PIA-2021_Petroleum Administration-Part III (Mid and Downstream Petroleum Operations).pdf

Petroleum Industry Act, 2021 2021 No. 6 A 213 (11) The Commission shall discontinue the imposition of domestic gas delivery obligations, where the Authority has determined under section 167 (3) of this Act that the natural gas market has attained full market status. (12) Upon being allocated the...

Petroleum Industry Act, 2021 2021 No. 6 A 213 (11) The Commission shall discontinue the imposition of domestic gas delivery obligations, where the Authority has determined under section 167 (3) of this Act that the natural gas market has attained full market status. (12) Upon being allocated the volumes to be supplied under the domestic gas supply obligation under subsection (1), the lessee shall submit a marketable natural gas production and supply plan consistent with these obligations to the Authority. (13) A producer-customer of the domestic gas aggregator shall pay compensation to customer-client for any loss suffered as a result of default to supply marketable natural gas in accordance with a gas purchase order issued by the domestic gas aggregator. (14) A lessee who does not comply with the domestic gas delivery obligation as directed by the Commission shall— (a) in addition to the penalties provided under subsection (8), not be entitled to supply natural gas to any new midstream gas export operations, provided that this provision shall not apply to gas sales agreements already entered into ; and (b) where the lessee is supplying natural gas to midstream gas export operations, the Commission may impose other sanctions as are prescribed in a regulation made under this Act. (15) An approval for the supply of natural gas for export projects shall, from the effective date, be subject to prior compliance by the lessee with its domestic gas delivery obligation. (16) Domestic gas delivery contracts entered into by lessees or licensees prior to the effective date and continuing after the effective date, shall be counted towards their domestic gas delivery obligation under this section. PART III—GENERAL ADMINISTRATION OF MIDSTREAM AND DOWNSTREAM PETROLEUM OPERATIONS 111.—(1) The Authority may grant, renew, modify or extend individual licences or permits, provided that, where it relates to the establishment of refineries the licence shall be issued by the Minister on the recommendation of the Authority. (2) The Authority shall only grant a licence for midstream or downstream petroleum operations, where— (a) it meets the technical standards required for petroleum operations based on good international petroleum industry practices ; Matters relating to licence applications. A 214 2021 No. 6 Petroleum Industry Act, 2021 (b) the location and size of the area occupied by the facilities or right of way is acceptable to the Authority ; (c) it meets the health, safety and environmental standards, as determined by the Authority ; and (d) it provides for the efficient and economic use of facilities and pipelines. (3) The Authority shall only grant a licence for midstream petroleum operations where it— (a) does not involve excessive capital or operating expenditures ; (b) includes an acceptable environmental management plan under section 102 of this Act ; (c) includes a decommissioning and abandonment plan and a decommissioning and abandonment fund that complies with sections 232 and 233 of this Act ; (d) provides for the elimination of routine natural gas flaring ; (e) does not relate to midstream petroleum operations that would conflict with a licence already granted ; and (f ) includes— (i) a detailed programme for the recruitment and training of Nigerians in all phases of petroleum operations handled directly by the licensee or through agents and contractors of the licensee, and (ii) provision for scholarship schemes, internships, continuous professional development and other training requirements. (4) An application for the grant, renewal or extension of a licence or permit shall— (a) be made to the Authority in the form and manner prescribed by regulation ; (b) be accompanied by the payment of a prescribed fee, where applicable, together with information or documents as prescribed in the regulations under this Act ; and (c) include a decommissioning and abandonment plan, where the licence contemplates the construction of pipelines, storage tanks, processing or other facilities. (5) The Authority may furnish an applicant for the grant, renewal or extension of a licence or permit, with non-confidential information as may be necessary to facilitate the filing of the application. Petroleum Industry Act, 2021 2021 No. 6 A 215 (6) An applicant for a licence or permit, who is an affiliate of a body corporate that has applied for or holds any other licence or permit shall disclose such relationship to the Authority in its application. (7) The Authority shall consider information presented in respect of an application for a licence or permit, including representations from interested parties in favour of or against the granting, extension or renewal of the licence or permit and shall inform the applicant of its decision within 90 days of the application. (8) Where the Authority has decided to grant a licence or permit, it shall publish a notice of its decision in the form and manner prescribed in regulations issued by the Authority. (9) Where the Authority decline an application, it shall inform the applicant of its refusal of the application, reasons for the refusal and may state a reasonable time within which the applicant may make further representations. (10) The Authority shall consider any representation made by an applicant for a licence or permit on the refusal of an application, where such representation involves new information not previously considered. (11) The Authority shall not consider further application or representation made by an applicant in respect of a refusal of an application previously considered and rejected by the Authority. (12) An applicant that is not satisfied with the reasons given by the Authority for refusal of an application may apply to the Federal High Court for a judicial review. 112.—(1) The Authority shall publish a notification of any application made for the grant of a licence or renewal under this Part in a manner prescribed by a regulation under this Act. Advertisement of licence applications. (2) Upon the publication of the notification of the application referred to under subsection (1), interested parties may comment or make representations to the Authority in respect of the application in accordance with the time prescribed by regulation under this Act. (3) Upon the grant or renewal of a licence, the Authority shall publish notification of the grant or renewal in the form and manner prescribed by regulation under this Act. 113.—(1) The Authority shall make regulations and guidelines for the grant or renewal of licence for midstream and downstream petroleum operations. Licensing regulations. A 216 2021 No. 6 Petroleum Industry Act, 2021 (2) The Authority shall in consultation with the Commission ensure the implementation of the domestic crude oil supply obligation and domestic gas delivery obligation. (3) The Authority shall ensure third party access to facilities and pipelines for midstream and downstream petroleum operations where such facilities and pipelines are operated for the own account of the licensee and shall ensure open access where the facilities and pipelines are operated by the licensee on an open access basis. (4) The Authority shall encourage third party investment in facilities and pipelines for midstream and downstream petroleum operations. (5) The Authority may make regulations on tariffs, which shall be consistent with the tariff methodology set out in this Act. (6) The Authority may make such other regulations consistent with the regulatory functions of the Authority under section 32 of this Act. Conditions in licences or permits. 114.—(1) Conditions in a licence or permit issued under this Act may require the holder of a licence or permit to— (a) comply with any directions of the Authority in relation to matters specified in the licence or permit ; (b) undertake or refrain from anything specified in the licence or permit ; (c) secure the approval of the Authority prior to undertaking anything specified in the licence or permit ; (d) comply with relevant industry codes, standards and market rules ; (e) undertake its activities subject to the prescribed tariffs or tariff methodology ; (f ) provide relevant information to the Authority ; (g) prepare and submit to the Authority true, fair and sufficient annual statements in such form, and particulars as the Authority may require ; (h) make available to the Authority such books as may be requested by authorised officers of the Authority ; (i) impose restrictions on the disposal of assets ; (j) adhere to undertakings made within a business plan submitted as part of the application process ; (k) prepare and submit to the Authority such information and periodical reports as the Authority may require ; (l) publish terms of access to its transportation or distribution pipeline or petroleum liquids or gas transportation networks as the case may be ; and Petroleum Industry Act, 2021 2021 No. 6 A 217 (m) operate its licence or permit and related facilities, if any, according to the standard of a reasonable and prudent operator. (2) The duration of a licence or permit shall be specified by regulations made under this Act and the conditions applicable to the licence or permit may cease to have effect or be modified in accordance with terms specified in the licence or permit. (3) A licence or permit of the same class granted by the Authority, shall contain similar conditions representing standard conditions for that class and any difference in the conditions in the licence or permit shall only be for good reasons, which shall be published in the Federal Government Gazette. (4) Subject to this Act, the Authority shall have power to include special conditions specific to a particular licence or permit or to a holder of the licence or permit, provided that the special conditions are designed to meet specific circumstances and shall not be a disadvantage to another holder of a licence or permit. (5) The Authority may specify in a licence or permit a date on which activities shall commence. (6) The Authority may provide that an activity be exclusive for all or part of the period of the licence or permit for a— (a) specific purpose ; (b) specified geographical area and route ; or (c) combination of paragraphs (a) and (b). 115.—(1) A licence or permit shall be issued subject to compliance by the applicant with the provisions of the Land Use Act in respect of compensation for acquisition of land for midstream and downstream petroleum operations. Compensation for acquisition of land. Cap. L5, LFN, 2004. (2) The Governor of a State of which land is required for carrying out operations or activities subject to a licence or permit may issue a certificate of occupancy under the Land Use Act in respect of the land and in accordance with existing state law. Cap. L5, LFN, 2004. 116. A holder of a licence or permit shall not discriminate against customers, classes of customers or their related undertakings in respect of access, tariffs, prices, conditions or standards of service, except for justifiable and identifiable differences regarding matters such as quantity, transmission distance, length of contract, load profile, interruptible supply or other distinguishing features approved by the Authority. General nondiscrimination provisions. Petroleum Industry Act, 2021 A 218 2021 No. 6 Assignment or transfer of licence or permit. 117.—(1) A holder of a licence or permit shall not, without the prior written consent of the Authority, assign or transfer its licence or permit or any right or obligation arising from the licence or permit. (2) An application for assignment or transfer of a licence or permit shall be made to the Authority, which may require the applicant to publish a notice of the application in the form, manner and time prescribed by regulation under this Act. (3) The Authority shall, in the determination of whether a licence or permit is to be assigned or transferred,— (a) follow the same procedure with appropriate modifications ; (b) apply the same rules and criteria ; (c) consider the same issues as if the party to whom the licence or permit is being assigned or transferred is applying for a new licence or new permit ; and (d) consider the representations made to it by third parties in respect of the application. (4) The Authority shall, subject to subsection (3), communicate in writing, its approval or refusal of an application for assignment or transfer of a licence or permit within the time prescribed by regulation under this Act. (5) Where the Authority does not approve or refuse an application and fails to communicate its decision to an applicant for the assignment or transfer of a licence or permit within the prescribed time, the application shall be deemed to be approved. (6) Where the Authority refuses the grant of an application for an assignment or a transfer of a licence or permit, it shall communicate to the applicant the reason for the refusal and shall give reasonable time within which further representation may be made by the applicant or by a third party in respect of the application. (7) Where the Authority grant consent to an assignment or transfer of a licence or permit, it shall notify the applicant in writing, subject to any condition it may consider appropriate. Suspension and amendment of conditions in a licence or permit. 118.—(1) The Authority may suspend or amend the conditions applicable to a licence or permit or include additional conditions subject to subsection (2). (2) The Authority shall not suspend or amend any condition applicable to a licence or permit or include additional conditions to a licence or permit unless it gives the holder— (a) a written notice of its intention and a draft copy of the proposed suspension or amendment ; and Petroleum Industry Act, 2021 2021 No. 6 A 219 (b) an opportunity to make a written submission to the Authority within the time specified by regulation. (3) The procedure for the suspension or amendment of a condition in a licence or permit shall be as prescribed by the Authority in a regulation under this Act. (4) A holder of a licence or permit who is dissatisfied with the decision of the Authority to suspend or amend a condition in a licence or permit may apply to the Federal High Court against the decision. 119.—(1) The holder of a licence or permit may, upon an application in the form, manner and meeting any condition prescribed by the Authority in a regulation made under this Act surrender the licence or permit, where— Surrender of licence or permit. (a) the licenced or permitted activity is no longer required ; (b) the licenced or permitted activity is not economically justifiable ; (c) another qualified person is willing and able to assume the rights and obligations of the holder of the licence or permit in accordance with the requirements and objectives of this Act ; and (d) applicable, the holder of the licence or permit has complied with the requirements of the law in respect of relinquishment, decommissioning and abandonment of installations and reclamation of land. (2) A holder of the licence or permit who has commenced activities and has ongoing operations shall, except a shorter period is stipulated in the licence or permit, give the Authority a minimum of 12 months’ notice in writing of its intention to cease its activities. (3) The form and procedure to be followed in surrendering a licence or permit under subsection (2) shall be as prescribed by regulation. 120.—(1) Notwithstanding the provisions of Chapter 2 of this Act related to midstream and downstream petroleum operations, a licence or permit may be revoked, where— (a) the holder becomes insolvent, bankrupt, enters into an agreement or composition with its creditors or takes advantage of any enactment for the benefit of the debtors or goes into liquidation, except as part of a scheme for an arrangement or amalgamation ; (b) upon the transformation or dissolution of the company or corporation, except it is for the purpose of amalgamation or reconstruction, provided that the prior written consent of the Authority has been obtained ; (c) a holder of a licence or permit fails to commence activity within the timeframe prescribed in the licence or permit ; Grounds for the revocation of a licence or permit. A 220 2021 No. 6 Petroleum Industry Act, 2021 (d) the holder of a licence or permit fails to comply with applicable laws and regulations on terms and conditions of its licence or permit ; (e) the holder interrupts midstream or downstream petroleum operations for a period of more than 180 consecutive days without justification as provided for in the licence or permit, the acknowledgement of an event of force majeure, shall be an acceptable justification for interruption ; (f ) the holder assigns or transfers any interest in the licence or permit without obtaining the prior written consent of the Authority ; (g) the holder has acquired the licence or permit based on false representation or contrary to corrupt practices and money laundering laws ; (h) the holder has failed to comply with environmental obligations as required by law or the provisions of the licence or permit ; (i) the holder is owned wholly or in part, directly or indirectly or is controlled by a former or serving public official or member of the Government, who obtained his interest in the applicable licence or lease other than as permitted by applicable law ; and (j) the holder fails to abide by any expert determination, arbitration award or judgment arising from the dispute resolution provisions set forth in a licence or this Act. (2) Subsection (1) (i) shall apply to a former public official or member of Government only where the applicable interest was acquired while the public official was in office or was a member of the Government. Notice of default prior to revocation. 121.—(1) Prior to a decision by the Authority to revoke a licence or permit under section 120 of this Act, the Authority shall— (a) serve a notice of default on the holder setting forth in reasonable detail the default of the holder ; and (b) give the holder 60 days within which to remedy the default. (2) Where the Authority is satisfied with the remedy of the holder under subsection (1) (b), the revocation process shall terminate. (3) Where, at the expiration of 60 days, the holder fails to remedy the default, the licence or permit shall be terminated. (4) A notice of default shall be— (a) sent by the Authority to the last known address of the holder of licence or permit or its legal representative in Nigeria, or (b) published in the Federal Government Gazette or on the website of the Authority, each of which shall constitute sufficient notice to the holder of licence or permit of the notice of default. Petroleum Industry Act, 2021 2021 No. 6 A 221 (5) Revocation shall be without prejudice to any— (a) liabilities which the holder may have incurred ; or (b) claim, which the Authority, the Government or any third party may make against the holder of licence or permit. (6) A revocation decision shall be published in the Federal Government Gazette and the Authority shall amend relevant registers maintained by it to reflect the revocation. 122.—(1) The Authority shall, in exercising its powers of commercial regulations, be guided by the following principles in designing a pricing framework for transportation, distribution and processing petroleum tariffs— (a) for transportation, distribution and processing of petroleum shall be on a cost-reflective basis ; (b) charged shall permit a reasonable return for licensees on their investments ; (c) shall not discriminate between customers with similar characteristics under section 116 of this Act ; and (d) shall be determined in US Dollars or other foreign currency as applicable with a view to attracting foreign investment to midstream and downstream petroleum operations, provided that payments of the tariffs may be made in the respective foreign currency or equivalent value of Naira at the open market rate published by the CBN as applicable under the regulations. (2) The tariff methodology for tariffs related to new gas transportation pipelines, gas distribution networks and facilities requiring a gas processing licence shall include, that— (a) tariffs shall be determined in US Dollars, but may be paid in Naira, where the applicable exchange rate shall be based on the Securities and Exchange Commission over the counter market rate or any successor rate ; (b) the capital costs may be recovered in equal installments over a period as determined by the Authority ; (c) the after tax rate of return on equity shall be such that it attracts major investment and the rate of return shall apply during construction ; (d) where short pipelines connecting producers or consumers to a gas transport pipeline or gas transport pipeline network and in other justified cases, the Authority may approve that capital costs be based on 100% equity, otherwise a reasonable debt or equity ratio shall apply ; (e) where a debt or equity ratio applies under paragraph (d) of this subsection, the cost of any interest and financing charges shall be recovered ; Tariff principles. A 222 2021 No. 6 Petroleum Industry Act, 2021 (f ) operating costs, including allocation for overhead and profit margin on operating costs, shall be recovered and the costs shall be adjusted for inflation ; (g) line losses and gas energy use shall be taken into account ; (h) any applicable tax, levy and duty shall be recovered ; (i) where capital costs have been fully recovered, the tariff shall no longer include the items under paragraphs (b), (c) and (d) ; and (j) tariffs shall be based on the estimated throughput as estimated by the Authority, notwithstanding the capacity of the gas transportation pipeline, gas distribution network or processing plant. (3) The Authority may by regulation modify or provide further detail on the provisions of subsection (2) and establish more favorable tariffs for credit worthy shippers willing to commit to long term ship-or-pay agreements facilitating the financing of the respective pipelines or plants. (4) The Authority may approve negotiated tariffs where one or more wholesale customers connect with a pipeline to a transportation network or transportation pipeline or in other cases where justified in the opinion of the Authority. Tariff methodology. 123.—(1) Tariffs charged by licensees for the use of any facility or infrastructure licenced by the Authority for use in midstream and downstream petroleum operations shall be set according to one or more tariff methodologies adopted by the Authority for a particular set of licences, in conformity with the applicable fiscal regime, provided that the tariff methodologies shall— (a) allow an operator to recover reasonable cost incurred, benchmarked against industry best practice and a reasonable return on the capital invested in the business ; (b) ensure the efficiency of the business ; (c) ensure the continued improvement of the quality of services ; (d) avoid discrimination between customers with similar characteristics, such as similar size or similar consumption profile under section 116 of this Act ; (e) in case of distribution licences, ensure efficient charges relating to petroleum product or natural gas supply covering Acting, metering and other services ; (f ) avoid economic distortions and ensure a competitive market for the sale and distribution of petroleum products and natural gas in Nigeria ; and (g) avoid cross-subsidies among different categories of consumers. Petroleum Industry Act, 2021 2021 No. 6 (2) Tariffs may differentiate between credit worthy shippers willing to make long term ship-or-pay agreements facilitating the financing of the pipeline or plant and other shippers or users. (3) The Authority shall, prior to establishing a tariff methodology, initiate and conduct a stakeholders’ consultation in the manner specified in subsection (5) to consult applicants, operators, consumers, prospective customers, consumers associations, associations of prospective customers and any other persons with interest in the subject matter of the proposed tariff methodology. (4) The Authority may, in establishing a tariff methodology, take into consideration the submissions of the stakeholders’ consultation referred to in subsection (3). (5) Prior to holding a stakeholders’ consultation referred to in subsection (3), the Authority shall publish in at least two national newspapers with wide coverage and on its website, notice of— (a) the stakeholders’ consultation ; (b) its invitation to licensees and stakeholders to participate in the stakeholders’ consultation ; (c) the venue and period during which the stakeholders’ consultation is to be held ; (d) the nature of the matter to which the stakeholders’ consultation relates ; (e) the matters upon which the Authority would require submissions ; (f ) the form in which licensees and stakeholders are to make submissions to the Authority on the subject matter of the stakeholders’ consultation ; (g) the period of notice for the commencement of the stakeholders’ consultation, which shall not be less than 21 days ; and (h) the address or addresses to which the submissions may be sent. (6) Notwithstanding the requirements under subsection (3), the Authority may, due to the exigency of the circumstances, establish a tariff methodology without conducting a stakeholders’ consultation, where it considers it necessary to do so. (7) A tariff methodology made under subsection (6) shall be valid for six months with effect from its commencement date, except it is confirmed following a stakeholders’ consultation conducted in accordance with subsections (4) and (5). (8) The Authority shall fix a date for which the determined tariff methodology shall come into effect and shall cause the notice of the commencement date to be published in at least two national newspapers with wide coverage and its website. A 223 A 224 2021 No. 6 Petroleum Industry Act, 2021 (9) Where the Authority considers it necessary that an existing tariff methodology or tariff should be amended, the Authority shall conduct a stakeholders’ consultation on the proposed amendment in accordance with subsections (4) and (5). (10) A person under obligation to set tariffs shall be bound by operative tariff methodology adopted through the method prescribed in this section. (11) A holder of a licence engaged in the sale of petroleum products to retail customers or who is subject to third party access or open access obligations under this Act, shall display at its office a current copy of the tariffs applicable to the services provided by the holder. (12) A holder of a licence shall not pass the costs of any fine or penalty incurred under this Act or any other law to a consumer. Approval and publication of charging structures. 124.—(1) A licensee subject to tariff regulation by the authority shall— (a) propose tariffs for the approval of the Authority prior to the application of the charges ; (b) impose tariffs in accordance with the approval referred to under paragraph (a) ; and (c) publish the tariffs as required by the Authority in a manner that ensures that the customers of the licensees are able to identify and calculate the charges for which they will become liable. (2) The Authority shall, within 24 months after the effective date, review, confirm or modify all applicable tariffs including for licences under sections 125 (6) and 174 (6) of this Act. PART IV—ADMINISTRATION OF MIDSTREAM AND DOWNSTREAM GAS OPERATIONS Activities requiring a licence for midstream and downstream gas operations. 125.—(1) Except in accordance with an appropriate licence issued by the Authority, a person shall not undertake the following activities with respect to midstream and downstream gas operations— (a) establish, construct or operate a facility for the processing of natural gas ; (b) establish, construct or operate a facility for the storage of natural gas ; (c) establish, construct or operate a gas transportation pipeline ; (d) engage in bulk transportation of natural gas by rail, barge or other means of transportation ; (e) operate a gas transportation network ;