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2021 Petroleum Industry Act and its impacts

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By Mercy Kelani

It received mixed reactions from Nigerians, and local and foreign investors.

On August 16, 2021, the Petroleum Industry Act (PIA) was signed into law by the former president of Nigeria, Muhammadu Buhari. The then newly signed law received different reactions from Nigerians, local and foreign investors, and some global energy industry analysts. Through this Act, conversion of the existing interests of holders of Oil Prospecting Licenses (OPL) and Oil Mining Licenses (OML) into Petroleum Mining Leases (PML) or Petroleum Prospecting Licence (PPL) is enabled through Conversion Contracts.

Conversion and Renewal (Oil Prospecting License and Oil Mining Leases) Regulations was also introduced. The PIA caused dispute within the country’s petroleum sector, majorly as a result of the jurisdictional opacity that exists between the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) and the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA). The dispute has raised questions on clarity and efficiency as no precise framework bears a resolution for the two regulatory bodies. President Bola Tinubu has issued directives to both NUPRC and NMDPRA for operational stability and clarification of their roles until necessary amendments are made to the PIA.

Digital application portal system for MDOGISPs through the NMDPRA.

The Nigerian National Petroleum Company Limited (NNPC) is solely responsible for the issuance of licenses to entities to begin importation of crude oil and petroleum products. To make this happen, the Midstream and Downstream Petroleum Operations Regulations was issued by the Authority for provision of procedures for the grant of permits, licenses, authorizations for exportation, importation, shipping and landing of petroleum products. By doing so, the monopoly of the NNPC as the sole importer of petroleum products into the country ended.

Also, the PIA has introduced a digital application portal system for Midstream and Downstream Industry Oil and Gas Service Permits (MDOGISP) through the NMDPRA. For entities involved in activities of the midstream and downstream industry such as petroleum liquid transporters, gas suppliers, and bulk gas storage companies, the permits are compulsory. The practice eases the permit application process, promotes transparency, as it strengthens regulatory monitoring. The introduction of this system is in alignment with the objectives of the PIA.

Fuel subsidy removal and its economic impact on the populace.

In May 2023, President Bola Tinubu, on the day of his inauguration, officially put an end to the Nigerian petrol subsidy regime. This move was considered a significant one, under the Petroleum Industry Act (PIA), in the energy sector. Although well commended by some citizens, this decision by the President got different reactions from Nigerians. The reactions of the citizens of Nigeria was based on the efforts of the government to ameliorate the economic impact of this decision on the populace.

Petroleum product pricing, under the PIA, is completely market-driven, indicating an apparent shift. There have been issuance of new licenses for facilitation of product importation and distribution within Nigeria. Nevertheless, the slow pace of implementing mitigating measures to tackle difficulties attached to subsidy removal has raised questions about the sustainability of the decision and its ability to enable maintenance of required support, as stated in the PIA. There was also an introduction of a comprehensive framework that would change Nigeria approach to the utilization of its natural gas resources, promoting economic growth and energy sustainability.

Funds set to improve investments in gas infrastructure.

Additionally, the Act established the Midstream and Downstream Gas Infrastructure Fund as a means of accelerating the growth of gas infrastructure. The aim of the fund is to serve as an incentive for investments in essential gas infrastructure projects, facilitate the expansion of infrastructure for other fuel sources like Compressed Natural Gas (CNG), and position natural gas as a suitable alternative to petroleum products. The Domestic Gas Delivery Obligation was also introduced by the Act, mandating upstream gas manufacturers to designate a portion of their production for local consumption.

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5 months ago

2021 Petroleum Industry Act and its impacts.It received mixed reactions from Nigerians, and local and foreign investors.Express your point of view.

5 months ago

The 2021 Petroleum Industry Act has indeed sparked mixed reactions among Nigerians and local as well as foreign investors. This legislation is a significant milestone in the country’s oil and gas sector, aiming to modernize and reform the industry to attract more investment, increase transparency, and promote sustainable development.
On one hand, proponents of the act argue that it will bring much-needed reforms to the sector, addressing long-standing issues such as the restructuring of regulatory bodies, the introduction of a new fiscal framework, and the promotion of local content development. These changes are expected to create a more favorable investment climate, attract foreign direct investment, and stimulate economic growth.
Additionally, the act seeks to promote transparency and accountability by establishing the Nigerian Upstream Regulatory Commission and the Nigerian Midstream and Downstream Petroleum Regulatory Authority. These regulatory bodies are tasked with ensuring fair competition, preventing anti-competitive practices, and safeguarding the interests of all stakeholders.
However, there have been concerns and criticisms raised by some Nigerians and investors. One of the main points of contention is the provision for a 30% profit-sharing arrangement for oil and gas exploration in frontier basins. Critics argue that this provision may deter potential investors due to the perceived high financial risk associated with exploring unproven areas.
There are also concerns about the potential impact on host communities. While the act includes provisions for community development and engagement, some argue that it falls short in adequately addressing the needs and concerns of these communities, particularly in terms of environmental protection, compensation, and benefits sharing.
It is important to note that the long-term impacts of the Petroleum Industry Act will unfold over time. Its successful implementation will require effective collaboration between the government, industry stakeholders, and local communities. Regular reviews and adjustments may be necessary to ensure that the act achieves its intended goals and addresses any unintended consequences that may arise.

5 months ago

In response to the 2021 Petroleum Industry Act, there have been many different reactions. Although some see it as a positive start toward reforming the oil and gas sector, the laws and policies needed to develop the energy sector are straightforward to implement.

5 months ago

The 2021 Petroleum Industry Act has in fact elicited conflicting responses from Nigerians and both domestic and foreign investors. With the establishment of a new fiscal framework, this act represents a critical turning point for the nation’s oil and gas industry. Effective implementation is required for success.