Nigerian President Muhammadu Buhari has officially signed the country’s much-anticipated Petroleum Industry Bill (PIB) into law, following nearly two decades of attempts, revisions and false dawns.

Just weeks after the country’s Senate and House of Representatives passed a harmonised version of the PIB, on July 16, President Buhari’s office has announced that it formally approved the legislation.

The move comes after years of legislative effort, with Buhari himself having rejected a previous iteration of the bill in 2018 over concerns around the potential loss of ministerial power and a lack of “fiscal content”.

It is hoped by many in Nigeria that by bringing in an entirely new regulatory and fiscal framework, there will be a sizeable boost in international investment in the country’s oil sector and an increase in production.

The PIB also promises to tackle longstanding concerns over corrupt practices and a lack of transparency in Nigeria’s state oil company, the Nigerian National Petroleum Corporation (NNPC), which has been dogged by scandals in the past.

Nigeria continues to rely heavily on oil exports for the majority of its foreign exchange earnings – as much as 90%, according to analysis by KPMG published in June last year.

Oil output in the country has been in long-term decline, with an August report from ratings firm Fitch showing that quarterly average production fell from 2.65 million barrels per day (bpd) in Q4 2010, to 1.98 million bpd in the final quarter of 2019.


A boost to investment?

By putting in place attractive fiscal incentives and fresh regulations through the new bill, the Nigerian government hopes to encourage international oil companies (IOCs) to boost investment in the country’s oil and gas sectors.

Industry body the African Energy Chamber has welcomed the move, noting that the PIB is “expected to dramatically increase investment by providing a framework for the country’s oil and gas activities”.

“By integrating 16 petroleum laws into one comprehensive and coherent document that provides a framework to boost oil and gas output the PIB will accelerate investment and development in a post-Covid-19 landscape,” it adds.

Analysts have likewise suggested the move could alleviate concerns among IOCs who have been historically nervous about Nigeria’s oil sector.

“If passed, the fiscal uncertainty deterring investment across upstream, gas, midstream and downstream will be alleviated… The latest version of the bill offers incentives and concessions made to assuage stakeholder concerns. Lower royalty and tax rates are proposed,” energy research and consultancy firm Wood Mackenzie says in analysis published last month.

Alexandre Raymakers, senior Africa analyst at risk analytics company Verisk Maplecroft, told GTR in July that royalties and tax rates were revised down from a previous draft of the bill presented earlier this year, in a bid to further reassure IOCs about Nigeria’s so-called “breakeven price”.

As reported by Reuters in April, Nigerian lawmakers proposed lowering the royalties for new production from deepwater oilfields to 5% from 7.5%, and increasing the production level that triggers higher royalties from 15,000 bpd to 50,000 bpd.

Nonetheless, Raymakers says that international companies are unlikely to rush back into Nigeria’s oil sector.

“Although a positive development, as it ends the regulatory uncertainty that has plagued the Nigerian oil sector, the bill in itself is unlikely to quickly entice IOCs back to Nigeria,” he says.

He notes that with the collapse of global crude prices, major producers have cut capital expenditure in Nigeria, preferring to concentrate on cleaner energy and more cost-effective markets. “Total foreign investment in the Nigerian oil industry has slumped compared to its regional peers, and key producers are divesting from major assets.”

Nigeria has faced increasing competition from other oil-producing countries on the continent, with a June report from KPMG detailing that it only attracted 4% of the US$70bn investments made in Africa’s oil and gas industry between 2015 and 2019.

That’s despite the fact the West African nation is the “biggest producer and has the largest reserves on the continent”, KPMG says.

As IOCs gear up towards the green energy transition, there is also the risk in the years ahead that Nigerian oil investment could be further hampered by global attempts and policies aimed at fighting climate change.

“As less investment is available for hydrocarbon sectors, those countries with the highest extraction costs and least favourable investment climates will be the first to suffer a pullback in investment. It is still uncertain whether the PIB will be enough to make the country internationally competitive for energy-sector investments against such a background,” Fitch Ratings notes in analysis published in early August.


New found transparency?

With Nigeria’s oil industry having faced accusations of a lack of transparency in recent years, the PIB also promises to bring in more effective oversight of the sector and it’s state-owned oil company, the NNPC.

The NNPC has been hounded by significant corruption allegations in the past decade, such as in 2012 when a parliamentary probe revealed a US$6.8bn fuel subsidy scandal involving top Nigerian officials.

The report from a committee in Nigeria’s house of representatives claimed that the NNPC was central to the scheme, which saw importing companies paid hundreds of millions of dollars to buy fuel that did not actually exist.

In recent months, a probe by US investigators into a bribery racket involving a former Glencore commodity trader active in the country revived long-standing questions over corruption in Nigeria’s oil sector.

Yet, there are hopes in some quarters that the PIB will bring in much-needed changes to how the NNPC functions, and bring its business dealings out of the shadows.

The Columbia Center on Sustainable Investment (CCSI) notes in a January blog post that the PIB includes some “much-needed reform” around governance.

Such changes include the state-owned firm becoming a limited liability company within six months of the PIB being passed, a move which would reportedly require it to publish annual reports and audited accounts.

The Minister of Petroleum Resources would also see their power to grant, amend, revoke or renew licenses taken away – along with their seat on the board of NNPC Limited.

New regulatory bodies will also be created, with the Nigerian Upstream Regulatory Commission and the Midstream and Downstream Petroleum Regulatory Authority replacing the “multitude of regulating bodies” currently in existence, CCSI notes.

By creating a clear separation between NNPC Limited’s operations as a commercial entity and the regulatory roles to be exercised by regulatory authorities, CCSI says the PIB will allow for “more transparent oversight”.

Other analysts are less sure that the PIB will effectively tackle transparency and corruption risks.

Africa-focused intelligence consultancy firm Songhai Advisory said in commentary released earlier this month that the PIB would fundamentally preserve “the existing structure of governance that undermines independence, promotes patronage and aids political interference”.

According to its analysis, the president would remain solely empowered to appoint and remove the NNPC board – including the CEO – and would be able to pick the principals of the new Commission and Authority.

“This type of structure has in the past allowed the president and other top political figures to purportedly play an illicit role in license and contract awards,” the firm says.

Adedayo Ademuwagun, a consultant at Songhai Advisory, previously told GTR that there are also questions over the effectiveness of the main body charged with enforcing domestic anti-corruption legislation – the Economic and Financial Crimes Commission.

He notes that the entity has been in an unstable state since it was established in 2003 and has never successfully prosecuted a major corruption case in the oil sector.