Module 2 Transcript.docx

Module TWO: Governance and Institutions 1 Module Objectives By the end of this section, participants will be able to: Interpret the major provisions of the PIA, which concern the Nigerian Oil & Gas Industry Governance Structure. Summarise the functions & roles of- the Upstream and Mid-Downst...

Module TWO: Governance and Institutions 1 Module Objectives By the end of this section, participants will be able to: Interpret the major provisions of the PIA, which concern the Nigerian Oil & Gas Industry Governance Structure. Summarise the functions & roles of- the Upstream and Mid-Downstream Regulators (NUPRC & NMDPRA); the Policy Maker (Office of the Minister) & the Commercial Operator (NNPC Ltd). 2 Outline We will look at the following: The Governance structure Minister of Petroleum The commission The Authority Nigerian National Petroleum Corporation Limited (NNPC Limited) Institutional Control Elements Regulatory Process Through Stakeholders Engagement GOVERNANCE AND INSTITUTION 3 The Governance structure The Nigerian Petroleum Industry Act (PIA) 2021 sets out a national petroleum industry governance structure designed to increase transparency, accountability, and efficiency. Objectives: The objectives of the governance structure are: To establish effective and efficient governing institutions for the petroleum industry, with distinct and defined roles; To create a commercially oriented and profit-driven national petroleum industry; To promote transparency, good governance, and accountability in the administration of Nigeria's petroleum resources; To foster a business environment conducive to petroleum operations; and To deepen local content practice in the Nigerian oil and gas industry. Structure: According to the PIA, the following institutions are responsible for the governance of the petroleum industry: The Ministry of Petroleum Resources, headed by the Minister, The Nigerian Upstream Petroleum Regulatory Commission ( “The Commission”) The Nigerian Midstream and Downstream Petroleum Regulatory Authority ( “The Authority”) , and The Nigerian National Petroleum Company Limited (NNPC Limited). Click each to learn more 4 Minister of Petroleum The Office of the Minister of Petroleum Resources as established by the Petroleum Industry Act 2021 (PIA) has several key roles and functions. The Minister is charged with giving policy direction to the entire industry. s Although the powers of the Minister to regulate has been dissolved to the Commission and authority, he may give general policy directives to the commission (on upstream matters) and the authority (on midstream and downstream matters) and they shall comply with such directives. Role of the Minister The Minister’s role includes the following: Formulate, oversee, and administer government policies. General oversight and control of the petroleum industry Speak up for Nigeria in international organisations on petroleum-related issues. Regulate production levels in light of international agreements on oil pricing. General policy directive to the authorities and commission. 5 The commission The Act establishes the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) to take charge of technical and commercial regulation of upstream petroleum operations. Click to learn more Objectives The commission: Regulates technical, operational, and commercial aspects of upstream petroleum operations. Makes that all applicable laws and rules regulating upstream petroleum operations are followed. Ensures the efficient, effective, and ecologically responsible conduct of upstream petroleum operations. Ensures that technical standards, norms, methods, and specifications used in upstream operations are implemented and maintained in conformity with good international petroleum industry practices. Technical Regulatory Functions: The technical regulatory function of the commission includes: Implementing upstream petroleum operations rules, appropriate laws, and regulations. Holding bids to award petroleum licenses for upstream operations Making recommendations to the minister for the issuance, revocation, and suspension of licenses Establishing and upholding accepted norms and rules for the planning, building, and use of plants and installations in upstream activities. Providing the minister with fiscal, operational, and other advice. Commercial Regulatory Functions: The commercial regulatory function of the commission are as follows: To examine and approve the commercial components of all licensees, lessees, and permit holders' field development plans. To Effect output reductions of crude oil or condensate that the Minister has directed. To Develop cost analyses and benchmarks for assessing upstream operations (cost control) Frontier Basins Functions: The Commission has been tasked with overseeing Nigeria's frontier basins. Although the Niger, Chad, Bida, Dahomey, Sokoto, Benue, Gongola, and Anambra basins are generally considered frontier basins, the PIA allows for some flexibility. The commission has the following responsibilities across the frontier basins: Promote exploration of Nigeria's Frontier basins Create exploration plans and a portfolio management system for examining unclaimed frontier acreages. Locate prospects and improve knowledge of Nigeria's frontier acreages' petroleum resource base. Conduct research, analyse, and assess Nigeria's unassigned frontier basins. Powers of the commission: The Commission has the power to: Enforce laws, rules, and policies relating to upstream activities that were once under the Department of Petroleum Resources' control. Recommend to the Minister that licenses and leases be revoked or suspended. Require leases and permit holders to publish non-proprietary information. Issue guidelines and regulations for upstream operations and the renewal of licenses and leases Board of the Commission composition: The Board of the Commission is established by Section 11 of the Act and consists of the following: One non-executive chairman Two non-executive commissioners The chief executive of the commission Two other executive commissioners responsible for finance and accounts and exploration and acreage management One representative of the authority not below the rank of director One representative from the ministry of finance not below the rank of director. One representative of the ministry of petroleum not below the rank of director 6 The Authority According to the PIA, the Authority (Nigerian Midstream and Downstream Regulatory Authority) was established to have technical and commercial regulation of midstream and downstream petroleum operations. Click to learn more Objectives The objectives of the authority are to: Regulate technical, operational, and commercial petroleum operations in the upstream, midstream, and downstream sectors. Promote the conduct of midstream and downstream petroleum operations in a way that is sustainable and ecologically acceptable. Establish technical standards, codes, norms, and specifications that are applicable to midstream and downstream activities, and oversee their application. Promote the distribution of petroleum products and the provision of natural gas to the domestic market, as well as their supply and distribution. Ensure adherence to laws and rules that apply to midstream and downstream petroleum operations. Functions of Authority The authority: Regulates and monitors technical and commercial midstream & downstream petroleum operations Provides pricing and tariff framework for natural gas in midstream and downstream gas operations and petroleum products on fair market value of the products Establishes parameters and code of conduct for operators Promotes competition and private sector participation in the midstream and downstream petroleum operations Regulations by Authority The authority: Develops regulations for the handling, refining, distribution, supply, sale, and storage of petroleum and petroleum products. Describes the requirements for acquiring licenses and permits, their terms and conditions, and the process for transferring, surrendering, and revoking them. Regulates pricing policies for downstream and midstream oil and gas operations. Creates regulations for the retail sale and distribution of petroleum products, as well as for the oil industry's competition and anti-competitive behavior. Authority Fund The authority derives their funding from: Fees paid for use of facilities of authority Fees charged for services rendered to licences and lessees Income from publications Grants, aid and gifts 0.5% of the wholesale price for petroleum products sold Board of Authority composition: The Board of the Authority is established by Section 34 of the Act and consists of the following: One non-executive chairman Two non-executive members The chief executive of the authority Two other executive directors responsible for finance and accounts and distribution, storage and retailing infrastructure. One representative of the ministry of petroleum not below the rank of director One representative of the commission not below the rank of executive commissioner One representative from the ministry of finance not below the rank of director. 7 Nigerian National Petroleum Corporation Limited (NNPC Limited) In line with the Petroleum Industry Act (PIA),The Nigerian National Petroleum Company Limited (NNPC Limited), incorporated under the Companies and Allied Matters Act (CAMA), replaces the Nigerian National Petroleum Corporation. Accordingly, The Nigerian National Petroleum Corporation’s assets, interests, and liabilities shall be transferred to NNPC Limited or its subsidiaries. Without government funding, it must operate on a commercial basis, pay dividends to its shareholders, and retain 20% of its profits earnings to grow its business. Government shall own the shares in NNPC Limited’s which shall be held by: Ministry of Petroleum Incorporated - 50% Ministry of Finance Incorporated - 50% The shares are not transferable unless approved by Government and endorsed by National Executive Council. A lease or license must pay its fair part of fees, rent, royalties, profit oil shares, taxes, and other required payments to the government, just like everyone else. Objectives The objectives of the NNPC Limited are to: Manage petroleum activities as though they were a private corporation. Be the concessionaire for all contracts involving risk-sharing, profit-sharing, and production-sharing. Sell tax oil and royalty oil to the commission and FIRS, respectively, for a charge. Assume NNPC’s working interest in every joint venture Continue NNPC's function under Section 54. Lift, sell, and remit to the federation the earnings of the sale of profitable oil and gas, less 30% for the Frontier Exploration Fund (FEF) For security purposes, turn into the provider of last resort. 8 Institutional Control Elements The Act establishes the following measures to ensure accountability, transparency, and effectiveness in the governance of the petroleum industry: These include: The industry structure Institutional controls Institutional mandates 1. The industry structure outlines the management and organization of the institutions; their tools, systems, and processes; their funding mechanism; and their reporting relationships. 2. Institutional controls ensure adherence to the operational code of conduct, create instruments and a process for decision-making, and establish a streamlined appointment process wherein the boards of both regulatory bodies and the commercial entity are chosen by the president and confirmed by the Senate. 3. The institutional mandates clearly articulate each governing institution's responsibilities, deliverables, and scope of authority. 9 Regulatory Process Through Stakeholders Engagement; Section 216 The stakeholder engagement process for the making of new industry regulation is as follows: The Commission or the authority will publish in a website or at least two Newspapers notice for Stakeholders Consultation. The Commission and Authority would consult stakeholders before finalizing or amending regulations and the process by which regulations are made. When published, it then leads to engagement with the relevant parties. When engagement occurs, the information garnered is collated, and a final decision is made regarding the new regulations to be created. 10 Module Summary We have now come to the end of this module. Before we proceed, let’s remind ourselves of the key learning points- We have explained the governance structure where the roles of the Minister, Regulators and NNPC as the commercial operator have clearly been outlined. We have also discussed the institutional controls established by the PIA, specifically the Boards’ appointment for the Regulatory Agencies and the Commercial Operator. Finally, we have explored the petroleum industry landscape redesigned by the PIA, visualizing each building block and where it sits. 11 Course closing slide. Well done! You have come to the end of the course. We trust this was an exciting learning experience for you. Congratulations!