The Institute of Directors (IoD) on Monday highlighted important areas to be reviewed by the authorities to engender the successful implementation of the Petroleum Industry Act (PIA).
Dr Ije Jidenma, President, IoD, gave the advice in a policy paper titled: “Making the Petroleum Industry Act work: A Position Paper,” on Monday in Lagos.
Jidenma said that while there was no such thing as a perfect piece of legislation, recent events pointed to implementation ‘headwinds.’
She stressed that Nigeria in its implementation of the PIA must send the right signals consistent with the outlined noble objectives.
Jidenma outlined the institute’s concern with its implementation to include stalled downstream deregulation, implementation complexities, need for gas investment incentivising, and Environmental, Social and Governance (ESG) issues.
According to her, the Federal Government’s decision to stall the Act raised further questions on section 53 (7) which requires “NNPC Ltd and any of its subsidiaries to conduct their affairs on a commercial basis in a profitable and efficient manner without recourse to government funds.”
This, she said, was highlighted in view of the sum of $341 billion (or N1.43 trillion) which was reported to had been spent in 2021 on petroleum subsidy.
Jidenma tasked government to create an enabling environment that would make implementation of deregulation easier and readily acceptable.
“Pending their full privatisation, government must fast-track the ongoing full rehabilitation of refineries to ensure that the import freight element in the price of product is minimised;
“Government should review the current fuel pricing mechanism and must as a matter of urgency, work on removing all the inefficiencies and distortions that are negatively impacting the landing costs of products,” she said.
She noted that feedback from the business community suggested that some aspects of the Act might prove difficult to implement in practice because of inherent complications.
Jidenma cited two examples that would suffice as: the hydrocarbon tax and Company Income Tax (CIT) overlap and conversion from existing Oil Prospecting License (OPLs) to the new Petroleum Prospecting License (PPLs).
She noted that while section 302 (1) states that CIT shall apply to companies engaged in petroleum operations (upstream, midstream and downstream), section 260 (1) states that Hydrocarbon Tax shall apply to companies upstream: onshore, shallow water and deep offshore.
“Hence, upstream firms would be subject to both Hydrocarbon Tax and CIT.
“Section 92 (1) allows for the voluntary conversion of existing oil prospecting license (OPL) to a petroleum prospecting license (PPL).
“However, the OPLs cover a larger size of 2,950 square kilometres while the new PPLs depending on terrain cover 300 square kilometres (onshore and shallow offshore) and 1,000 square kilometres (deep offshore).
“Conversion may not be as straight- forward as anticipated by the Act.
“To reduce the pain from implementation complexity, IoD Nigeria is putting forward the need to develop a uniform template for dealing with overlaps; and provide greater clarity on voluntary lease conversion and a clear timeline,” she said.
She recommended the exemption of non-associated gas producers and developers from disallowing borrowing cost for the purpose of CIT computations.
“State an objective basis for determining the length of the transition from a regulated regime to a ‘willing-buyer, willing-seller’ gas market.
“Except where it is strictly in the public interest, undue price regulation should be avoided,” she said.
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The IoD President noted that while there was evidence that the PIA attempted to incorporate ESG principles, there were many ‘missing links.
She said that the Act failed to encourage or mandate sustainability reporting.
Jidenma added that the NNPC Ltd Board reflected a degree of gender diversity but that might not be true of the Commission and Authority.
According to her, a review reveals that only one in six appointees in the boards of NNPC and the two regulatory authorities, put together, are women.
She said that there were no prescription on the matter for other boards of companies in the petroleum operations space.
“In view of Nigeria’s declared commitment to Net-Zero 2060 at the CoP26 held in Glasgow, UK – three months after the Act was signed – it is important that urgency implied by the commitment is reflected in the speed and implementation of the PIA.
“The Act ought to include a specific penalty for failure to comply with section 103 and for environmental damages.
“While it is commendable to have in place trusts and plans that cater for host communities, it is important to ensure related funds are well-managed and properly accounted for, if the desired socio- economic growth will result.
“Equally important is for all players, as a matter of good practice, to incorporate sustainability reporting as part of applying ESG principles.
“The Act should prescribe what companies engaged in petroleum operations (upstream, midstream and downstream) should consider adequate gender balance,” she said.
(NAN)
