Top 5 (Mis)information on Petroleum Industry Act
1. NNPC is being privatized
No, NNPC is not privatized. NNPC is only becoming a limited liability company subject to CAMA, to be named NNPC Ltd (C will also now mean Company, not corporation). The share is still 100% government-owned.
A major difference is, before PIA, NNPC had its own law: NNPC Act 1977, which guided it. Now, NNPC Ltd will be subject to law guiding other companies in Nigeria. PIA repeals (abolishes in layman’s term) the NNPC Act
NNPC Ltd will run like a company with full profit/commercial motive (did it ever have loss motive?). 20% of its profits to be retained for its own growth and 80% remitted to government as its shareholder.
2. 30% Frontier Exploration Fund (FEF) is bigger than the 3% host community levy (HCL)
There are two things wrong with this info. First, the bases of computation are different. The base for FEF is profit oil/gas, the base for HCL is prior-year operating expenses.
Second, the 30% FEF applies only on NNPC’s profit oil/gas, while 3% HCL applies on opex of all upstream companies in Nigeria and there are over 50 of them. So mere comparison of the headline % without regard to bases and # of companies in each bucket is misinformation.
Noteworthy that I also think that that commitment to FEF is too big in light of the country’s financial situation and dire need of revenue for other things, but the facts stated above need to be corrected.
3. NNPC to contribute 30% of its profits to FEF
This is wrong. There is a difference between NNPC profits vs NNPC profits in oil & profit gas. The former is the corporate accounting profit, as in when all its expenses as a company are deducted from its revenues, what is left.
This is not the profit the PIA is talking about as the base of the 30% of FEF. PIA is talking about profit oil and gas from NNPC’s upstream oil & gas contracts (production sharing, profit sharing & risk-sharing contracts). Profit oil/gas is what is left after
royalty, tax, and operating cost are deducted from crude oil or crude gas production in any of the contract types above. It’s an upstream thing, so it means profits from NNPC subsidiaries like NGC are not part of it. In short, it’s not the corporate profit of NNPC as a group
4. Frontier Exploration = North
I wish I could avoid mentioning this, but section 9 that establishes FEF actually says the fund will be used to develop “frontier acreages”. The definition section says “frontier acreages” would be as defined by a Regulation by Commission
Effectively, the Commission (ie successor to DPR) will later issue a Regulation to define and say where the “frontier acreages” are. However, it is expected that frontier basins would be part of these frontier acreages and PIA listed Anambra, Dahomey, Bida, Chad & Benue trough
as the basins which would be effectively (but not exhaustively) part of frontier acreages. From that list, 2 of the 5 determined frontier fields are not in the North. So frontier exploration fund use is not only for the North. Now sounding like I’m defending FG? No, just the law
5. PIA has become effective
No PIA is not yet in force. While the signing by the president means it has become a law, it doesn’t mean it became effective on the day it was signed. A gazetted version will be issued that says the date of commencement.
A couple of provisions there will also not start immediately, eg the Minister of Finance will incorporate NNPC Ltd with CAMA within 6 months after the effective date.
In short, the date of signing is not necessarily the effective date. And the effective date is not yet public.