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CHAPTER ONE
GENERAL INTRODUCTION
1.1 Background to the Study
The Petroleum Industry is currently the largest industry in Nigeria and the major generator of Gross Domestic Product (GDP) in the country which accounts for 80% contribution to the Nigerian economy. Nigeria‟s budget in a fiscal year is largely sourced from the Petroleum Industry.
Oil was discovered in Nigeria in 1956 at Oloibiri2 after half a century of exploration. The discovery was made by Shell-BP, who was at that time the sole concessionaire of oil exploration licence in Nigeria. Upon the said discovery, Nigeria joined the ranks of oil producers in 1958 when its first oil field came on stream producing approximately 5,100 barrel per day (bpd) . After 1960, exploration rights in onshore and offshore areas adjoining the Niger Delta were extended to other foreign companies. In 1965 the exploration field was discovered by Shell in shallow waters of Warri. In 1970, which saw the end of the civil war coincided with the rise in the world oil price, and Nigeria was able to reap instant riches from its oil production.
Consequent upon discovery of crude oil in Nigeria, and the increasing growth in the petroleum activities in the industry, there was the need by Federal Government to enthrone a legal and institutional framework by way of a regulatory regime that will regulate the petroleum industry. The effect of this led to the enactments regulatory laws in the industry and regulatory institutions respectively in order to ensure transparency, accountability and effective service delivery in the industry for the benefits of all Nigerians.
However, Nigeria operates a command and control regulatory framework in the petroleum industry . This type of regulation was prevalent in the United States and Britain during the 1970s and 1980s . Under this type of regulatory framework, regulators are deemed to be acting in the public interest. This work focuses on the extant public regulatory regime petroleum industry in Nigeria. Generally, factors, such as red-tape, over-regulation and regulatory capture, amongst others, are some reasons militating against a command and control regulatory regime . This work will therefore attempt to examine the state-oriented or public regulatory framework in petroleum industry in Nigeria, and the fundamental ills afflicting the industry.
1.2 Statement of the Research Problem
- With the exceptions of the Nigerian Oil and Gas Local Content Development Act and Nigerian Extractive Industry Transparency
Initiative Act which were enacted in 2007 and 2010 respectively (although they are not the principal legislations on petroleum industry), the first comprehensive principal legislation on petroleum industry that repealed the 1914 Mineral Oils Act dates as far back as 1968 . Other legislation includes NNPC Act which came into being in 1978, while the Profit Tax Act had been in existence since 1958 even before the commencement of Petroleum Act in 1968. In view of this, the principal laws regulating the petroleum industry are for all intent and purpose obsolete in nature and the current legal framework in the industry can no longer sustain the industry due to technological advancement in the industry and this has led to ineffective implementations of the said laws due to the lacunas they provide in comparison with the current realities obtainable in the industry.
- The petroleum industry is bedeviled by a poor sanction regime by virtue of the type and the nature of sanctions provided in the laws regulating the industry. This has led to environmental degradation, pollution of air, water and endangering of life and properties due to petroleum industry activities by the oil companies in the areas they operate. The company‟s operational actions or inactions due to a poor sanction regime has led to a lot restiveness in host communities which has hampered operations and at the end has affected the Nigerian economy as a whole.
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The regulatory regime in the petroleum industry is also challenged by the fact that there seem to be excessive administrative powers granted to the Minister under the Petroleum Act which has in recent past led to misuse and abuse of office and has encouraged nepotism and
corruption in the industry thereby leading to lack of accountability and transparency in the use of public funds for the good of all Nigerians.
- Fusion of Corporate Governance in the regulatory regime of the petroleum industry is yet another problem that has been identified in the industry. Most of the corporate powers in the petroleum industry
are centered around the Minister of Petroleum or his office. This fusion of corporate powers has led to a number of beauracratic bottle neck in the industry thereby by slowing down decision making.
- Overlap of oversight functions among the regulatory institutions of the petroleum industry and weak enforcement of the extant laws by these
institutions.
After reviewing the background study and the statement of problems which this work intends to solve, it is pertinent to specify in a specific manner the research questions which this work seeks to answer. They are follows;
- What are the problems associated with the effective implementation of the laws regulating the petroleum industry in Nigeria?
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Why are the regulatory institutions weak in carrying out their statutory functions?
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What will be the status of Petroleum Industry Governance Bill and how does it intend to usher in a new legal regime if eventually passed into law?
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How can all the problems indentified in the work be solved?
1.3 Aim and Objectives
The aim of this work is to make recommendations that will provide practical solutions which can usher in and enthrone an entirely new legal regime in the petroleum industry in Nigeria if implemented. In order to achieve the said aim, the following objectives become necessary:
- To critically examine the legal frameworks of the petroleum industry particularly the Petroleum Act, other related laws the and problems associated with the effective implementation of the said laws.
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To analyse from the legal point of view, the roles of the regulatory institutions in the industry and the factors militating against the functional discharge of their regulatory mandates.
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To consider the Petroleum Industry Governance Bill and how it intends to enthrone a new legal regime in the petroleum industry.
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Make recommendations on how some of the problems identified can be solved.
1.4 Scope and Limitation of the Research
This work shall focus mainly on the Petroleum Industry, its legal framework and the regulatory institutions in Nigeria. The work is further narrowed down by restricting most of its discussions to the principal legislations on the industry by paying special attention to the Petroleum Act. The work will also attempt to discuss the local content aspect of the industry and the fiscal regime in the industry using the Petroleum Profit Tax Act as a case study. This work will not attempt to discuss other legislations in the industry including environmental and natural gas laws.
1.5 Literature Review
Notwithstanding the inadequacy of literatures authored by local writers in the field of Petroleum law in Nigeria, there are however few Nigerian authors who have written extensively and have made meaningful
contributions as far as Petroleum Law in Nigeria is concerned. For instance
Etikerentse published a book on Petroleum Law in Nigeria titled Nigerian Petroleum Law the book is comprehensive in nature as far as petroleum law in Nigeria is concerned. In the said book under review the author particularly in chapter one, attempted to discuss the issue of regulatory regimes in the petroleum industry while trying to discuss the historical background and the growth Petroleum Law in Nigeria but that little highlight cannot completely shed light to the nature and scope of the regulatory regimes in the Petroleum Industry and the problems associated with this regulatory regime. In the same book the author also attempted in details to discuss one of the regulatory institutions which is the Nigerian National Petroleum Corporation (NNPC) out of the number of regulatory Institutions regulating the Petroleum Industry in Nigeria. In the appendix to the said book the author also discussed in details some laws regulating the Petroleum Industry. Although the laws analyzed by the author are few out of the many laws regulating the Petroleum Industry in Nigeria .
Omorogbe, in her recent publication titled Oil And Gas Law In Nigeria the author highlighted some of the laws regulating the Oil and Gas Industry These laws are in one way or the other important in the regulation of Petroleum Industry in Nigeria but however, out of the laws mentioned, only few of them were briefly discussed by the author of which the brief discussion cannot fully explain to the readers the challenges associated with provisions of the said laws. The author of this book under review also attempted to discuss the regulatory institutions but only one which is the NNPC out of the few other regulators was discussed. The Ministry of Petroleum Resources and the Department of Petroleum Resources which are the apex regulators were left out. On the whole, the book provides a comprehensive insight to anyone seeking information on oil and gas industry in Nigeria.
Omorogbe authored another book entitled The Oil and Gas Industry Exploration and Production Contracts . In this book under review, few topics in the book have been found useful to this subject matter of research.
Atsegbua a book titled Oil and Gas Law in Nigeria Theory and Practice . While reviewing the said book, this writer observed that nothing was mentioned by the author of the book under review about any regulatory regimes in the petroleum Industry, neither was anything mentioned about the regulatory laws or their institutions. The book mainly focused on the technical and International aspect of the petroleum industry.
Another text worthy of review is a book written by Olisa entitled Nigerian Petroleum Law and Practice which focuses more on the activities and services that are centered on the petroleum industry. For instance most of the chapters dealt with topics like the Exploration and Production rights and types of oil licenses , He also discussed Petroleum Arrangements which are the Joint Ventures Agreements, Pooling and Utilization Agreements, Service
Contracts and Production Sharing Contracts Agreements. Net Interest, Farm Out and Carried Interest Agreements, Marginal Fields. Added to this are issues of pipelines and Refineries. Petroleum profit tax and Fiscal Incentives were also discussed. The author further issues involving Crude Oil and petroleum Products, Operators Contracts for Service and Natural Gas.
1.6 Research Methodology
The research methodology adopted in this work is basically a Doctrinal
Research methodology.
1.6.1 Doctrinal
The doctrinal research methodology adopted in this work includes, reference to several enactments i.e. the laws regulating the Petroleum
Industry, books written by authors on Petroleum/Oil and Gas Laws in Nigeria, Articles, Articles in books and Journals, Conference proceedings, internet and other relevant materials.
1.7 Justification of the Research
The justification for embarking on a research work in this area is inspired by the fact that petroleum industry is currently one of the most important industries in the economic life of Nigeria and yet no adequate and well researched literatures that covers the law and practice of the petroleum industry activities and operations together is readily available for those seeking information in this area or those that want to acquire knowledge in this area. This work will therefore contribute to knowledge by providing an insight to the laws, practice and regulations available in the petroleum industry in Nigeria. Students and lecturers in the faculties of laws in the Nigerian universities, (particularly the students and lecturers of oil and gas law), legal practitioners, other professionals in the petroleum industry and the general public will find this work very useful.
1.8 Organizational Layout
This research work is made up five chapters with sub-headings discussed there under
Chapter One deals with the general introduction, statement of problem, scope of research, methodology, literature review, justification, organizational layout.
Chapter Two intends to take care of the Historical Evolution, Growth and Development of Petroleum Laws in Nigeria, Regulatory Regimes of the
Petroleum Industry in Nigeria, Regulatory regimes pre and post oil discovery Nigeria. Conceptual clarification of the terms commonly used in the petroleum industry.
Chapter Three, will essentially seek to examine the various laws regulating the Petroleum Industry i.e. The Petroleum Act, Oil Pipeline Act, Petroleum
Profit Tax Act, and Nigerian Oil and Gas Industry Local Content Development Act.
Chapter Four, will discuss the regulatory Institutions of Petroleum Industry i.e. Ministry of Petroleum Resources, Department of Petroleum Resources, Nigerian National Petroleum Corporation, Nigerian Extractive Industry Transparency Initiative.
Chapter Five, draws the curtain of this research work with, findings, recommendations and conclusion.