On Monday, August 16, 2021, President Buhari signed the petroleum industry bill (PIB) into law. In our view, it is a major accomplishment for this administration. Legislative work spanning 13 years and four assemblies has now been concluded.
Chief amongst the goals of the law are distinct lines between the operational and regulatory functions of the government, improved welfare of host communities and a revision of fiscal terms for the industry. In our view, there are certain key developments to watch out for.
The reorganisation of the national oil company, from NNPC to NNPC Limited. The corporation is to be equally owned by the ministry of petroleum incorporated and the ministry of finance incorporated. This process could take between 18 and 24 months. According to the law, shares held by the government, are not transferable unless approved by the government and endorsed by the National Economic Council on behalf of the federation.
In our view, the listing of the NNPC on the local stock exchange is unlikely to happen within two years.
NNPC Limited will be vested as of the concessionaire of all Production Sharing Contracts (PSC) as the national oil company on behalf of the federation, in line with its strengths.
The reorganisation of the petroleum sector’s administrative functions. Firstly, the petroleum products pricing regulatory authority (PPPRA) and petroleum equalization fund (PEF) will be merged with the current Department of Petroleum Resources (DPR) downstream oversight to form a midstream and downstream authority; and, secondly, the DPR and Petroleum Inspectorate will be merged to form a national upstream regulatory commission.
The NNPC will lift and sell royalty oil and tax oil on behalf of the commission and the federal inland revenue service respectively, for an agreed commercial fee. In the case of profit oil and profit gas payable to the concessionaire, NNPC Limited will remit the proceeds of the sales of the profit oil and profit gas to the federation, excluding its 10% for management fee and 30% for the Frontier Exploration Fund.
Gas utilisation is right at the top of PIB’s ambitions. The PIB, by design, is moving resources via the midstream gas infrastructure fund, to boost gas consumption in the country. On-going IOC divestment of onshore and shallow water assets could accelerate the government’s agenda.
We see the possibility of an end to petrol subsidies as the NNPC is expected to be fully commercialised and profitable, declare dividends to its shareholders and retain 20% of profits to grow its business.
A gold rush for local asset managers, following the formation of host community trusts. Annual fund management inflow from these trusts is estimated to be more than USD100m/year.
New licences issued by the government for oil prospecting/exploration/production/expliotation will be done under a new hydrocarbon tax regime. Old licences are permitted to continue with prior tax regime up until the expiration of the leases.
The national assembly settled on a 3% charge on opex for host community trust funding. The gap between the expectations of the host communities (10%) and the PIB could be problematic.
