June 2017

The Petroleum Industry

Governance Bill
Newsletter

Introduction ii. Regulator – Charged with regulating relating to all aspects of

the entire industry the petroleum operations
The Senate of the Federal Republic iii. Commercial Institutions – Tasked with assigned to it under the
of Nigeria (FRN), on Thursday 25 May holding and managing the assets and provisions of this Act or
2017, passed the Petroleum Industry interests of the Government any regulations made in
Governance Bill (PIGB or the Bill). The iv. Ancillary Institutions – Tasked with the pursuance of this Act or any
Bill, which still needs to be passed provision of specific support services other enactment.
by the House of Representatives and assigned to them • Monitor and enforce
assented to by the President of the compliance with the terms
FRN before it becomes law, seeks to An analysis of the Institutions and their and conditions of all leases,
establish a framework for the creation functions is as follows: licences, permits and
of commercially-oriented and profit- authorisations issued in
driven petroleum entities, to ensure i. Policy and general strategy respect of any petroleum
value addition and internationalisation formulator operation.
of the petroleum industry, through • Advise the Minister on fiscal
- Minister of Petroleum and other issues pertaining
the creation of efficient and effective
Resources to the petroleum industry.
governing institutions with clear
and separate roles for the petroleum • Conduct bid rounds or other
The Minister shall be responsible processes for the award of
industry.
for setting the overall policy and any licence or lease required
strategy in the Sector. The Bill for petroleum exploration or
The Bill is the first in a series of long
also grants the Minister pre- production.
awaited petroleum industry laws designed
emptive rights to all petroleum • Establish the methodology
to reform the Nigerian oil and gas industry.
products in the country in the for determining appropriate
The Petroleum Industry Bill (PIB), an
event of a National emergency. tariffs for gas processing, gas
omnibus law meant to regulate the entire
However, the Minister will no transportation, transmission
sphere of the industry and repeal all
longer have the power to grant, and transportation of crude
current existing oil and gas legislation, had
renew, amend, extend or revoke oil and bulk storage of oil and
struggled to see the light of day despite
any lease or licence issued gas.
its introduction to the National Assembly
pursuant to the provisions of the • Establish the framework for
over 16 years ago. Subsequently, the
Act. Under the Bill, the Minister calculating the fair market
National Assembly decided to break the
cannot create any new entities. value of petroleum products.
PIB into a number of different pieces of
legislation guiding specific aspects of the • Regulate the supply,
ii. Regulator distribution, marketing and
industry. The PIGB is the first of several
Bills (the Petroleum Industry Fiscal Bill - The National Petroleum retail of petroleum products.
and the Host Community Bill are currently Regulatory Commission (NPRC
before the Senate) which the National or the Commission) The NPRC shall be vested with
Assembly will debate and pass in due all assets, funds, resources and
course. The NPRC (which replaces the other movable and immovable
current Department of Petroleum properties currently held by
Highlights of the Bill Resources (DPR), the Petroleum the Petroleum Inspectorate,
Inspectorate and the Petroleum Department of Petroleum
The Bill establishes/confirms a number Products Pricing Regulatory Resources and the Petroleum
of new/existing institutions, which can Agency (PPPRA)) shall be Products and Pricing Regulatory
be broadly classified into the following responsible for regulating the Agency. The Commission, which
categories: entire industry. Its regulatory shall be wholly independent
functions, which cut across the from the Minister of Petroleum,
i. Policy and general strategy downstream, midstream and shall be run by a Governing Board
formulator– Tasked with setting upstream sectors include: whose members, other than
overall policy and direction for the those representing the Ministries
industry • Administer and enforce of Petroleum, Finance and
policies, laws and regulations Environment, shall be appointed

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reserved. Printed in Nigeria
 “independent committee”
(The Nomination Committee)
constituted by the shareholders.
The Board of Directors shall
comprise eleven (11) Directors,
five (5) of whom shall be
Executive Directors. However,
the appointment and removal
of the initial Directors shall be
subject to the approval of the
President up until the divestment.
The Company shall be managed
on the basis of the provisions
of the CAMA and the Codes of
Corporate Governance issued
by the Securities and Exchange
Commission and the Nigerian
Stock Exchange.

Government shall provide

by the President subject to the Directors shall comprise eleven initial capitalisation of the NPC;
approval of the Senate. The (11) Directors, five (5) of whom though it is expected to be
Governing Board shall comprise shall be Executive Directors. financially independent, with
eleven (11) Directors, five (5) the Board authorised, subject
of whom shall be Executive Initial capitalisation of NAPAMC to shareholders approval, to
Directors. shall be provided by Government. undertake any activity including
Any surplus of revenue over the sale of assets to meet its
iii. Commercial Institutions “reasonable operating expenses” future obligations or strategic
at the end of the year shall be objectives. The earnings of
- The Nigeria Petroleum Assets paid into the Federation Account Government from the NPC shall
Management Company as dividend after payment of be limited to dividends declared.
(NAPAMC)1 necessary taxes including income
tax. The Company shall be exempt
The NAPAMC shall be from the provisions of both the
incorporated as a company The Company will be exempt Fiscal Responsibility Act and
limited by shares within 6 months from stamp duties and capitals Public Procurement Act. In
from the effective date of the Bill. gains tax with respect to the addition, the Company will be
The shares of NAPAMC shall be transfer of assets from the exempt from stamp duties and
held by the Ministry of Petroleum existing PSCs and Back-in-right capitals gains tax with respect to
Incorporated (40%), the Ministry provisions; though it is not clear the transfer of assets from the
of Finance Incorporated (40%) if these exemptions will apply to existing PSCs and Back-in-right
and the Bureau of Public other transactions subsequent provisions though it is unclear
Enterprises (20%). to the completion of the transfer if these exemptions will carry
process. through after that process is
NAPAMC shall be responsible completed.
for managing all assets currently - The Nigerian Petroleum
being held by the Nigerian Company (NPC) iv. Ancillary Institutions
National Petroleum Corporation
(NNPC) under the Production The NPC shall be incorporated - Ministry of Petroleum
Sharing Contracts (PSCs) and as a company limited by shares Incorporated (MOPI)
Back-in-right provisions of the within 6 months from the date
Petroleum Act of 1969, as of passage of the Bill into an Act. The MOPI shall be incorporated
amended. The Company will The NPC shall be responsible as a corporation sole which
be governed and managed for all assets currently being shall hold on behalf of the
based on the provisions of managed by the NNPC other than Government, shares in the
the Companies and Allied those under PSCs and the Back- successor commercial institutions
Matters Act (CAMA) and the in-right provisions (already ceded incorporated pursuant to the
Code of Corporate Governance to the NAPAMC). The initial provisions of the Bill.
issued by the Securities and shareholders of NPC shall be
Exchange Commission. The the same with NAPAMC and in The Permanent Secretary of
Shareholders will constitute a the same proportion. However, the Ministry of Petroleum shall
Nomination Committee, which 10% and an additional 30% of be responsible for signing any
shall be responsible for the the shares of the company shall document which requires the
appointment of the Board of be floated on the Nigerian Stock signature of the MOPI.
Directors. However, the power Exchange (NSE) within 5 years2
of the shareholders to appoint or and 10 years from incorporation,
remove the initial Directors shall respectively.
be subject to the approval
of the President. The Board of NPC shall be run by a Board of
Directors nominated by an

1
Some Sections of the Bill referred to the entity as the National Petroleum Assets Management Company
2
The minimum float at the NSE is currently set at 20%. Therefore the NPC may need to float at least 20% of its shares within the first 5 years to be listed on the NSE.

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reserved. Printed in Nigeria
 - The Nigerian Petroleum Liability directors and provide specific criteria
Management Company to guarantee the independence of the
(NAPLMC)
NAPLMC shall be incorporated
as a company limited by shares
within 6 months from the
effective date of the Act, to take
over the liabilities of the NNPC
and the pension liabilities of the
DPR. The shares of the company
shall be held by the NPC,
NAPAMC and the NPRC in the
ratio of their respective liabilities
transferred.
The management of the
NAPLMC shall, within 12 months
from its date of incorporation,
ascertain the liabilities of the
NNPC and lay out a clear plan and
timeline for its settlement after
which it shall be liquidated.
- The Petroleum Equalisation Fund
(PEF or the Equalisation Fund)
PEF is set up to enhance
development of all regions of the
federation by ensuring economic
balance in the price of petroleum
products. The Equalisation
Fund shall be administered by
a Governing Board headed by
the Minister with an Executive
Secretary, appointed by the
Minister, responsible for its day-
to-day activities.
Issues Arising
The passage of the Bill by the Senate
is highly commendable as it is a much
needed step in our national objective
of reforming the oil and gas sector and
encouraging investments. However, there
are a number of issues which need to be
addressed before the enactment of the
Bill into law. These issues include:
- Board Governance
The Bill proposes the establishment of
Boards for the commercial institutions.
However, the composition of these
boards may not reflect the appropriate
balance of powers to ensure effective
Board oversight; reduce the risk of
executive-led decision-making; and
promote adequate independence
on the board to minimise undue
government interference. It may
therefore be necessary to increase the
ratio of non-executive to executive
For further enquiries on the above and information on how KPMG can assist you,
please contact:
Wale Ajayi
T: +234 803 402 1014
E: adewale.ajayi@ng.kpmg.com
© 2017 KPMG Advisory Services, a partnership registered in Nigeria, and a member of the KPMG network of independent member firms affliated with KPMG International Cooperative (“KPMG International”), a swiss entity. All rights
reserved. Printed in Nigeria
- Regulator as fee charging service
provider
non-executive directors.
The NPRC is authorised to charge fees
- Tenure for “services rendered” to players in
the industry. This may create a conflict
Currently, the National Oil Company of interest with its role as regulator.
has historically experienced frequent
Board and management leadership - Special levy for developmental
changes, which have severely projects
impacted on the performance of the
Corporation. Although the PIGB has The Bill allows the Commission to levy
defined tenures for the Non-executive special fees on licencees and lessees
Directors, there are currently no for the implementation of any project
provisions that help to ensure stable that is of common benefit and value to
tenures for the Executive Directors the oil and gas industry. The amount
and insulate them from changing of this special levy or its frequency is
dynamics of the political context, as not stated in the Bill. This may create
far as possible. The issuance of well- uncertainty for potential investors.
defined contracts to the Executive
Directors may address this issue - Divestment
- Compliance with the SEC Code The Bill provides for the divestment
of Corporate Governance of at least 40% of the shares in the
NPC within 10 years of incorporation.
The newly established commercial However it is debatable if private
entities are expected to be governed investors will be willing to commit to a
in line with the provisions of the Code company which will be majorly owned
of Corporate Governance issued by the and run by Government in the long
Securities & Exchange Commission. term.
However, the Bill does not include
recommendations to address possible - Uncertainty around the functions of
conflicts that may arise between NAPLMC
its provisions and those of the SEC
Code. To prevent possible ambiguity, The introduction of the NAPLMC also
there will be a need to emphasise the needs to be clarified as the Bill does
superiority of the provisions of the Bill not state the specific type of liabilities
over those of the SEC Code, where that will be transferred or how the new
such conflicts arise. company will be funded. It is unclear
whether Government will appropriate
- Broad powers granted to NPRC funds to settle the liabilities transferred
or whether shareholders will be
The powers and functions assigned required to fund the NAPLMC and
to the NPRC appear to be very broad. settle the liabilities and this may
Therefore, the NPRC must ensure negatively impact the viability of any
that it has the proper structure to aid investment in the NPC.
efficient execution of its mandate.
Conclusion
- Fixing of price of petroleum products/
deregulation The Bill is still work in progress as both
Legislative Houses will need to harmonise
One of the functions of the NPRC their versions of the Bill before it is sent
is to establish the framework for to the President for Assent. The President
computing the fair market value of also has the right to request for clarity
petroleum products and tariffs for gas on sections of the Bill before assenting
processing and transportation. This or refusing to assent if he is not satisfied
seems to suggest that Government with the clarification provided or the Bill
may be unwilling to deregulate the as a whole. It is therefore essential that
downstream sector of the petroleum all stakeholders take advantage of this
industry. Furthermore, the implication opportunity to seek clarity and where
of this for Automotive Gas Oil (Diesel), possible, propose changes to the Bill in
which has been deregulated, is order to ensure that what is signed into
unclear. law accomplishes the main objective of
reforming the industry for the collective
good.
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Chibuzor Anyanechi Dimeji Salaudeen
T: +234 803 402 0965 T: +234 803 402 0991
E: chibuzor.anyanechi@ng.kpmg.com E: dimeji.salaudeen@ng.kpmg.com