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CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
The petroleum industry in Nigeria holds a high stake in the country’s economic decision (Faseemo, 2019). The same goes for countries whose economies lies largely on crude oil and its by-products. Therefore, issues concerning petroleum are handled cautiously in other to carry along all involved parties. The petroleum business, apart from being relevant to countries solely dependent on it, is also a high-profit, high-risk business. This is due to the large expenses usually put into the exploration and development phases which could take 8 to 13 years of development before First Oil. The petroleum business has significant impact on world politics, economic policies, environmental consideration, commercial business participation and regional engagement.
The PIB was first introduced to the Nigerian National Assembly in 2008 during President Goodluck Ebele Jonathan’s administration. However, there where Petroleum Act of 1969 governing operations in the petroleum industry between the citizens, Government and Oil firms, though the Act has been described as obsolete due to changes, awareness, and technology (Kenneth, 2018). Presently, there have also been an amendment of the Deep Offshore and Inland Basin Production Sharing Contracts (PSC) Bill in 2019, making the deep-water fiscal terms more competitive (Femi, 2020). The contents of the PIB have been debated severally at the Nigerian National Assembly since its introduction making its full passage linger till present.
The PIB was described by KPMG as an Omnibus bill aimed at regulating the entire sphere of the petroleum industry and repealing all existing oil and gas legislation (KPMG, 2017). The PIB has been a work in progress since the Presidential committee set up to look into the oil and gas industry resumed activities in 2007 with the sole aim of improving transparency in the Nigerian National Petroleum Corporation (NNPC) and improve Nigeria’s share of her oil revenue (Wumi, 2008). The bill has experienced lot of objections from the International Oil Companies (IOCs) and subsequently the NNPC during the course of deliberations by the legislative arm (Femi, 2017).
Oil was discovered in Nigeria in 1956 at Oloibiri 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 (Ogunnaike, 2016).
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 (Ogunnaike, 2016).
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 (Etikerentse, 2015). 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 (Ogunnaike, 2016).
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 (Etikerentse, 2015). 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.
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.
1.3 Research questions
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?
- Why are the regulatory institutions weak in carrying out their statutory functions?
- What will be the status of Petroleum industry bill and how does it intend to usher in a new legal regime if eventually passed into law?
- How can all the problems indentified in the work be solved?
1.4 Aim and Objectives
The aim of this study is to examine the impact of petroleum industry bill on Nigerian economy. 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.
- 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.
- To consider the Petroleum industry bill and how it intends to enthrone a new legal regime in the petroleum industry.
- Make recommendations on how some of the problems identified can be solved.
1.5 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.
1.6 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.