The Extent of Ministerial Powers under the Petroleum Industry Bill 2012

Feature article

All I want is a warm bed and a kind word and unlimited power.
Ashleigh Brilliant

The phrases, “the Minister may”, “as may be decided or imposed by the Minister” “the Minister shall have the right” are phrases commonly sighted in the Petroleum Act 1969, the principal legislation currently governing the Nigerian petroleum industry as well as subsequent industry legislations. These Ministerial powers cover a multitude of issues ranging from power to grant upstream and downstream petroleum licences, prescribe terms and conditions of licences, control pricing of petroleum products, declare national emergency,[1] order discretionary suspension of petroleum operations and make regulations, to mention a few. These provisions have resulted in the vesting of a huge amount of power in a single office with almost unfettered powers to direct the affairs of this very sensitive industry. The product has been an industry with a record of abuse of power, lack of transparency and accountability and ineffective regulatory oversight, resulting in little or no benefit being derived by the citizenry.

It is therefore not surprising that in crafting a new and improved legislation for the petroleum industry, embodied in the Petroleum Industry Bill (the “PIB” or “Bill”), one of the policy drivers for the Bill would be the creation of appropriate institutional structures through the establishment of clear and transparent regulatory frameworks with shorter approval cycles and clearer focus. In line with this policy, the main function of the Minister should be that of broad policy advisory and policy implementation and general regulatory oversight, thereby ensuring management separation between policymaking and enforcement of regulations. Thus, whilst recognizing the important industry oversight role to be played by the Minister, an effective legislation should give room for the individual institutional regulators to perform their roles without undue interference.

 

The question then is, will the current PIB before the National Assembly (“PIB 2012”) deliver on this objective? Do we have a document that effectively apportions industry oversight functions in a manner which protects national interest, maximizes the economic value and benefits to the Nigerian people whilst at the same time engendering stakeholders’ confidence in the industry?

 

PIB COMPARISON

A quick comparison of the provisions of the Petroleum Industry Bill 2008 (“PIB 08”) and the 2009 PIB Inter Agency Team Draft (“IATD”) with the PIB 2012 reveal a significant departure by the PIB 2012 from the two previous drafts of the Bill as to the extent of Ministerial powers that is more akin to the Petroleum Act in the seeming unlimited hold of the Petroleum Minister over the industry, more particularly over the upstream sector:

 

• Whilst under the IATD, the commercial functions of the Upstream Petroleum Inspectorate (“Inspectorate”), the upstream technical and commercial regulatory agency, are clearly spelt out, the PIB 2012 has limited the powers of the Inspectorate in this regard by providing that the commercial regulatory functions of the Inspectorate shall be limited to activities as may be designated by the Minister. This  creates uncertainty as to the ambit of the Inspectorate’s commercial functions whilst allocating more discretionary powers to the Minister in the process;
• The Inspectorate is required to seek Ministerial consent to structure the institution into such number of departments as it deems fit for the effective discharge of its functions. This is clearly reminiscent of the current bureaucracy plaguing the system. One begins to wonder why the Minister’s voice must be heard before a Board constituted by industry experts carefully chosen on the advisement of the Minister himself, needs approval and guidance to set up departmental structures?;
• Whilst under the PIB 08 and IATD, the President is responsible for the appointment of the members of the Board of the Inspectorate and the Petroleum Products Regulatory Authority (“PPRA”) (responsible for the technical and commercial regulation of the downstream sector) save for those industry experts specifically stated to be appointed by the President on the recommendation of the Minister, the PIB 2012 now requires the entire Board of the Inspectorate and the Downstream Petroleum Regulatory Agency (“Agency”) to be appointed by the President upon the recommendation of the Minister. Furthermore, the appointment of the Director General and Directors of the Board of the two institutions are to be approved by the Minister;
• The PPRA under the PIB 08 and IATD was empowered to develop market rules for trading in wholesale downstream gas subject to consultations with stakeholders. Under the PIB 2012, the power of the Agency to develop and implement market rules for trading in wholesale downstream gas is subject to the approval of the Minister;
• In addition to the Minister being the Chairman of the Board of the Petroleum Technology Development Fund, contrary to the provisions of the PIB 08 and IATD, the recommendation of the Minster is now required before the President can appoint certain members of the Board including the position of the Executive Secretary. The position is similar with regard to the membership of the Board of the Petroleum Equalisation Fund (“PEF”). In addition to the Minister’s influence in recommending some of the members of the Board for appointment by the President and unlike the previous versions of the Bill which stipulates that a representative of the National Petroleum Directorate (equivalent of the current Ministry of Petroleum Resources) shall be the chairman of the Board, the PIB 2012 specifically appoints the Minister as chairman. It might be interesting to mention that where the Board fails to pay a claim successfully made by a petroleum product marketing company, the Bill requires the Board to pay a penalty to be prescribed by the Minister who of course we know is also the chairman of the Board. Considering the vast membership of the PEF Board with representation from various industry stakeholders, it is not clear why such penalty is not left to be prescribed by the Board or even clearly stipulated in the Bill (afterall, the penalty for late payment of surplus revenue due from a marketing company is clearly stipulated) but is rather another feather in the Minister’s burgeoning cap of Ministerial discretion;
• Much like the Nigerian National Petroleum Corporation Act 1977, (”NNPC Act”), the PIB 2012 establishes the National Petroleum Assets Management Corporation (the ”Corporation”) to acquire and manage Government’s investments in the Nigerian upstream petroleum industry by operating fully on commercial principles. The Corporation shall also have as one of its subsidiaries, the Nigerian Petroleum Assets Management Company Limited, (the “Management Company”) to which shall be transferred the assets and liabilities comprising exclusively the interests in all the unincorporated joint ventures held by NNPC on behalf of the Government excluding any asset vested in the National Oil Company (“NOC”) which is to replace NNPC. The governance provisions of the Corporation is also along the lines of the provisions of the Nigerian National Petroleum Corporation Act, with the Minister once again taking the role of chairman of the Board as well as assuming supervisory functions of the affairs of the Board (the Board is required to submit mid-year and annual reports of its operations and finances to the Minister). We are all aware of the current problems facing most of NNPC’s subsidiaries ranging from lack of transparency and accountability and gross inefficiency, a state of events which has rendered most of these entities practically moribund. It is therefore puzzling to see the PIB 2012 following in the footsteps of its predecessor, the Petroleum Act in the administration of the affairs of the Corporation. International best practice dictates that the management of government enterprises should not be within the responsibility of the sector ministry which controls policy compliance. Outside of receiving dividends and monitoring financial performance, the government should not intervene in the day to day management or operational policy. If it is indeed efficiency, accountability and productivity that we are aiming to achieve by the new legislation, it would not hurt the Minister’s status to exclude its office from the management of the Corporation. A regulatory oversight and policy compliance function would in our view suffice;
• Another issue which to our mind merits discussion is the half hearted effort made by the PIB 2012 to set clear parameters with regard to the exercise of certain powers by the regulator, particularly the Minister, on matters affecting the conduct of business of operating companies. A good example is the assignment, mergers and acquisition provisions of the Bill. Under the PIB 08 and IATD, clear criteria to be fulfilled by a company wishing to assign its oil and gas interests are set out, the fulfillment of which obligates the Minister to grant its consent to an assignment. The PIB 2012 seem to have regressed to the current position under the Petroleum Act which is to the effect that the Minister shall not give his consent to an assignment unless he is satisfied that certain specified conditions have been met. This provision is couched in such a fashion that it gives the Minister discretion as to whether or not to give consent, more so because the Act empowers the Minister to set such terms as he deems fit for the grant of his consent to an assignment. Similarly, under the PIB 2012, the Minister has discretion as to whether or not to consent to an assignment even after the fulfillment of specified criteria by the operator;
• It is also interesting that although the previous drafts of the PIB requires the Inspectorate to make recommendation to the Minister for the purpose of making regulations for fees and royalties to be paid by upstream operators, the PIB 2012 has conveniently done away with the need for the Inspectorate’s input, thus vesting complete powers in this regard on the Minister. Need we say more?

 

CONCLUSION

Investors do not like uncertainties and a legal regime that fosters uncertainties and glorifies the use of discretionary powers by regulators is unattractive and does not encourage confidence in the sector. As much as possible, regulatory powers should be exercised in accordance with explicit policies and predefined conditions particularly where the exercise of discretionary powers could result in the promotion of self-serving interests and favouritsm and once again, this PIB has fallen short of expectations in this regard. It is not clear why the PIB 2012 has been drafted in such a manner as to have the Minister’s hands dipped into so many upstream pies, but we advocate caution if indeed the goal is to achieve industry best practice.