Financial Energy Review
Nigeria’s Petroleum Industry Act (PIA) of 2021, a landmark legislation meant to regulate the country’s oil and gas sector, continues to face challenges despite its initial promise to streamline the industry and attract investments. Key stakeholders have highlighted unresolved issues hampering progress in a recent forum organized by the Centre for Petroleum Information (CPI).
At the CPI’s Oil and Gas Law Forum, legal experts and industry stakeholders deliberated on “PIA 2021 License Conversion: Avoid Pitfalls,” with discussions shedding light on the obstacles slowing the industry’s growth. These include regulatory bottlenecks, delayed asset disposals, and complexities in license conversion under the PIA.
Fiscal Obligations and Regulatory Challenges
Funmi Adesanya, Head of Commercial Legal Services at the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), emphasized the stringent fiscal obligations imposed by the PIA. “Under the Act, companies must file estimated returns of profit and loss for carbon tax, and tax computations must be made in dollars to the Federal Inland Revenue Service (FIRS),” she explained.
Adesanya further highlighted the penalties for non-compliance. “Section 2774 of the PIA prescribes penalties for failing to meet obligations, while Section 100 mandates royalties, fees, rents, and production profit shares be paid on time. Failure to comply results in these amounts being considered debts to the Commission, accruing interest and enforceable under the law,” she said.
The PIA, Adesanya added, aims to ensure equity development in a businesslike manner to meet the government’s crude oil production targets. However, she noted, “The Commission also has powers to enforce administrative penalties for non-compliance, making it imperative for operators to stay on track.”
Stakeholders Demand Faster Approvals and Efficient Processes
Responding to Adesanya, Adeoye Adefulu, Partner at Odujirin Adefulu, criticized the sluggish pace of the license conversion process. “The discussion around conversion becomes irrelevant without velocity,” he remarked. “Stakeholders must act swiftly to develop exploration assets and streamline the approval process, which remains slow despite the government’s recognition of its importance through executive orders.”
Adefulu also raised concerns about asset disposals. “The 2023 licensing round remains inconclusive, while the 2024 round is ongoing. What is holding up these processes? Transfer of assets, even those recently approved, continues to face delays,” he noted.
According to Adefulu, the PIA anticipates timely resolution of such issues by the NUPRC. “Unfortunately, these delays undermine the Act’s objectives of fostering growth and attracting investment,” he said.
Acreage Management and Conversion Challenges
Sope Falana, Senior Partner at Jackson Etti & Edu, focused on acreage management and the broader objectives of the PIA’s license conversion framework. “Acreage management aims to capture value from undeveloped fields under existing licenses. Conversion contracts provide an avenue to unlock potential from these dormant equities,” she explained.
Falana acknowledged the challenges companies face in adapting to the PIA. “For example, an integrated company must separate its upstream, downstream, and midstream operations, incorporate a host community development trust, and fulfill domestic product and gas supply obligations,” she said.
She added, “Despite incentives, the transition remains disruptive. Companies need five to ten years of forecasting for commercial production and returns, but the stringent requirements for conversion make it difficult for many to comply.”
Calls for Reform and Collaboration
The forum participants unanimously agreed on the need for reforms to address these challenges and accelerate the industry’s growth. Adefulu emphasized the importance of collaboration between the government and industry players. “We need a unified approach to resolve the bottlenecks in license conversion and asset transfer processes,” he said.
Falana echoed this sentiment, urging policymakers to consider the financial implications for companies and create a more supportive environment. “The PIA is a step in the right direction, but its implementation needs to be more flexible to accommodate the realities of the industry,” she stated.
Opportunities Amid Challenges
Despite the hurdles, stakeholders remain optimistic about the potential of the PIA to transform Nigeria’s oil and gas sector. “There are vast opportunities to attract investment and boost production if the regulatory framework is fine-tuned and the conversion process is streamlined,” Adefulu concluded.
The forum served as a reminder that while the PIA has laid a solid foundation, much work remains to be done to ensure it fulfills its promise of revitalizing Nigeria’s petroleum industry. Stakeholders are calling for swift and decisive action to address the gray areas and unlock the sector’s full potential.
