OPS Advises Government On Oil Industry Reforms  ….Opposes Single Industry Regulator

Image result for Manufacturers Association of Nigeria's LogoYemisi Izuora 

The Organised Private Sector, OPS has cautioned government to take a more realistic path in the ongoing efforts to restructure the country’s oil and gas industry.

The group is particularly worried that the Nigeria Petroleum Industry Bill (PIB) has been around in one form or the other since 2008 when it was first introduced. 

In a statement by Segun Ajayi-Kadir, director general, DG of the Manufacturers Association of Nigeria, MAN

 the group regretted failure of the 7th National Assembly to pass the Bill even when additional efforts were made to pass the 2012 version of the PIB as well as  similar failed attempts at prior parliamentary sessions.

“We have observed over the past 10 years the inability of Nigeria to drive reform in the oil and gas industry that will position our country as the preferred destination for investment in that sector of the economy. 

One of the reasons for this development is, of course, the failure of successive governments to articulate the appropriate legal framework that will underpin this reform. At some point in time, all efforts at achieving that descended into confusion as we had countless number of versions of the Petroleum Industry Bill (PIB) before the National Assembly, with no one in particular in the know of which version of the bills the National Assembly was deliberating on”, the group observed.

The DG noted that it was a refreshing relief when this dispensation of the National Assembly came up with the Petroleum Industry Governance Bill (PIGB), which is the only bill before the National Assembly to jump start the long needed reform in the Oil and Gas Sector. 

The group  therefore commended the National Assembly for bringing sanity to an otherwise confused and conflictual dispensation of reform initiative that characterized the past.

 Oriental News Nigeria reports that essentially the Petroleum Industry Governance Bill intends among other things ensure

The creation of efficient and effective governing institutions with clear and separate roles for the petroleum industry, establishment of a framework for the creation (out of existing government-owned entities) of commercially oriented and profit driven entities that will ensure value-add and internationalization of the petroleum industry and  promotion of transparency and accountability in the petroleum industry; and

The Bill is also expected to create a conducive business environment for operators in the petroleum just as it is further presumed that it will ensure that there is a high level of transparency in the Nigerian Petroleum Industry whilst at the same time ensuring that the industry is commercially driven and attractive to potential investors.

The OPS observed that if the Bill is passed in its current form, it will create a Nigeria Petroleum Regulatory Commission (NPRC) to replace the Petroleum Pricing & Products Regulatory Agency (PPPRA) and the Department of Petroleum Resources (DPR), establish a Fund (The Fund) to defray the expenditures of the Commission and there would be the incorporation of two companies – Nigeria Petroleum Assets Management Company (the Management Company) or such name as may be available and National Petroleum Company, which shall be vested with certain assets and liabilities of the Nigerian National Petroleum Corporation (NNPC).

It will also lead to establishment of the Ministry of Petroleum Incorporated (MOPI) under the Federal Ministry of Petroleum and the Laws (or Acts) setting up the PPPRA and the NNPC would be repealed while a transfer order shall be issued by the Minister of Petroleum Resources for the transfer of employees, assets, liabilities, rights and obligations of the NNPC to the incorporated entities.

Also any contract entered into by the DPR, PPPRA or NNPC prior to the Bill being passed into law shall be of the same force and effect against or in favour of the entity to which their obligations, assets and liabilities are being transferred.

The group said it is gladdening to note that the focus of the legislature is to enthrone reforms that would ensure greater transparency and accountability in the Nigerian oil and gas industry. 

While it commended certain aspects of the Bill, the group however, disagreed with the proposed establishment of a single regulator in the Bill. 

They observed that a cursory look at some of the provisions of the PIGB revealed the likely emergence of the Petroleum Regulatory Commission (PRC) – an omnibus or humongous commission that will be empowered to regulate the entire petroleum sector.

” We do not share the views of the National Assembly on creation of a behemoth regulator for a sector that is not necessarily homogenous in its activities and deliverables” they noted. 

The OPS argues that the  idea of a single regulator for the whole sector runs contrary to industry standards which by default already provide for an Upstream and Downstream Regulator pointing that the responsibilities expected to be handled by the proposed Commission is too wide.

” It cuts-across various value chains in a key sector of the economy. For Instance, the weight and measures functions is expected to be solely vested in the Commission and all government agencies exercising powers and functions in relation to the petroleum industry would be required to consult with the Commission.  The bureaucratic bottlenecks that will arise would clearly negate the ease of doing business policy vision being pursued by the present Administration. We believe that an omnibus regulator will further result in cumbersome and constant delays in securing the necessary approvals to conduct business” it observed. 

They insist that a single regulator will create complexities and challenges for operators in the petroleum value chain because the structure, operation and nature of the downstream are totally different from that of the upstream sector, stressing that there are different operators on the petroleum sector value chain with multifarious and diverse objectives – ranging from guarding against systemic risk to protecting the individual consumer from fraud. 

They maintained that these diverse objectives will be too complex for a single regulator to effectively manage, adding that a downstream regulator should focus on all commercial and  technical activities in the downstream sector, while an Upstream regulator should oversee the technical and commercial activities in the upstream sector.

They raised the fear that an all-powerful single regulator will not be able to technically examine and appreciate the regulatory, commercial and other operating environment issues from the deserved different dimensions and from the different viewpoints of the stakeholders.

They further notes that a single unified regulator is effectively a regulatory monopoly which in the long run will promote the usual monopoly related inefficiency, warning that a monopoly regulator is that its functions by default would be more rigid and extremely bureaucratic than of specialized agencies regulating the downstream and upstream separately.

‘A single regulator will not spur competitiveness nor enhance the contribution of Upstream and Downstream sectors to the national economy.

The creation of a single regulator implies placing enormous responsibilities on a single entity of Government especially with regards to the complexities of the Upstream and Downstream sectors which require astute efficiency and monitoring to achieve the required productivity. A single regulator would not be able to effectively handle the enormous challenges and complexities of the Petroleum Industry as well as the vast sub sectors within its value chain” they observed.

They therefore insisted that it is unsuitable to concentrate too much power in one body in a sector where there are different players as the creation of an omnibus commission to regulate the downstream and upstream with the same checklist and yardstick will not be industry-friendly. 

Moreso, they said that contemporary economic order favours decentralization as it brings about specialization, competitiveness and quality delivery, saying that what is required is a slim, yet focused robust framework for effective institutional governance of the Nigeria Petroleum Industry.

It also raised the issue of the proposed establishment of Boards for the Commercial Entities.

The feared that the composition of these boards as proposed did not reflect appropriate balance of powers to ensure effective Board oversight; reduce the risk of executive-led decision-making; and promote adequate independence of the board to minimise undue government interference.

 In their recommendations the OPS canvassed for the creation of two regulatory bodies each focusing on the downstream and upstream sectors of the Industry and on the entire gamut of technical and commercial issues in each of the sub-sectors.

“Being mindful of need to merge and streamline the number of existing regulatory agencies in the face of dwindling revenue of Government; we hereby affirm that there is no need creating another regulatory agency that will further swell the list of existing agencies with similar functions and duplicated mandates. Specifically, we canvass a simplified arrangement where the Petroleum Products Pricing Regulatory Agency (PPPRA) which has been saddled with the responsibility of commercial regulation since 2003 and has the relevant experience, structure and personnel, should be strengthened to continue to superintend the downstream sector of the Petroleum Industry while the Department of Petroleum Resources (DPR) oversees the upstream sector.

We strongly recommend a reform in this direction, particularly if it realized that in 2003, Government in its wisdom having taken into cognizance the decay and inefficiency that characterized the downstream sector established the Petroleum Products Pricing Regulatory Agency (PPPRA) as a separate and distinct regulatory body to oversee the downstream sector. 

This singular act has to a large extent restored the commercial viability of the sector through private sector investment” it said.

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