By Prof. Kathleen Okafor
Oil is a natural petroleum product from hydrocarbon deposits and other organic materials. As a major source of income for the Nigerian economy, it accounts for as much as about 70% of government revenue, and more than 83% of the country’s total export earnings. Nigeria is the eleventh largest oil producer in the world with about 35.2 billion barrels of crude oil reserves.
Petroleum usually refers to a refined product of crude oil, a black liquid found in geological formations beneath the Earth’s surface. Components of petroleum are separated using a technique called fractional distillation.
Recent improvements in technology have led to exploitation of the unconventional reserves such as oil sands and oil share shale oil. Once extracted, oil is refined and separated, most by distillation, into numerous products for direct use or in manufacturing, etc. such as gasoline (petrol), diesel and kerosene to asphalt and chemical reagents used to make plastics, pesticides and pharmaceuticals.
The Production process of Petroleum:
Crude oil occurs underground, at various pressures, depending on depth. It can contain considerable natural gas. All the fluids are collected by surface equipment for separation.
The significance of oil as a world energy resource is difficult to overemphasize. The growth in energy production during the 20th Century was unprecedented, and increasing oil production has been by far the major contributor to that growth. The position of our country in this system depends on its production capacity as related to its consumption. With no iota of doubt, the Petroleum Industry Act is a game-changer for the industry. The Act will provide a standard and uniform regulatory framework for the oil and gas sectors in Nigeria.
Before the introduction of the Petroleum Industry Bill (PIB), 2021, various restructuring efforts had been made to restructure the oil and gas industry, but without any real success. Prior to this, there were various iterations of the Bill. This started as an omnibus bill and was later divided into 4 separate bills before emerging as a consolidated bill. The previous attempts at passing the Petroleum Industry Bill were known to have failed due to various factors such as lack of ownership, misalignment of interests between the National Assembly and the Executive, perceived erosion of ministerial powers, stiff opposition by the petroleum host communities and push back by investors on the perceived uncompetitive provisions in the previous versions of the Bill.
Salient provisions of the Actare;
All employees of NNPC are to be deemed employees of NNPC Ltd.
The Key objective of the PIB is to transform the Nigerian Oil Gas Industry.
The NNPC (Nigerian National Petroleum Corporation) will now be unbundled.
The NNPC will now be registered as a private company limited by shares under CAMA.
The NNPC will now be NNPC LTD.
Its shares will be held by the Ministry of Finance on behalf of the Federal Government
The Bill provides for the establishment of the Nigerian Upstream Regulatory Commission whose role is to regulate the technical and commercial aspects in the operations undergone at the upstream stage.
The commission shall have the power to acquire, hold and dispose of property, sue and be sued in its own name.
The Bill provides for the establishment of Nigerian midstream and downstream Petroleum Regulatory Authority.
The Fiscal Objective of the Bill is to provide a framework that will attract investors to the Petroleum Industry and generate revenue for the government while ensuring that investors get their money’s worth.
The Bill vests ownership of the Corporation in the Ministry of Finance.
Transfer and sale of the shares are to be approved by the Government and endorsed by the National Economic Council.
Assets, interests and liabilities in NNPC will be transferred to NNPC Limited.
It is hoped that the Petroleum Industry Act will now achieve the following objectives;
To define the relationship between the society and investors.
To determine how costs are recovered and profits shared among stakeholders.
To establish an innovative mechanism.
To fund petroleum host communities’ directly through trust funds.
To improve transparency and accountability in the oil and gas business.
To reduce overlapping in the roles of governance.
To create regulatory and policy institutions.
To create a conducive environment and to enhance the mutual benefit of petroleum operations in Nigeria.
Current Key challenges before the new NNPC Board:
It is trite corporate law that the Board is responsible for running the corporations. For NNPC which is basically commonwealth organisation, the Board will need to tackle the plethora of challenges which bedevil the corporation especially human resources optimization, relevant technical training of staff, promotion of women at all cadres of the NNPC and of the industry, local content/backward integration, social responsibility, minimisation of environmental degradation. Technical trainings is crucial to enable our citizens manage the industry to conserve foreign exchange.
With incorporation and a Boar, the shareholders, the government and institutional investors must be activist enough to demand market rates of Return on Investment (ROI) & Return on Equity (ROE) of the company’s performance for the common good of Nigerians. This means that current Board diversity must incorporate men and women of consummate managerial knowledge, know-how and skill.
The NNPC board must demonstrate capacity to eradicate epileptic and severe shortages in foreign exchange which developing nations like Nigeria chronically experience from commodities prices like petroleum if economic growth and development are to be pursued seriously. The oil industry, in Nigeria currently needs foreign exchange to finance development and infrastructure. Erstwhile, the country had accumulated foreign reserve under the Olusegun Obasanjo/Ngozi Okonjo-Iweala era, which shored up the naira.
The Board must ensure minimal bureaucracy to ensure optimum performance. Frequent delays in the payment of cash to the joint venture operators have usually brought about discouragement in investment by the oil companies. Insufficient funds must be addressed to enhance maintenance of equipment and efficient refinery operations.
Communal Disturbances
Frequent communal clashes have continued to disrupt crude production as oil communities’ revolt against oil spillage and clamour for a higher stake in oil operations. Illegal oil bunkering, smuggling and diversion of petroleum products are some of the problems being perpetrated by some oil communities. NNPC must restrategise its corporate social responsibilities to these communities for optimum results.
Hoarding and Adulteration of products
Some marketers, during time of scarcity hoard and adulterate petroleum products to sell at the black market at higher prices at the expense of the common good. It is possible to regulate these nefarious activities.
Other issues which the Act intends to address through the Board are comparative low level of investments in the sector against its potentials, high technical cost of production, due to low development in domestic technologies, communities’ crises which cause disturbances in production, and environmental degradation as a result of oil spillages poor waste and pollution management. These are the remit of the Board.
Finally, let the Board of Directors be reminded that these challenges can only be addressed if the statutory and non-statutory duties of the Directors, provided under the Companies and Allied Matters Act, 2020 are complied with. The Board will have to continue to stand in a fiduciary relationship towards the company and shall observe utmost good faith towards the company in all transaction. In summary, these duties are contained in Section 305 of the Companies and Allied Matters Act as follows (a) duty to stand in a fiduciary relationship towards the company (b) duty to observe utmost good faith towards the company in given transactions (c) duty to act as agent of a particular shareholder (d) duty to act at all times in the best interest of the company, preserve its assets, further its business and promote the purpose for which it was formed and in such a manner as a faithful, diligent, careful and ordinary skilful director (e) duty not to act in conflict to interests of the company (f) duty not to make secret profit or achieve other unnecessary benefits (g) duty to preserve the asset of the company (i) duty not partake in insider dealings.
Conclusively, if Directors carry out these statutory duties and their corporate social responsibility, the growth of the petroleum sector will be more than statutory.
Prof Kathleen Okafor, Law Lecturer at Baze University, writes from Abuja
