1. Governance and Institutions.pdf

PIA Immersion Chapter One Governance and Institutions Dr . Timothy Okon Governance 1 PIA Immersion Governance: From NNPC 1977 to PIA 2021 MPR MPR NNPC Act 1977 PIA 2021 DPR PPPRA Dept of Gas Commercial Reg NOC(NNPC) Commercial Ops NUPRC/ NMDPRA Commercial Reg NNPC LIMITED Commercia...

PIA Immersion Chapter One Governance and Institutions Dr . Timothy Okon Governance 1 PIA Immersion Governance: From NNPC 1977 to PIA 2021 MPR MPR NNPC Act 1977 PIA 2021 DPR PPPRA Dept of Gas Commercial Reg NOC(NNPC) Commercial Ops NUPRC/ NMDPRA Commercial Reg NNPC LIMITED Commercial Ops 2 PIA Immersion Governance: Change in Regulatory System 3 PIA Immersion Governance: Design Framework Minister Policy & Supervision Policy & Supervision NCDMB Minister of Petroleum PEF DPR Commercial Operations Regulation NUPRC NCDMB FME NMDPRA PPPRA W&M NNPC Others Amorphous; Overlaps; Confused Accountability Commercial Operations NNPC Limited Clear; Separated; Transparent; Accountable Roles 4 PIA Immersion Governance: Petroleum Industry Institutional Building Blocks Policy anchor and direction setting Local content custodian NCDMB Capacity development Petroleum Technology Development Technical manpower development Petroleum Training institute Policy Regulation Commercial Minister (Policy Setting / direction; industry co-ordination & supervision) Nigeria Upstream Petroleum Regulatory Commission Nigeria Midstream and Downstream Petroleum Regulatory Authority NNPC Limited Regulation and Compliance Commercial operations 5 PIA Immersion Governance: Institutional Control Elements Industry Structure •Role definition •Segregation •Accountabilities •Deliverables •Authorities Policy, Legislation & Regulations Institutional Mandates Adapted from G&C Task Force Report 2012 •Structure & organization •Reporting relationships •Funding mechanisms •Tools, Systems & Processes Institutional Controls •Instruments •Boards •Memberships •Decision process •Code of conduct 6 PIA Immersion Governance: Policy & Regulation Owner and driver of Industry Policies • Sets general Industry policy direction • Supervision on behalf of Govt. Office of the Minister Section 3 • Industry diplomatic roles • Award of all Upstream. Midstream & Downstream licenses – upon recommendation by the Commission & Authority • Inter-Agency cooperation 7 PIA Immersion Governance: Policy & Regulation Independent supervisor and monitor • Upstream based technical & commercial regulation • Rules based organization • Transparent and tight governance control • Focus on accelerated development e.g frontier basins The Commission: Upstream Regulator Section 4- 28 • Promote investments & opportunities • Economic growth through proactive resources management • Sustainable revenue flows and stakeholder value sustainability 8 PIA Immersion Governance: Policy & Regulation Independent supervisor and monitor • Midstream and downstream based technical & commercial regulation • Rules based organization • Transparent and tight governance control • Focus on midstream development • Promote investments and opportunities The Authority: Mid- & Downstream Regulator Section 29- 52 • Domestic processing and linkage with other sectors • Market driven pricing framework • Strong consumer rights protection • Open and third party access to infrastructure 9 PIA Immersion Governance: Governance of Regulatory Structures Nigeria Upstream Petroleum Regulatory Commission Board appointment by Mr. President & Confirmation by the Senate except for the appointments of ex-officio members Board: 3 Execs, 6 Non-Execs Top Mgt; CEO & 6 Executive Commissioners Transfer of employee at terms not less favourable than current benefits Nigeria Mid- & Downstream Petroleum Regulatory Authority Board: 3 Execs, 6 Non-Execs Top Mgt; CEO & 7 Executive Directors Staff composition Commission Funds  Appropriation,  % of Cost of Revenue collection  Retention of fees for services rendered Authority Funds  Appropriation,  0.5% of the wholesale price of petroleum products soled in Nigeria  Retention of fees for services rendered 10 PIA Immersion Governance: Optimized Industry Regulatory Framework Current Previous Regulate Regulate Monitor and ensure compliance Influence Promote Monitor and ensure compliance Coordinate Long Term plans; Influence and encourage urban cooperation Promote investment and value creation 11 PIA Immersion Governance: Regulatory Process Through Stakeholders Engagement; Section 216 The Commission and Authority to publish on website or at least two Newspapers notice for Stakeholders Consultation. The Commission and Authority to consult stakeholders before finalizing regulations or amendment to regulations credit:Unsplash.com Stakeholders are lessees, Licensees and permit holders impacted by regulations or any interested person Submissions made by stakeholders are taken into consideration Open process involving concerned and interested persons Only in issues of national interest and exigences can regulations be made without stakeholders consultations. Regulations without stakeholders consultations are subject to one year validity unless confirmed by stakeholders. Source:PIA 2021 12 PIA Immersion Governance: Bidding Round: Upstream Petroleum Licensing Regime Petroleum Prospecting License Explore Appraise 0-3yrs 0-6yrs 2-3yrs Petroleum Exploration License  Right to acquire geological and geophysical data  Speculative based surveys  No right to drill exploration wells  Duration of 3 + 3 years Petroleum Mining Lease Develop 4-5yrs Decommission & Abandon Produce 15 yrs. Petroleum Prospecting License  Right to prospect and explore  Drill exploration and appraisal wells  Right to production test and win volumes  Duration of 6 years (3+3) onshore and shallow water + 10 years (5+5) for deep offshore and frontier area Petroleum Mining Lease     Right to win and carry away produce volumes of oil and gas Right to drill development and production wells Duration of minimum of 20 years for all terrains Must secure Field development plan approval for grant. 13 PIA Immersion Governance: Bidding Rounds; Acreage award (Section 73 and 74) Strategic bilateral considerations Discretionary award discontinued Transparent and competitive bidding process  Model and model license to accompany bid rounds Petroleum Prospecting License + Petroleum Mining Lease Change of nomenclature from Oil to Petroleum in the licensing name signifies Nigeria’s deliberate commitment to the exploration and production of both oil and gas resources 14 PIA Immersion Governance: Bidding Rounds; Description Under PIA 2021 Open Transparent Bidding Process to be conducted by The Commission Competitive Section 74(1) of PIA 2021 NonDiscriminatory 15 PIA Immersion Governance: Bidding Rounds; Marginal Fields Redefinition (Section 94) No declaration of a marginal field from the effective date Marginal fields prior to 1.1.2021 to continue to enjoy marginal field terms 7 years fallow qualifies for a marginal field for existing assets List to be compiled by Commission and leaseholder to farm out within 24 months of the Effective date • Significant activity; or Once production reach 10kbd, applicable terrain fiscal terms applies • Farm-out; or • Relinquish within 24 months of the effective date 16 PIA Immersion Governance: NNPC Limited Fiscal Rules (or Handcuffs) Commercial Profitable Efficient Self funding Specific MEMART for Itself and Subsidiaries Retained Earnings of 20% PIA Immersion Governance: NNPC Limited as Federation Asset Manager with Fiscal Rules Section 64: The objectives of NNPC Limited shall include to (a) carry out petroleum operations on a commercial basis, comparable to private companies in Nigeria carrying out similar activities including exemption to Public Procurement Act, Fiscal Responsibility Act and Treasury Single Account. (b) NNPC Limited to be vested as the concessionaire of all Production Sharing Contracts (PSC), Profit Sharing and Risk Service Contracts as the National oil company on behalf of the Federation in line with its competencies; (c) lift and sell royalty oil and tax oil on behalf of the Commission and the Service respectively for an agreed commercial fee and in the case of profit oil and profit gas payable to the concessionaire, NNPC Limited shall promptly remit the proceeds of the sales of the profit oil and profit gas to the Federation less its 30% for management fee and Frontier Exploration Fund as specified in section 9 (4) of this Act ; (d) carry out test marketing to ascertain the value of crude oil and report to the Commission ; (e) be vested with the rights to natural gas under production sharing contracts entered into prior to and after the effective date of this Act ; PIA Immersion Governance: NNPC Limited as Federation Asset Manager with Fiscal Rules Section 64: The objectives of NNPC Limited shall include to (h) engage in the business of renewables and other energy investments; (f) carry out the management of production sharing contracts for a fee, based on the profit oil share or profit gas share in accordance with paragraph (c) ; (i) promote the domestic use of natural gas through development and operation of large-scale gas utilization industries ; (g) with respect to any joint operating agreement in which NNPC is a party on the effective date assume the working interest held by NNPC irrespective of whether such license or lease is converted under section 92 of this Act ; (k) carry out task requested by the Commission or Authority on a fee basis and generally engage in activities that ensure national energy security in an efficient manner, in the overall interest of the Federation ; PIA Immersion Governance: Key Takeaways • Full separation of policy development (MPR), independent regulation and separate National oil and gas company in commercial operations. • A bicameral regulatory system across the oil and gas value chain (Upstream & Midstream and Downstream Regulators ). • Each regulator has vertically integrated technical and commercial regulations distinctive from the horizontal technical regulatory system practiced by the DPR across the oil and gas value. • The role of the National oil company is solely limited to commercial operations with mandates on profitability (sections 53, 55 and 64) • Regulatory and commercial institutions with independent boards even though appointed by the President • Requirement for transparent open and competitive bidding processes for licenses across the petroleum value chain 20