the downstream
sector and the maintenance of technical standards. The DPRA is empowered to
administer and enforce policies, laws and regulations, and licences and permits
relating of downstream operations.
Its
role of facilitating the supply of gas to the strategic sectors in accordance
with the approved national gas pricing framework[16]
means the subject to UPIs functions, the DPRA is intended to take up the role
of the Department of Gas which was formally established by the national Gas
supply and pricing Regulations 2008.
A
“special Investigation Unit” is also created for the DPRA to investigate any
person or organization in relation to any of its functions or powers.
4.1.4 The Petroleum Technology Development Fund (“PTDF”)[17]
The
PTDF is re-established under the PIB as a body corporate with perpetual
succession to take over the role and assets; including the balance of monetary
assets, of the Petroleum Technology Development Fund established by the
Petroleum Technology Development Act 2004. The PTDF may sue and be sued in its
corporate name.
The
purpose of the PTDF is to fund the training of Nigerians to quality as
graduates, professionals, technicians and craft man in the fields of
engineering, geology, science and management and other related field in the
industry.
Further to section 74 of the PIB, the PTTF shall
consist of
* Monies
inherited from the current PTDF;
* Funds and grants from multilateral agencies, bilateral
institutions and related sources for technology and capacity development in the
industry.
* Donations for development of petroleum technology
capacities and capabilities, or the training and education of Nigerians in the
Industry; and
* Monies in the accounts of the PTDF together with interest
payable.
A reserve account of the PTDF shall be kept with the
central ban of Nigeria
and shall be under the control of the Board of the PTTF.
4.1.5 The Petroleum Equalization Fund (“PEF)[18]
The
PEF is re-established as a body corporate with perpetual succession, a common
seal and it may sue and be sued in its corporate name.
The
PEF is a temporary[19]
fund set up to receive any set surplus revenue recovered from petroleum
products marketing companies and such sums as may be provided for the purpose
of the PEF by the Federal government. The PIB also makes provision for bridging
and for equalization allowances.
Amongst
other things, the PEF shall be utilized for the reimbursement of Petroleum
products throughout Nigeria
at uniform benchmarked prices.
Disputes
between a company and the PEF shall be referred to the DPRA subject to the
provisions of the Arbitration and Conciliation Act.[20]
4.1.6 Petroleum Host Communities Fund (“PHCF”)[21]
The
PHC Fund is a novel concept in Nigeria
petroleum law and it is essentially targeted at the development of economic and
social infrastructure in petroleum producing communities.
All
Upstream petroleum producing companies are required to make monthly payments of
10% of their net profits[22].
While profits derived from upstream petroleum Operations in onshore areas and
the offshore and shallow water areas are to be remitted directly to the PHC
fund, profits derived from upstream petroleum operations in deepwater areas are
to be remitted for the benefit of the petroleum littoral states of Nigeria.
It
should be noted that whilst the 10% of the net profits contribution to the PHC
Fund places additional fiscal obligation on companies in the upstream
sub-sector; such contributions constitute an immediate credit against a
contributing company’s total fiscal rent obligations.[23]
This in effect makes the contribution to the PHC fund a system for advance
payment of taxes which contribution is eventually deductible for final tax
purposes.
4.2 Commercial Organization and the Sub-Sectors
Upstream Sector
* National Oil company; to takeover NNPC’s Interests/Assets
excluding UJVS and NGC limited shall be incorporated under the Companies and
Allied Matters Act (CAMA)and shall be bound by SEC Rules.
* National Petroleum Assets Management Corporation; to
acquire and manage government upstream investments.
* Nigerian Petroleum Assets Management Company Limited; to
acquire NNPC”S, UJV assets, and shall be incorporated under the companies and
Allied matters Act.
* International
oil and gas companies
* Indigenous
oil and gas companies
Downstream Sector
* National Gas Company Plc; to take up NNPC’s assets via the
Nigerian Gas Company, shall be incorporated under the Companies and Allied
Matters Act and shall be bound by SEC Rules.
* Licensed
Refining Companies
* Petroleum
Products Marketing Companies
* Gas
Suppliers & Distributors
4.2.1 Upstream Sub-Sector
The
PIB defines “Upstream Petroleum Operations essentially as the winning/obtaining
and transportation of petroleum, chargeable oil, chargeable natural gas,
chargeable condensate or bitumen by or on behalf of a company for its own
account including production sharing contractors, by drilling, mining and
extraction, excluding refining/refinery operations and any sale/disposal of
chargeable oil chargeable natural gas or chargeable condensate/bitumen by or on
behalf of the company. The following points should be noted in relative to the
commercialization and privatization of the upstream corporations and companies
specified in the PIB.
* The National Petroleum Assets Management Corporation[24]
(the “corporation”) is established as a body corporate with perpetual
succession and a common seal, essentially to acquire and manage investments of
the Government in the Nigerian upstream petroleum industry. It is to operate as
a holding company and its initial subsidiary shall be the Nigerian petroleum
assets Management Company Limited (“the management company”)
It is noteworthy that the
corporation shall maintain a fund for the purposes of funding it subsidiaries.
While the primary obligation to contribute to the fund is placed on the
government,[25]
the corporation can receive other sums into the fund. In this regard, where a
taxable person contributes to the fund, such contribution shall be the
deductible.[26]
* The Management Company is
expected to be incorporated by the corporation under the Companies and Allied
Matters Act (“CAMA”)[27]
not later than (3) months from the Effectives date of the PIB. The initial
shareholding structure of the management company, which shall not be subject to
the provisions of the Fiscal Responsibility Act, 2007 and Public Procurement
Act, shall be held by the corporation (99%) and the permanent secretary of the
ministry of petroleum in trust for the corporation (1%).[28]
Upon the transfer of NNPC’s assets and liabilities is the existing
unincorporated joint ventures (UJVs”) to the management company and certain
NNPC assets to the newly incorporated National Oil Company (“NOC”), the
government may subsequently vest in the management company any upstream asset
as may be deemed fit from time to time[29].
* The NOC[30]
is required to be incorporated by the minister under the CAMA as a public
company limited by share within three (3) months from the Effective Date of the
PIB[31].
There is required to be a divestment of a maximum 30% of the authorized share
capital of the NOC to the Nigerian public, with six (6) years form the date of
its incorporation.
The
NOC shall be vested with NNPC’s assets and liabilities, excluding those
transferred to the management company (i.e the UJV interests) and to the
existing Nigerian Gas Company Limited.
This
presupposes that the assets and liabilities of the current NNPC which will be
vested in the NOC are interests and liabilities in UJV upstream petroleum
arrangements (including Joint Operating Agreements), as well as NNPC’s assets
and interests in the following subsidiaries[32].
(i) The
Pipelines and Products Marketing Company Ltd
(ii) National
Engineering Technical Company Limited (NETCO);
(iii) Kaduna
Refining Company Limited (KRPC);
(iv) Port
Harcourt Refining Company limited (PHRC);
(v) Warri
Refining and Petrochemical Company Limited (WRPC);
(vi)
Nigerian Petroleum Development Company (NPDC);
(vii) National
Petroleum Investment Management Service (NAIMS)[33]
(viii) Integrated
Data Services Limited (IDSL); and
(ix) Hyson
(Nigeria)
Ltd/LALCON Bermuda Ltd.
Additionally,
section 152(10) and 360 of the PIB provide that the assets and that the
subsidiaries of the current NNPC which are listed under Privatization and
Commercialization Act (“Privatization Act”)[34],
be de-listed from the Privatization Act as from the Effective Date of the PIB.
Furthermore, the power of attorney earlier assigned or donated to the Bureau of
Public Enterprises (BPE) in this regard shall stand vacated and have no force
or effect.
4.2.2 Downstream Sub-Sector
The
definition of “Downstream Petroleum Operations” essentially captures activities
unrelated to Petroleum Mining Leases such as those related to oil and gas
transmission pipelines, compressor stations for compressed natural gas, gas
processing facilities and control processing facilities etc. Thus, the PIB
defines downstream petroleum industry’s as;
The aggregation of companies
duly licensed to conduct downstream petroleum product operation and gas
distribution and operations in Nigeria.[35]
Other
than references in the PIB to licensed suppliers and distributors, users of
regulated open access facilities’ and licensed refining companies, the only
commercial institution specified for the downstream sector is the National Gas
Company PLC (“NGC PLC”).
* NGC
PLC shall be incorporated under the CAMA as a public company limited by shares
and vested with the assets and liabilities of NNPC’s subsidiary, the Nigerian
Gas company limited.[36]
The initial shareholders of NGC plc shall be the nominees of the ministry of
petroleum resources and ministry of finance incorporated on behalf of the
Government respectively. With six (6) years post incorporation, 49% of the
shares of NGC plc shall be divested and sold on the Nigerian stock Exchange.
4.3 Upstream Operation
All
average for exploration, development and production of petroleum shall be
administered by the UPI. Title to all data related to upstream petroleum
operations are also vested in the Federal Government and are to be administered
by the UPI. Furthermore, the UPI shall adopt and manage the national grid
system for petroleum average management based on the Universal Transverse
Mercator (U.T.M.)[37]
coordinate system.
4.3.1 Licenses and Leases/Award Process
The
following are highlights of the upstream licensing regime under the PIB;
No. 1: Petroleum Exploration Licence
(“PEL”)
Scope: Non-exclusive geological.
Geophysical and geochemical
exploration.
Duration: 3
years
Assignment:
Prior written consent of the minister required-(a) where a license,
lessee, or production sharing or service contractor is taken over by another
company or merges or is acquired by another company either by acquisition for
exchange of shares, including a change of control of a parent company outside
Nigeria: or (b) For the assignment of a license or lease or contract, or any
right power or interest there the minister may consent if the assignee has (i) good reputation (ii)
sufficient technical knowledge, experience or financial resources; and (iii)
proven operating experience or is supported by a competent operator under a
technical service agreement is in question).[38]
No 2: Petroleum
Prospecting Licence (“PPL”)
Scope: Exclusive
petroleum exploration operations and to carry away
and dispose of crude oil,
natural gas or bitumen won.
Duration: (A) Onshore and shallow waters-5 years (3
years exploration
and renewal for 2 years)
(b) Deep water areas and frontier
average-8 years (5 years exploration and renewal for 3 years)
Assignment: Same as above
No 3: Petroleum Mining Lease (“PML”)
Scope: Exclusively to search for, win, work,
carry away and dispose of petroleum within parcels of each commercial discovery
of crude oil or natural a gas or both, or bitumen granted to the petroleum
prospecting licensee who meets required conditions and approved development
plans by the UPI[39].
Award process: Subject to the provisions of the PIB
(when enacted) and to compliance with the requirements specified in the bid
process, licenses and lease may be granted by the minister to a winning bidder
pursuant to a bidding process that shall be open, transparent and competitive.[40]
Although
the PIB also states specifically that there shall be no grants of discretionary
awards.[41]
It however carves out an exception for the president to have the power to grant
license and leases.[42]
This
open-ended exception undoubtedly dilutes the award and may be utilized as a
means of granting licenses and licenses to just anyone without scrutiny. The
mischief this exception may cause can be negated by the introduction of clearly
stipulated conditions or circumstances under which the president may exercise
the power being granted.
4.3.2 Assignment of Upstream Interests and Marginal Field
The
assignment of any interest in an upstream license or lease must be in
compliance with the relevant provisions on assignments, mangers and
acquisitions, which specifically require the prior written consent of the
minister to be obtained to any such transaction.
The
wordings of the assignment provisions of section 194(1) of the PIB[43]
which expressly state that certain transactions involving the shares of a holder of an upstream assets (whether a
licensee, lessee or a production sharing or service contractor), will be deemed
and treated as an “assignment” may have laid to rest the current industry
debate as to whether such a transaction is caught by the ‘assignment provisions
to include (a charge of control of a parent company outside Nigeria’ may have
also addressed the debate as a to whether such a transaction falls within the
purview of the consent restrictions contained in the law.
However,
the precise scope of the provision of section 194(1) of the PIB still raises
some questions. For instance, it is interesting to note that whilst on
assignment of even a minute interest (e. 1% interest) in the license, lease or
contract itself (i.e carry part thereof [44])
requires the prior written consent of the minister under section 194(2) of the
PIB[45],
it would seem that in the case of a transition which involves the shares of an
upstream interest holder under section 194(1) of the PIB, this provision is
only triggered where the transaction amounts to “a takeover; ‘a merger’ or an
acquisition either by acquisition or exchange involves the transfer of a
minority interest only in such upstream interest holder (e.g a 20% share
holding interest).
Marginal fields,
by section 193 (6) of the PIB, marginal fields operators are entitled to
apply for petroleum mining leases for the fields being operated as marginal
fields as at the effective Data of the PIB which leases shall be granted to
such marginal field operators. Such lease shall be subject to the provisions of
the PIB.
4.3.3
Contracting Rights and Confidentiality/Upstream Gas and Gas Flaring
All
licensees and leases have aright to enter into exploration and prospecting
(“E&P”) agreements with other companies, only companies registered under
the CAMA can obtain lease or licence.
Regarding
the non-disclosure of information and documents concerning upstream petroleum
operations in respect of the payments of royalties, fees and bonuses, and
taxes, the PIB states that confidentiality clauses’ in E & P agreements,
licences and leases are void and of no effect.
However
‘proprietary industrial property rights’ are clearly protected form the
mandatory disclosure requirements, to the extent that confidentiality in such
case is protected by relevant freedom of information law or international law.[46]
It should be noted that with respect to the administration of part viii of the
PIB/Provisions one Taxation, every person having any, officials duty or being
employed in the administration of that part/for instance, officials of the
(FIRS) shall treat and deal with all documents, information, returns,
assessment list and copies of such lists relating to the income changeable
profits and related items of any company, as secret and confidential.
Upstream Gas and Gas
Flaring, unlike the silence of the extent petroleum Act on gas discoveries, the
PIB clearly provides that upon the completion of the appraisal programme by the
holder of a prospecting license, the has the option (amongst others) of declaim
a significant gas discovery and therefore by entitled to retain the relevant
discovery area for a retention period of not more than ten (10) years[47].
With respect to gas flaring there are no clear and specific timelines provided
for a total flare-out date. Section 275 of the PIB provides that;
Natural gas shall not be
flared or vented after a date “the flare-out date” to be prescribe by the
Minster in regulations made pursued to this part, in any oil an gas production
operation, block or field, onshore or offshore or gas facility such as,
processing or treatment plant, which the exception of permits granted under ---
this Act.
This presupposes that gas flaring may be permitted
under certain circumstances.
4.4 Downstream Operations
4.4.1 Licensing and Regulation
The
licences available in the downstream are granted for the following activities[48];
(a) Constructing and operating a process plant, including those for
gas liquefaction; a petroleum transportation pipeline for clued oil or gas or
condensate or petroleum products; a petroleum distribution network; and a
petroleum transportation network;
(b) The supply of downstream products or natural;
or
(c) Owning and running a downstream product or natural gas
processing or retail facility and
(d) Utilization
of all chemicals used for downstream petroleum operations. The DPRA may grant,
renew, modify or extend licenses, further to the appropriate applications made
as prescribed by relevant regulations.[49]
Revocation and suspension of licenses are also
within the ambits of the DPRA’s authority.[50]
Assignment of licenses require the prior written
consent of the DPRA[51]
It
is interesting to note that the pricing of petroleum products (downstream)
shall be regulation ensure market related pricing adequate supply of petroleum
products, removal of economic distortions and the creation of fair market value for petroleum production
the Nigerian economy.
There
is guaranteed open access based on commercially viable terms specified by the
DPRA to designated regulated open access facilities i.e designated jetties,
loading facilities and storage depots or pipeline currently owned by downstream
operators. A licensed oil marketing company, build consumer of petroleum
products or an independent refinery can construct and operate independent
pipeline, depots or jetties if exclusive use, subject to the regulation of the
DPRA.
The
PIB also makes specific provisions for downstream gas licensing and regulation
competition and market regulation, demonstration gas market management and
supply obligations.
Gas Operation Master Plan and Domestic Gas
Utilization, the UPI and the DPRA are entrusted with the role of regulating the
gas sector in accordance with the national gas master plant, the PIB (when
enacted) and relevant polices of the Federal Government[52].
The
provisions of the PIB concerning this issue are derived mainly from the
contents of the downstream Gas Bill, 2005, which was based on the proposed
framework for domestic gas utilization and implementation of the Nigerian Gas
Master Plan.
4.5 Indigenous
Participation/Health, Safety and Environment.
By
section 285 of the PIB, the federal government is barred form “participating”
in petroleum operations carried out by indigenous petroleum companies whose
aggregate production from petroleum companies whose aggregate production from
petroleum operations is not more than twenty five thousand (25,000) barrels per
day of crude oil or its natural gas equivalent. Furthermore, an indigenous
petroleum company whose aggregate production of crude oil and gas is not more
than twenty five thousand barrels (25,000) per day or its natural gas
equivalent may be allowed to produce up to the technical allowable output set
for the licence or lease by the UPI.
The
PIB, defines an “indigenous petroleum company as a company:
(a) Engaged in the exploration for and production of which 51% or
more of its share are beneficially owned directly or indirectly by Nigerian
citizens or association of Nigerian citizen.
(b) Which meets the requirements of any guides or regulations that
may be issued by the UPI or the DPRA; and
(c) Which is accredited as an indigenous petroleum company by DPRA
provided that a company listed on any stock exchange in Nigeria with a
majority of Nigerian directors shall be deemed to quality as an indigenous
petroleum company in Nigeria.
It
remains to be seen whether the intention of the draftsman is that the three
elements of the definition of indigenous petroleum company under the PIB should
conjunctive (I.e), all three elements must be present) or disjunctive (i.e, any
of the three elements).
It
should also be noted that the shareholding threshold of fifty-one per cent
(51%) specified in the first element of the definition of indigenous petroleum
company, under the PIB, aligns with the fifty one percent (51%) threshold
stated in the definition of Nigerian company under the Nigerian Content Act.
Health, Safety and Environment, the Federal Ministry
of Environment has the overall responsibility for the environment in Nigeria, whilst
the UPI and the DPRA shall have responsibility in their respective areas over
all aspects of health safety and environment matters relating to the industry.
All companies in the upstream and downstream sectors most comply with all
environmental health and safety laws, regulations and guide lines or directives
as may be issued by the Federal Ministry of Environment the Minister, the UPI
or the DPRA[53].
4.6 Taxation[54]
Profits
of each accounting period of any company engaged in upstream petroleum
operations[55]
will now be subject to Nigerian Hydrocarbon Tax (“NHT”)[56]instead
of the amount Petroleum Profits Tax (“PPT”), the provisions on NHT are largely
a replication of the extent provisions on PPT stipulated in the PPTA.
The
other significant fiscal innovation of the PIB is the extension of the
provisions of the Companies Income Tax Act (CITA) it profits derived form
upstream petroleum operations amongst others.
[1] The “ OGIC” was established
by the former President Olusegun Obasanjo administration to initiate a
comprehensive reform for the Nigerian Oil and Gas Industry and it was
recommisioned in year 2007 by the Yar’Adua administration to draft a bill based
on the National Oil and Gas Policy 2004.
[2] Certain Sections of the PIB
are incorrectly numbered. For instance, there is no section 19 while the
provisions appearing after section 353 up to the last section of the PIB
require re-numbering.
[3] These are as followers: Part
1 Objectives (Sections 1 to 4) P art II-Institution (Sections 5 t0 169): Part
III – Upstream Petroleum (Section 170 to 205); Part IV – Downstream Licensing
(Section 206 to 220); Part V – Downstream petroleum (Section 221) to 283); Part
VI – Indigenous Petroleum Companies (Sections 284 to 288) Part VII – Health Safety
and Environment (Sections 289 to 298);
Part VIII – Provisions on Taxation in the Petroleum Industry (sections 299 to
353); and PART IX-Repeals, Transitional and Savings Provisions (Sections 354 to(363)
[4] These
are as follow: First Schedules- Rights of pre-emotion. Second Schedules –
supplementary provisions relating to the proceeding of the Boards of
institutions under this Act;; Third Schedules- Powers and Duties of the Service
under this Act; fourth Schedules – Capital Allowance: and Fifth Schedules –
Production Allowance.
[5] Sections
3&4 of the Petroleum Industry Bill 2012.
[6]
Companies Income Tax Act, Cap C21 LFN 2010.
[7] Sections 5-8 of the Petroleum Industry Bill,
2012.
[8] Ibid,
Sections 5 and 6.
[9] Ibid,
Sections 7 and 8.
[10]Ibid, Sections 9 and 10.
[11]Ibid, Sections 13-42.
[12] Ibid, Section 14.
[13] Ibid, Section 15(1).
[14] Ibid, Sections 43-72.
[15] Ibid Sections 43 and 44. The
DPR is the department under the Ministry of Petroleum Resources (although
initially created as Petroleum Inspectorate by Section 10 of the NNPC Act 1997)
responsible for technical regulation in the Petroleum Industry, while the PPPRA
was established by the Petroleum Industry, while the PPPRA was established by
the Petroleum Products Pricing Regulatory Agency (Establishment) Act, 2003.
[16] Ibid Section 45(v).
[17] Ibid, Sections 73-99.
[18] Ibid,
Sections 100-115.
[19] Pending
when it is determined that the petroleum product market has been effectively
deregulated.
[20]
Arbitration & Conciliation Act, CAP A19, LFN 2010.
[21] See
Sections 116-119 of the Petroleum Industry Bill 2012.
[22] Not
profit in this instance means the company’s adjusted profit less royalty,
allowable deductions and allowances less Nigerian Hydrocarbon Tax less
Companies Income Tax.
[23] Fiscal
rent is defined as the aggregation of royalty, Nigerian Hydrocarbon tax and
companies Income Tax obligation arising from upstream petroleum operations.
[24]
Sections 120-147 of the Petroleum Industry Bill 2012.
[25] Ibid, Section 121(1)(a).
[26] Ibid, Section 142(1).
[27]
Companies and Allied Matters Act,CAP C20, LFN 2007(now Cap C20 LFN 2010).
[28]
Sections 120 & 123 of the Petroleum Industry Bill 2012. It should be noted
that Section 27(3) of the CAMA-provides that “(a) subscriber of the memorandum
who holds the holds the whole or any part of the shares subscribed by him in
trust for any other person shall disclose in the memorandum that fact and name
of the beneficiary”. Thus, the permanent secretary (although a trustee and
legal owner of the 1% shareholding interest) must disclose the nature of its
“trust” relationship with the corporation as beneficial owner.
[29] Ibid, Section 125.
[30] Ibid, Sections 148-158.
[31] See
>http://nnpegroup.com/NNPCBUSINESS/Subsidiark.aspx>
[32] The
future role of NAPIMS will have to be redefined or terminated in the light of
the newly formed corporation.
[33] Certain
Subsidiaries of the NNPC are listed in Part 1 of the First Schedule of the Privatization Act for “partial
privatization? On a related note, the
NNPC itself is listed in Part II of the Schedule of the Privatization
Act for full commercialization
[34] Ibid, Section 135.
[35] Ibid, See Section 362 for the definition of “downstream
Operations’
[36] Please note that Section
163(1) reads: “following incorporation of the National Gas Industry Company
PLC, the assets and liabilities field by NNPC on behalf of the federal
Government of Nigeria except Nigeria Gas Company PLC shall be vested in the
National Oil and Gas Company PLC within twelve to twenty four months form the
Effective rate”. Considering the Nigeria Oil and Gas Policy 2004, it seems the
phrase in bold should or was intended it to red “---- in the Nigerian Gas
Company Limited---“
[37] Ibid, Section 170.
[38] Ibid, Section 194.
[39] Ibid, Section 184, for conditions and
other relevant provisions.
[40] Ibid, Section 172 and 190.
[41] Ibid, Section 19(3).
[42] Ibid, Section 199.
[43] Ibid, Section
194(1) , provides that, “where a licenses, lessee or production sharing or
service contractor is taken over by another company or mergers, or is required
by another’s company either by acquisition or exchange of hares, including a
change of a control of a parent company, outside Nigeria, it shall be deemed to be and treated days an
assignment within Nigerian and shall be subject, to the terms and conditions of
this Act and an regulations made under it.”
[44]Ibid, Section 194 (2).
[45] Section
194(2) of the Petroleum Industry Bill 2012 provides: “A licenses, lessee or
contractor shall not assign his licenses, lessee or contract, or any part
thereat, or any right, power or interest within without the prior written
consent of the Minster.”
[46] Ibid, Section 174.
[47] Ibid, Section 206 (1).
[48] Ibid, Section 206 (1).
[49] Ibid, Section 208 (1).
[50] Ibid, Sections 206-212.
[51] Ibid, Section 209.
[52] Ibid, Section 269.
[53] Ibid, Sections 289-298.
[54]
Administered by the Federal Inland Revenue Service (“FIRS”), subject to the Authority, Direction, and
Control of the Minister of Petroleum.
[55]
Upstream petroleum operations comprise upstream gas operations and upstream
crude oil operations “Upstream crude oil operations” means the winning or
obtaining of crude oil in Nigeria by or on behalf of a company on its own
account for commercial purposes an shall
include any activity or operation related to crude oil that occurs up to
fiscal sales point is transfers to the downstream sector, while “upstream gas
operation gas operations” means the winning or obtaining of natural gas in
Nigeria by or on behalf of a company on its own account for commercial purpose
and shall include any activity or operation related to natural gas,
including but not limited to the
treatment of gas, that occurs up to the fiscal sales point or transfer to the
downstream sector.
[56] See
generally part viii (a) of the Petroleum Industry Bill 2012, which comprises
Section 270-353.
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