The urgency of the reforms has never been greater, as a result of Nigeria’s reliance on the oil and gas sector for foreign exchange earnings and Government revenue (representing 90% and 60% respectively). As private sector investment globally is increasingly channelled into cleaner energy sources, the pool of available investment is shrinking, compounded by the global pandemic. However, for a country such as Nigeria, which has the second largest oil reserves on the continent, to transition away from fossil fuels, significant investment is needed in order to support the development of infrastructure and human capital.
Current administration’s commitment to reform
As a result, President Muhammadu Buhari’s administration has made passing this bill a key priority this term, addressing the roadblocks which, according to a KPMG report, have previously prevented its passing in 2008, 2012 and 2018. The current bill seeks to introduce changes to royalty arrangements and fiscal terms to appease foreign oil producers, as well as address the concerns of the communities where oil is extracted. Foreign oil producers such as Chevron, ENI, Total and ExxonMobil, have all stated that billions of dollars’ worth of investment have been held up due to the slow progress of the bill, providing confidence for local stakeholders that the passage of the bill will lead to a wave of investment.
Another key roadblock which the current administration has managed to navigate was the stance of host communities, who had previously been side-lined during the process and sought to block the Bill’s passage. The Petroleum Host Community Development (PHCD) attempts to address their concerns by providing direct social and economic benefits from petroleum operations to host communities, and creating a framework to support sustained development, via the creation of a Trust, through which communities will claim a 3% share of regional oil wealth generated through production.
The need for governance reforms has also frequently been cited as an impediment to inward investment in the sector. Under the new Bill, the existing Nigerian National Petroleum Corporation (NNPC) will transition from a state-owned to a limited liability company, allowing for greater transparency and efficiency. Formal segmentation of the industry into the upstream and mid- and down-stream sectors, with separate regulators, will also allow for clearer oversight. The passage of the bill has been welcomed by the country’s Centre for Transparency Advocacy, which called it “a positive step” towards a reformed energy industry.
Preparing for the energy transition
Before the Bill was approved, commentators were calling for more provisions which explicitly address climate change concerns and pave the way for diversification into sustainable energy production. Environmental provisions including the establishment of remediation funds and requirement for environmental management plans are positive steps, however they only meet, and do not exceed, baseline international standards, and are therefore not seen as sufficiently ambitious.
However, there is clear potential for the Petroleum Investment Bill to generate significant government revenue, which can then be invested in the renewables sector. Initiatives such as the government’s solar power plan, which will see 2.3 trillion naira (approximately €4.7 billion) of the COVID economic recovery fund dedicated to installing five million solar systems, demonstrate a willingness to invest in low-carbon energy production.
The result of these reforms, which to a large extent respond to the major criticisms levelled at Nigeria’s oil and gas sector over recent decades, is increased clarity for potential investors. When coupled with the opening up of the global economy, and a wider commitment to infrastructure investment and sustainable energy initiatives, the passing of the PIB bodes well for Nigeria.
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