Over years obsolete laws have guided operations in the industry creating multiple challenges in revenue sharing formulas and reducing influence of indigenous operators itching to play in the market.
Not tool long after the Petroleum Industry Act (PIA) came into force experts have identified key gaps that tend to stall revenue stream and putting pressure on governments coffers.
During a recent event the Independent Petroleum Producers Group (IPPG), Board of Trustees member and Executive Vice Chairman of ND Western Limited, Dr. Layi Fatona, outlined ambitious goals for Nigeria’s energy sector, including achieving daily production targets of 4 million barrels of oil and 13 billion cubic feet of gas by 2030.
Fatona, however emphasised the need to amend critical aspects of the Petroleum Industry Act (PIA), conclude IOC divestment transactions, sustain the “Decade of Gas” initiative, improve Niger Delta security, and upgrade infrastructure for domestic and export markets.
Fatona commended the Tinubu administration’s bold reforms, noting their positive impact on oil and gas production. “These reforms position Nigeria as a global energy leader,” he remarked.
As IPPG looks toward a transformative year, Fatona reaffirmed the group’s commitment to energy security and socio-economic stability.
Similarly, minister of state, Petroleum Resources, (Oil) Senator Heineken Lokpobiri, has stated that the rework of the Petroleum Industry Act (PIA) was critical to Nigeria’s monetary and fiscal policy environment and for better implementation of the law.
Lokpobiri stressed that this was even more critical with crude oil contributing about 90 per cent of the nation’s foreign exchange and up to 65 per cent of the government’s revenue.
He highlighted this in his keynote address in Asaba, Delta State, during the 8th edition of National Council on Hydrocarbons (NCH) with the theme: “The Petroleum Industry Act (PIA) 2021: The Journey So Far,” a statement from the ministry signed by its Assistant Director of Information and Public Relations, Christopher Ugwuegbulam said.
The new PIA repealed about 10 Acts of the National Assembly relating to the oil and gas industry and consolidated the laws into a single Act, Lokpobiri who was represented by the director of upstream department in the ministry, Kamoru Busari, said.
The minister informed his audience that the annual event of the ministry commenced in 2016 and has been sustained till date, explaining that it was established to garner ideas that will enhance good policy formulation and implementation in the energy sector. “ Overhauling the Act would cover gaps and give room for better implementation,” he added.
Lokpobiri therefore urged the council to be focused in the discussions and be objective in taking decisions on the memoranda that will be presented.
“Remember, the decisions you take today will affect positively or otherwise the future of this industry,” he said.
The Stalled Revenue Initiative
At an event in Lagos, there appear a major disagreement between upstream oil and gas operators and the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA), with regard to the collection of 0.5 per cent levy of gas sales to offtakers.
They are also concerned that the Authority has not provided sufficient leadership as acclaimed business enabler thus resulting in near activities collapse in the sector as debt recovery for gas supplied to customers have not been paid.
However, the agency said it will not abandon its commitment and responsibility to the operators.
Speaking at the stakeholder sensitisation workshop on wholesale Supply operations in Nigeria, the chief executive officer of the agency, Farouk Ahmed, said producers should take responsibility for the collection of the levy.
Some producers at the forum challenged the Authority on the said revenue collection.
Ahmed, who was represented by Joseph Tolorunse, legal adviser of the agency however said a resolution of the matter has become imperative to ensure seamless collection of the levy.
At the event stakeholders and the regulator were unable to reach concensus on who the responsibility it is to collect the 0.5 per cent levy on gas supply and remit such to the federal government.
Ahmed, however explained that the objective of the engagement is to address issues and concerns raised during the first phase of the NMDPRA sensitisation programme, with the aim of reaching an alignment that will enable the effective implementation of the wholesale supply operations.
He recalled that the PIA came into existence in August 2021, introducing licences for wholesale supply operations as prescribed in sections 142 and 197 of the Act. These licences he said are the appropriate licences for entities engaged in, or wishing to engage in, the sale and delivery of natural gas and petroleum liquids, for domestic use or exports.
He noted that the wholesale gas and petroleum liquids supply operations marks a significant evolution from the Petroleum Act of 1969 (PA) that was focused on production and exports only, to the Petroleum Industry Act of 2021 (PIA), which ensures domestic energy security in addition to exports.
The benefits of wholesale supply operations he said cannot be over emphasised, which include fostering investments across the petroleum value chain, enhancing transparency in hydrocarbon measurement, providing tools for enforcing domestic obligations, ensuring arm’s length dealings for a level playing field, and acting as a pathway for willing buyer-willing seller transactions of Nigeria’s hydrocarbon resources, amongst many other significant advantages.
However, due to unresolved issues, he said the NMDPRA has been overwhelmed with disagreements regarding the implementation of wholesale supply operations.
Also, at the sensitisation forum, stakeholders under the Oil Producers Trade Section stressed that there was nowhere it was stated in the PIA that they should be levy collectors for the government, calling on the regulator to assume that responsibility or put the responsibility on the customers.
The PIA stipulates that 0.5 per cent of the wholesale price of petroleum products sold in Nigeria, which shall be collected from wholesale customers, will be part of the revenues meant for the NMDPRA.
There were arguments about whether the money should be charged separately as in the Valued Added Tax.
But the regulator emphasised that the phrase, ’0.5 per cent of’ was used instead of ‘0.5 per cent on,’ saying the levy should be deducted from the wholesale price, being 0.5 per cent of it.
In his opinion of producers, they are not against the law, but they saw a lacuna in the PIA as it did not specify who should be the collector.
“The players in the industry don’t have issues with the regulation. The PIA is the law. But what we are trying to do right now is that we discovered some lacuna and some gaps in the law. Those gaps are the reason why we are here, so that both the NMDPRA, with the industry players would have an understanding of how to go forward. At the end of the day, there should be an understanding of how to go about the implementation of the PIA. We are not averse to paying the 0.5 per cent. It’s the law. It’s for the country.
“But what we are saying right now is, who is supposed to pay that 0.5 per cent is established. But who is the collector? Because in this case, the PIA did not specifically say that the oil producers would be the levy collectors.
“That is the position of the oil producers. The NMDPRA is saying that, since the producers are the ones that will sell this product to the final consumers, they should be the ones to collect that levy and remit it back to the authority. And we are saying, no. In the first place, when we came into the business as upstream operators, we were not meant to be collectors of levies. And so, if you are now telling us today that we should be the collectors of levies, it means that we are totally deviating from the primary reasons why we are seen as oil producers for the upstream business. So, that is the position of the oil producers,” a producer who would not want to be named told NATIONAL ECONOMY.
The vice chairperson of OPTS, Gas Sub-Committee, Princess Edeimu-Chukwumah of Chevron, James Makinde of Seplat, and other representatives from other oil companies rejected the proposal to be the collectors of the levy, saying it was not included in the PIA.
Reacting, NMDPRA Legal Adviser, Tolorunse said the workshop was a sensitisation programme organised to explain certain provisions of the PIA to the stakeholders.
“There are some issues encountered when we were implementing the PIA. These are the issues we wanted to discuss with our stakeholders so that we can reach alignment. One of the issues is the implementation of the collection of government revenues, especially the 0.5 per cent of wholesale price of petroleum, crude oil and natural gas. Because of the Provision. Sections 47 and 52 of the PIA empower the authority to collect these levies as part of the revenue. But the turning issue is that because the PIA actually did not specify the entity to collect it, but a regulation has been made to provide that the supplier should collect it and remit it to the government.
“But mind you, we have explained to them that the charges are not on the supplier. The levy is not on the supplier but rather on the wholesale customer. However, the convenient point to collect this levy is at the wholesale point. And since it forms part of the wholesale price, the authority feels the appropriate entity to remit it to the authority and the government is the supplier who actually collects the wholesale price,” he noted.
Tolorunse expressed confidence that an alignment would be reached soon.
He disclosed that some companies have been paying the levy while others have not.
“We are trying to explain to those who have not been paying to see the reason why they should pay. In trying to implement the law from the time it was passed, we are having resistance in the sense that implementation did not begin immediately when the law was passed because we need to pass regulations or we need to make guidelines that will specify the procedures for collection.
“So the timing for implementation (3:41) is also part of what we are discussing. Although the pushback is that we should not do it retroactively. We are saying this is the law. The law was made in 2021 and it ought to be applied around that time. But like I said, we are trying to also reach an alignment on that. We haven’t, but we are hopeful we will have an alignment,” he said.
However, at the end of the debate parties did not come to a compromise thus putting government revenue collection of the levy in jeopardy.
