Nigeria and the Petroleum Industry Act: The Role of the New NNPC Board
Professor Kathleen Okafor
Petroleum is a natural petroleum product derived from deposits of hydrocarbons and other organic matter. As a major source of revenue for the Nigerian economy, it accounts for up to around 70% of government revenue and over 83% of the country’s total export earnings. Nigeria is the eleventh largest oil producer in the world with approximately 35.2 billion barrels of crude oil reserves.
Petroleum generally refers to a refined product of crude oil, a black liquid found in geological formations below the Earth’s surface. The components of petroleum are separated using a technique called fractional distillation.
Recent technological improvements have led to the exploitation of unconventional reserves such as oil sands and oil shale. Once extracted, the oil is refined and separated, mostly by distillation, into many products for direct use or in manufacturing, etc. such as gasoline (petroleum), diesel and kerosene for asphalt and chemical reagents used to make plastics, pesticides and pharmaceuticals.
The oil production process:
Crude oil occurs underground, at varying pressures, depending on depth. It may contain a considerable amount of natural gas. All fluids are collected by surface equipment for separation.
The importance of oil as a global energy resource is hard to overestimate. The growth in energy production during the 20and Century was unprecedented, and increased oil production was by far the biggest contributor to that growth. The position of our country in this system depends on its production capacity in relation to its consumption. Without a doubt, the Petroleum Industry Act is a game-changer for the industry. The Act will provide a standard and uniform regulatory framework for the oil and gas sectors in Nigeria.
Prior to the introduction of the Petroleum Industry Bill (PIB), 2021, various restructuring efforts had been made to restructure the oil and gas industry but without any real success. Before that, there were various iterations of the bill. It started as an omnibus bill and was then split into 4 separate bills before becoming a consolidated bill. Previous attempts to pass the Petroleum Industry Bill failed due to various factors such as lack of ownership, misalignment of interests between the National Assembly and the executive, perceived erosion of ministerial powers , strong opposition from oil-host communities, and push by investors on provisions perceived to be non-competitive in previous versions of the bill.
Salient Provisions of the Actare; All NNPC employees shall be considered employees of NNPC Ltd. The main objective of GDP is to transform the Nigerian oil and gas industry. The NNPC (Nigerian National Petroleum Corporation) will now be unbundled. NNPC will now be registered as a private company limited by shares under CAMA. NNPC will now be NNPC LTD. Its shares will be held by the Department of Finance on behalf of the federal government
The Bill provides for the establishment of the Nigerian Upstream Regulatory Commission whose role is to regulate the technical and commercial aspects of operations undergone at the upstream stage.
The commission has the power to acquire, hold and dispose of property, to sue and be sued in its own name.
The bill provides for the establishment of a Nigerian Midstream and Downstream Petroleum Regulatory Authority.
The fiscal objective of the bill is to provide a framework that will attract investors to the oil industry and generate revenue for the government while ensuring that investors get value for their money.
The bill vests ownership of the Corporation in the Department of Finance.
The transfer and sale of shares must be approved by the government and approved by the National Economic Council.
The assets, interests and liabilities of NNPC will be transferred to NNPC Limited.
It is hoped that the Petroleum Industry Act will now achieve the following objectives; Define the relationship between the company and the investors.
Determine how costs are recovered and benefits shared among stakeholders.
Put in place an innovative mechanism. Directly fund oil host communities through trust funds. Improve transparency and accountability in the oil and gas sector. Reduce overlap in governance roles. Create regulatory and political institutions. To create an enabling environment and enhance the mutual benefits of petroleum operations in Nigeria.
Main current challenges facing the new NNPC board: It is well established in corporate law that the board is responsible for the management of companies. For NNPC, which is essentially a commonwealth organization, the board will have to tackle the plethora of challenges plaguing the company, particularly the optimization of human resources, relevant technical training of staff, promotion of women in all NNPC and industry executives, local content/ backward integration, social responsibility, minimizing environmental degradation. Technical training is crucial to enable our citizens to manage the industry to retain foreign currencies.
With incorporation and a boar, shareholders, government and institutional investors must be militant enough to demand market return on investment (ROI) and return on equity (ROE) rates of corporate performance for the common good of Nigerians. This means that the current diversity of the Board must include men and women with consummate managerial knowledge, know-how and skills.
The NNPC Board of Directors must demonstrate its ability to eradicate the epileptics and severe foreign exchange shortages that developing countries like Nigeria are chronically experiencing due to commodity prices like oil if economic growth and the development must be pursued seriously. The oil industry in Nigeria currently needs foreign exchange to fund development and infrastructure. Previously, the country accumulated foreign exchange reserves under the Olusegun Obasanjo/Ngozi Okonjo-Iweala era, which strengthened the naira.
The board should maintain minimal bureaucracy to ensure optimal performance. Frequent delays in the payment of cash to joint venture operators have generally had the effect of discouraging investment by oil companies. Funding shortfalls need to be addressed to improve equipment maintenance and efficiency of refining operations.
Frequent community clashes have continued to disrupt crude production as oil communities revolt against oil spills and demand greater participation in oil operations. Illegal oil bunkering, smuggling and diversion of petroleum products are some of the problems perpetrated by some oil communities. NNPC must redefine its corporate social responsibilities to these communities for optimal results.
Hoarding and falsification of products
Some traders, in times of scarcity, hoard and falsify petroleum products to sell them on the black market at higher prices to the detriment of the common good. It is possible to regulate these harmful activities.
Other issues that the law intends to address through the Council are the low comparative level of investment in the sector compared to its potential, the high technical cost of production, due to the low development of national technologies, the crises communities that disrupt production and environmental degradation. as a result of oil spills poor management of waste and pollution. These are the powers of the Council.
Finally, let us remind the board that these challenges can only be met if the statutory and non-statutory duties of directors under the Companies and Related Matters Act 2020 are met. The Board shall continue to maintain a fiduciary relationship with the Company and shall observe the utmost good faith towards the Company in all dealings. In summary, these duties are contained in Section 305 of the Companies and Related Matters Act as follows (a) duty to maintain a fiduciary relationship towards the company (b) duty to observe the utmost good faith towards the company in given transactions (c) duty to act as agent of a shareholder particular (d) duty to act at all costs in the best interests of the company, to preserve its assets, to advance its affairs and to promote the purpose for which it was created and in such a way as to be a faithful, diligent, prudent director and ordinarily skilful (e) duty not to act in conflict with the interests of the company (f) obligation not to make secret profit or obtain other unnecessary advantages (g) obligation to safeguard the assets of the company (i) obligation not to engage in insider trading.
In conclusion, if the directors fulfill these statutory duties and their corporate social responsibility, the growth of the oil sector will be more than statutory.
Teacher. Kathleen Okafor, is a Lecturer in Law at Baze University, Abuja, FCT