A popular African proverb states, “When two elephants fight, it is the grass that suffers.” This analogy emphasizes the consequences of conflicts or disputes between powerful entities, where the weaker or less influential ones bear the brunt of the negative effects. In the case of Nigeria’s upstream petroleum industry, the powerful entities are represented by the Nigerian Upstream Petroleum Regulatory Commission (“NUPRC”) and the Nigerian Midstream and Downstream Petroleum Regulatory Authority (“NMDPRA”), while the weaker parties are the upstream companies regulated by them.
In recent months, these two entities have been engaged in a dispute over the authority to regulate terminal operations and the export of crude oil. This conflict stems from ambiguities in the Petroleum Industry Act (“PIA”). This paper traces the origins of the problem and proposes alternative approaches to the adversarial position taken by the regulators.
Background: Single or Multiple Regulator
The PIA, enacted in 2021, established the NUPRC and NMDPRA. Before the PIA, the Department of Petroleum Resources (“DPR”) regulated the entire industry value chain, at least in terms of technical regulation. The Petroleum Products Pricing Regulatory Agency (“PPPRA”) was responsible for petroleum product pricing, while the Petroleum Equalization Fund (“PEF”) managed funds to ensure uniform pricing of premium motor spirit (“PMS”) throughout Nigeria. Leading up to the passage of the PIA, policy analysts debated whether regulatory responsibilities should be consolidated in a single regulator (Single Regulator Model or SRM) or split between separate regulatory institutions for the Upstream and Midstream/Downstream sectors (Bifurcated Regulator Model or BRM). The 2017 Petroleum Policy proposed the SRM, arguing that it would consolidate regulatory expertise, enable seamless sector planning, and avoid redundant regulation. However, proponents of the BRM argued that the DPR’s focus on the upstream sector neglected the midstream and downstream sectors, which had the potential to contribute more to the country’s GDP and job creation. Ultimately, the arguments in favour of the BRM prevailed, leading to the establishment of the NUPRC (a merger of parts of the DPR and the defunct Petroleum Inspectorate) and NMDPRA (a merger of parts of DPR, PPPRA & PEF).
The (Ambiguous) Regulatory Responsibilities under the PIA
According to the PIA, the NUPRC is “responsible for the technical and commercial regulation of upstream petroleum operations” [1], which encompass exploration, development, and production. [2] What is less clear is whether the evacuation and sale of crude oil fall within the upstream sector as defined. Section 7(ee) of the PIA grants the NUPRC the power to “issue certificates of quality and quantity to exporters of crude oil, natural gas and petroleum products from integrated operations and crude oil export terminals established prior to the effective date…”[3]. NUPRC is further empowered to “…monitor and regulate the operations of crude oil export terminals…”.[4] Further under section 8d, the NUPRC is placed “in charge of …integrated operations” and petroleum operations are considered integrated where “there is joint use of utilities used exclusively for upstream and midstream operations.” However, the provisions under 7(ee) are ambiguous and possibly contradictory, as they grant the NUPRC the power to issue certificates for natural gas and petroleum product exports but specify that these exports must come from crude oil export terminals. Additionally, the determination of whether an operation is “integrated” is left to the NUPRC’s discretion. In practical terms, offshore operations, with FPSOs and FSOs are likely to be regarded, with minimal disputes, to be “integrated” Offshore operations with FPSOs and FSOs are likely to be considered integrated, but the provisions lack clarity regarding onshore operations. The lack of clarity has already led to disputes with NMDPRA rejecting the classification of an integrated operation.
On the other hand, the NMDPRA is responsible for the “…technical and commercial regulation of midstream and downstream petroleum operations…”, encompassing “midstream petroleum liquids operations and midstream and downstream gas operations”. [5] The definition of petroleum liquids operations includes storage facilities and export terminals for petroleum liquids, which encompasses crude oil export terminals. When read independently, these definitions indicate that the NMDPRA has jurisdiction over midstream petroleum operations involving facilities and terminals for exporting petroleum liquids, including crude oil. However, when considered alongside the provisions granting the NUPRC jurisdiction over existing crude oil export terminals, the situation becomes confusing. Section 32(ii) of the PIA further empowers the NMDPRA to” issue certificates of quality and quantity to exporters of crude oil, LNG, and petroleum products.”
The Dispute
The jurisdictional dispute emerged shortly after the passage of the PIA and the appointment of staff for the regulatory agencies. Both regulators asserted jurisdiction over crude oil export terminals, leading to a situation where oil companies required clearance and approval from both regulators to export crude oil. Additionally, the development of new facilities necessitated “factory assurance tests” involving physical visits to construction sites, requiring staff from both regulators to be present simultaneously. This multiplicity of regulations increases costs and could result in an absurd situation where one regulator approves while the other declines to approve.
A series of failed interventions
A series of unsuccessful interventions followed. The former Minister of State for Petroleum, Chief Timipre Sylva, attempted to intervene twice by issuing directives in February and July 2022. These directives aimed to assign different export terminals to each regulatory agency but failed to resolve the dispute. Subsequently, the Senate conducted an investigation into oil lifting, theft, and the impact of petroleum production and oil revenues. The Senate’s resolutions included declaring the July 2022 directives inconsistent with the PIA and calling for the NUPRC to resume regulatory oversight of all existing crude oil export terminals and pipelines. However, this intervention also proved unsuccessful. In May 2023, the former President issued a directive confirming the Senate’s resolutions and affirming that the NUPRC was the sole regulatory entity responsible for monitoring and regulating all existing crude oil export terminals in Nigeria. Recent reports suggest that even this intervention has failed. Directives and counter-directives have been issued by both regulators, threatening oil industry operators with sanctions if they deal with the other regulator. Recent reports also indicate that the NMDPRA has reported a major oil and gas company for the alleged illegal lifting of petroleum products. This has in turn been countered by the NUPRC, which claims jurisdiction over the terminal and asserts that it had issued all the required clearances.
The situation is untenable, causing confusion, increased costs, and an unstable environment. While the primary cause lies in the ambiguous provisions of the PIA, the situation appears to be exacerbated by a desire to exert control over the revenue generated from the regulation of crude oil export terminals. Industry operators should not suffer the consequences of misalignment between two government agencies.
Judicial Interpretation – A short-term resolution?
To resolve the quagmire, the fastest solution, without amending the PIA, would involve judicial intervention. The court is the appropriate forum for resolving disputes between regulatory agencies and interpreting laws such as the PIA. Either regulatory agency can initiate legal action by filing Originating Summons seeking a judicial interpretation of the relevant PIA provisions. If the agencies fail to do so, the industry, either through individual companies or industry bodies, should bring legal action seeking interpretation of the contentious legislation.
Amendment of the PIA
Ultimately, amending the PIA is necessary. In addition to addressing the outlined ambiguities, the amendments should also tackle implementation challenges that have emerged. If the regulatory agencies are unable or unwilling to resolve their differences, the Tinubu government may need to consider establishing a single regulator (at least over the upstream and midstream sectors).
Concluding Remarks
Nigeria’s oil and gas industry remains the country’s foremost sector and foreign currency earner. The industry requires regulatory clarity, reduced regulatory costs, and smart regulation. The current regulatory quagmire must be speedily resolved to encourage the required investment.
[1] Section 4(3) of the PIA.
[2] The definition of “upstream petroleum operations” is extensive – “the exploration for, appraisal of, development of and winning or obtaining of petroleum in Nigeria by or on behalf of a company on its own account for commercial purposes, petroleum exploration operations, the drilling of exploration, appraisal and development wells, all activities upstream of the measurement points, related to the winning of petroleum through wells or mining from petroleum reservoirs, drilling, fracking, completing, treatment and operation of wells producing petroleum, construction and operation of gathering lines and manifolds for crude oil, natural gas and water, construction and operation of high and low pressure separators, construction and operation of facilities to treat crude oil and natural gas, flaring of natural gas, compression and reinjection of natural gas in reservoirs, construction and operation of facilities for the production of electricity or heat from natural gas or other fuels as energy source for the winning of petroleum, injection or re-injection of water into the reservoirs, construction and operation of pipelines and other facilities for the discharge of water, construction and operation of fixed or floating platforms or other vessels required for the winning of petroleum, construction and operation of fixed or floating storage facilities of crude oil in the licence area, transportation to and from the licence area of personnel, goods and equipment, metering of well stream fluids, metering of petroleum at the measurement points prior to transportation, sale and marketing of crude oil, natural gas or condensates or any of them at the measurement points and such other activities which by regulation are considered upstream petroleum operations, and related administration and overhead, provided, however, that where field facilities or fixed or floating platforms or vessels provide for fully integrated upstream and midstream petroleum operations, the Commission may consider the entire operations as upstream petroleum operations under section 8 (d) of this Act ;”
[3] Emphasis added.
[4] Section 7(ee) of the PIA.
[5] Section 318. Midstream petroleum liquids operations mean “activities downstream of the measurement points of petroleum mining leases, whether or not related to the petroleum mining lease, with respect to the construction and operation of facilities for upgrading of heavy oil, construction and operation of lubricant,
petrochemical and fertiliser plants, construction and operation of petroleum liquids transport pipelines, including the related pumping stations; acquisition, operation, leasing, rental or chartering of barges, coastal or ocean-going tankers, railcars and trucks for the transport of petroleum liquids, construction, leasing and operation of tank farms and other storage facilities and export terminals for petroleum liquids, construction and operation of refineries, purchase and sale, trading, bartering, marketing of petroleum liquids and related administration and overhead” (emphasis added). Midstream gas operations is defined to mean “activities downstream of the measurement points of petroleum mining leases, whether or not related to the petroleum mining lease, with respect to the construction and operation of natural gas transport or transmission pipelines, including the related compressor stations, construction and operations of facilities to compress, transport and deliver compressed natural gas (CNG); construction and operations of gas processing facilities and central processing facilities, producing ethane, propane, butane and natural gas liquids and marketable natural gas; construction and operation of underground or above ground facilities for the storage of natural gas, ethane extraction plants, construction and operation of gas to liquids (GTL) plants, construction and operation of lubricant, petrochemical and fertiliser plants, construction and operation of LNG plants, and related LNG terminals as well as storage and transport of LNG, acquisition, operation or chartering of LNG tankers for coastal and marine transportation, purchase and sale, trading, bartering, aggregating and marketing of natural gas transported by pipelines, compressed natural gas, LNG, methane, ethane, propane, butane, natural gas liquids and liquids from GTL plants with respect to wholesale customers and gas distributors and related administration and overhead;”. Finally, the PIA defines petroleum liquids to include crude oil.