PETROLEUM INDUSTRY ACT 2021: Host Communities Could Decide Projects – Kyari . . . Host Oil Communities Could Earn $500m Annually

by Our Correspondent

ABUJA: Mele Kyari, the Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), yesterday, Monday August 16th, has said that the oil-producing communities could now determine what projects would be located in their areas unlike before, the new legislation also ensures that they largely control their funds and projects in the communities.

Kyari noted that although in the past there were attempts to make sure that oil companies provided for the host communities, it was not done in the right manner, even if carried out in the name of Corporate Social Responsibility (CSR) projects.

The GMD while speaking on a TV programme on, monitored by Our Correspondent, noted that given about $16 billion total expenditure by the oil and gas sector last year, host oil communities could earn as much as $500 million yearly if the trend continues.

The new law mandates the payment of three per cent of oil companies’ operating expenses in the previous year to the host oil communities, which are mostly in the Niger Delta.

Kyri who says that such understanding may calm some frayed nerves from the oil producing communities in the Niger Delta, maintained that the 3% approved under the new Petroleum Industry Act could be bigger than what the Niger Delta Development Commission (NDDC) currently gets.

He said; “And 3% of your operating expenditure is a huge number. Many people argue around whether it should be 10 per cent or five per cent or three per cent. But percentage of what? I think that’s what most people don’t understand today.

“Last year’s operating expenses for the year was about $16 billion. Three per cent of $16 billion is a large number, somewhere around $500 million plus. That’s because in today’s context, it is probably bigger than the NDDC. That’s really what it is. That’s what you’re providing,” he stated.

The GMD stressed that the signing into law of the new Act essentially means transforming from a law that is 54 years old to something new, adding that with the legislation, the NNPC would now operate under the Company and Allied Matters Act (CAMA).

His words; “The meaning of this is that this company will just be another privately-owned company in a sense, this company will pay taxes, this company will pay royalties, and this company will deliver dividend to its shareholders. This isn’t the situation today, because the corporation has no such obligation today.

“What this bill will do now is that in the very short term, within the framework of the petroleum industry act, within six months a new company will be incorporated. That means all liabilities and assets of this company will be transferred to the new company, not all of them.

“By the way, the bill is also very clear that some toxic assets of the corporation would no longer would be with the corporation, but the shareholders can decide to keep some of the assets and leave some within the corporation,” he explained.

In the new arrangement according to Kyari, NNPC would become more efficient, much slimmer and a much more commercial national oil company at par with its peers across the globe, pledging that the company will do better under the new arrangement.

He further explained that there was already a framework established by government, which would take care of the new transition within the timeframe of six months to incorporate and transfer assets, personnel among others.

The Group Managing Director noted that while he recognises that the NNPC is a national oil company operating in a resource-dependent country, with some obligations to the people, the new law would effectively mean the deregulation of the sector.

“When you have a CAMA company, you cannot put those obligations or those responsibilities on the company, and therefore, somebody will have to pay for it. Here, it is all of us because once you are selling petroleum below market price, and essentially that’s the meaning of subsidy, and somebody will have to pay for it and that’s the state, all of us.

“The PIB did envisage that we’re going to have a market regulated petroleum market regime. And by the way, I’m sure you’re aware that only petroleum is regulated today. And every other petroleum product prices are determined by the market. And therefore the only one element that is not resolved today is petrol,” he noted.

While the new law envisages a fully deregulated market, he stressed that a number of engagements have been going on to ensure a smooth transition.

However, he said when deregulation eventually happens, there would be safeguards against market manipulation to ensure the poor and vulnerable are not unduly exposed.

“The provision of the law is such that it recognises that subsidy will be out someday. But it didn’t say that we’ll do it tomorrow. So there are a number of balancing that we will do, there’s clearly a policy issue for government to say that I’m going to let go of this,” he explained.

Commenting on the possible impact of subsidy removal on ordinary Nigerians, the NNPC GMD admitted that eliminating the subsidy regime could have adverse consequences on the ordinary person if not properly managed.

He said certain conditions needed to be fulfilled by government before the policy action is taken.

Among other things, he said there must be some arrangement to provide alternative for petroleum by making gas readily available to consumers at a more affordable prices.

He also said there’s need to put in place some structures that would stabilise prices to avoid exploitation of the ordinary people under the new regime.

“And therefore, those conditions and provisions must take place before you can think of exit,” he said.

The NNPC GMD said, “With passage of the PIB into law, you must determine how you are going to transit out of this.

“Transition means you either set platform for market manipulation; do you have safeguards against potentially a transportation cost rises and is it going to affect some labour issues that you have to deal with? And so many other things that have happened in other jurisdictions.

“It’s not what you can do in one, three two months but obviously make up your mind that the market is going to determine the price of petroleum and then you must put up a process and that process is clearly determined by what us really practical today.”

He said, “As an insider, I know that Mr. President’s key concern around the price of petroleum is that how is this going to affect the ordinary person? How are we going to deal with it and what excuses do we have to make sure that we don’t sell at the prices we sell today and of course, this is a very obvious and germane concern but can you afford it?

“And that’s the other question we have to ask in the long term but in the short term those engagement must take place; the provision of the law is such that it recognizes that subsidy will be out someday but it didn’t say we will do it tomorrow.

“But I also agree as an insider that you do need to have some structures on ground to ensure that there’s no some form of adverse effects on the ordinary Nigerian and that includes stabilisation of how prices are fixed in the market so that you done have exploitation of the ordinary people.

“You cannot but rely on foreign investment if you want to grow; we have seen the cost of local content shoot up in the last 10 years, magnifying the cost of doing business in Nigeria,” Kyari said recently.

He had also at a separate meeting stressed the need for the lawmakers to quickly move from the unstable situation the country was previously on the matter, to a stable one, saying the only way out was the passage of the PIB.

According to Kyari, foreign capital was needed in the upstream sector and the only way to attract it was to have stable laws and a friendly business environment that could guarantee cost recovery and a decent return on investment for investors.

He had disclosed that the uncertainty in the sector created by the long delay in the passage of the PIB has led to a number of divestments from the country in the recent past.

The GMD had also stated that the drive by the management of NNPC to entrench the culture of transparency in the corporation had improved its business fortunes and creditworthiness as lenders are now willing to grant credit to it.

Kyari had consistently maintained that for Nigeria to make the most of the industry, the passage of the PIB was imperative as it has the prospect to guarantee a robust fiscal regime, protect the environment, ensure development of host communities, ensure proper alignment with other sectors and encourage investors to expand their investments in Nigeria.

“Getting the petroleum legislation passed is the right thing to do because investors will not invest their money if they are not sure of how they are going to get their investment back and what benefits can they get from their investment and how stable the investment climate is.

“We must resolve the petroleum legislation and am aware that this administration is working assiduously to get the law passed within the shortest frame of time,” Kyari had said at a different forum.

Kyari’s passion to the PIB’s passage ties up with his desire to bequeath to Nigerians a vibrant oil and gas industry as contained in the transformative agenda he unveiled when he assumed office.

That was his Transparency, Accountability and Performance Excellence (TAPE) agenda, a five-step strategic roadmap.

According to Kyari, ensuring energy security is one of the cardinal agenda of the President Muhammadu Buhari administration.

Furthermore, he said closely related to energy security was the rehabilitation and expansion of the local refining capacity.

To global professional services firm, KPMG, if Nigeria must achieve its ambition of 40 billion barrels of oil in reserves and four million barrels of oil per day, it needs to attract new investments into the sector.

This task, it noted, has even become more daunting in the light of the various challenges facing the industry, especially with respect to the renewed focus on renewables and energy transition.

“The oil in the ground is of no use to the country if it cannot monetise it.

“Therefore, the PIB must lead to a massive transformation of the industry and succeed in attracting the desired investment required to reposition the industry. Otherwise, Nigeria’s production will continue to decline significantly.

“Hopefully, the provisions of the PIB will be enough to stimulate the desired investment though it has not addressed the issue of energy transition from fossil fuel to clean energy. The key question is whether those investments would pay off or would they be a risky bet?”

Therefore, it is expected that the signing of this new law would unlock the enormous investment opportunities in the sector, attract the much-needed investments as well as significantly raise the country’s oil revenue.

It is definitely a new dawn for Nigeria’s oil sector as increased orderliness and transparency are expected to turn-around for good.