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Petroleum Industry Act is recipe for disaster, Governors warn Buhari

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Governors of the thirty-six states of the country, under the auspices of the Nigeria Governors’ Forum (NGF),  have described the Petroleum Industry Act, signed by President Muhammad Buhari on Monday, as a recipe for disaster.

The governors had pinpointed six unfavourable areas in a letter dated August 10 addressed to President Buhari and asked him to withhold his assent while the National Assembly re-assess the Bill.

The letter, signed by NGF Chairman and governor of Ekiti State, Dr. Kayode Fayemi faulted Sections 9(4) and (5); 33; 53(2), (3); (4); 54 (1) and (2); 55 (1); and 64(c).

Mr. President Buhari, nonetheless, signed the Bill on his return from the United Kingdom while observing self-isolation on Monday despite the request by the governors for a stay of action.

The governors said the law will deny states a fair share from the Federation Account as it gives overriding interest the Federal Government and the Nigerian National Petroleum Corporation (NNPC), which will hence transform to a limited liability company under the Companies and Allied Matters Act.

The governors faulted the removal of the requirement to transfer payments into the Federation Account as unconstitutional, alleging that the interest of the sub-national governments (mostly states) is not protected by the law.

They argued that excluding states from the affairs of NNPC Limited will not enable them to share in the distribution of dividends when due, saying that the PIA indicated that only the Federal Government would have shares in this company.

The governors also expressed reservations on the setting aside of 30 per cent profit as Frontier Exploration Fund, saying it will further deplete funds that should normally accrue to the Federation Account.

They expressed dissatisfaction that the leadership of the National Assembly ignored their reservations, before the Bill was passed despite the fact that they communicated with the lawmakers.

The letter by the governors, read in part:

“We note with great shock and displeasure that the interests of the sub-nationals were not put into consideration in the bill that was recently passed by both chambers of the National Assembly.

“In a previous communication with the leadership of the National Assembly, we had noted that Section 53 of the Bill provided for the incorporation of the Nigerian National Petroleum Company Limited (NNPC Limited) under the Companies and Allied Matters Act to carry out petroleum operations on a commercial basis.

“The said Section 53 in (2) went on to provide for consultations between the Ministers of Petroleum and Finance on the number and nominal value of the shares to be allotted which “shall form the initial paid-up capital” of NNPC Limited and further added that the Company shall subscribe and pay cash for the shares.

“ In our said letter, we observed that the wording of (3) suggested that only the Federal Government would have shares in this company and stated that ownership of all the shares in the company shall be vested in Government and held by the Ministry of Finance on behalf of Government.

This sub-section is silent on what Government it referred to, but an inference could clearly be made by the express mention of the Ministry of Finance as the sole custodian of the shares.

“We then recommended that a framework that accommodates the states be worked out and included in the allotment of shares and incorporation of NNPC Limited. We observed that excluding states from this arrangement precluded them from having a voice in the running and administration of the company and excludes them from sharing in the distribution of dividends when they become due.

“In the same vein, Section 53 (4) of the Bill provides that the Ministry of Finance Incorporated in consultation with the Government, may increase the equity capital of NNPC Limited. Here again, we note the non-inclusion of sub-nationals in the consideration of this very important provision and recommend that the Nigerian Sovereign Investment Authority (NSIA) and Central Bank of Nigeria in consultation with the Federation Governments and Federal Capital Territory, may from time to time increase the equity of NNPC Plc.”

The governors raised some fundamental issues bordering on the removal of the requirement to transfer fiscal payments to the Federation Account; 30% profit oil and gas as Frontier Exploration Funds; and the imposition of gas flare penalties

The letter said: “The removal of the requirement to transfer fiscal payments to the Federation Account is unconstitutional and of grave concern to Nigerians. NNPC Limited is an entity created from a national asset whose proceeds always went to the Federation account for distribution amongst the tiers of Government and we are at a loss as to the reason for excluding a necessary component of the Federation from owning stakes in a successor vehicle.

“Similarly, in Sections 9(4), (5) and 64 (c), the setting aside of 30% profit oil and gas as Frontier Exploration Funds constitutes further depletion of funds that should ordinarily accrue to the Federation Account.

“In Section 33, the imposition of gas flare penalties arising out of midstream operations which penalty shall be paid into the Midstream and Downstream Gas Infrastructure Fund, an account within the control of the NNPC and one in which only the NNPC alone would have access to carry out any infrastructural projects, constitute significant loss of revenue to the Federation Account.

“Section 54 (1) and (2) of the Bill empowered the Ministers of Petroleum and Finance to jointly determine assets, liabilities, and interests to be transferred to NNPC Limited.

“Again, we recommended that States ought to be consulted and involved in the processes to determine transfer of these assets, liabilities and interest to the new company.

“Our advice was predicated on the joint ownership of these assets, liabilities and interests. We extended our opinion on this to the winding down processes covered in Section 55 (1).

“In Section 64 (b), NNPC Limited has an additional responsibility to act as a State Agent in all Production Sharing Contracts (PSCs) and entitled to oil and gas profits. NNPC appears in every commercial arrangement making its status even less commercially oriented and more favoured than is obtainable today.”

They said rather than reforming , the Petroleum Industry Act has made NNPC Limited a more powerful oil company.

The letter continued:

“We are concerned that rather than reforming NNPC and by extension the oil sector, the PIB as presently constituted makes NNPC Limited an even more powerful oil company.

“Mr. President would understand our shock at finding the version passed by the National Assembly without considering the concerns of the NGF and the States.

“We do not believe that in passing this Bill, the National Assembly gave adequate consideration to every relevant facet of our federation, and this can be a recipe for disaster.

“The afore-mentioned concerns represent some of the many pitfalls in this Bill capable of hurting the federation and we respectfully pray Mr. President to withhold assent pending the resolution of all the thorny areas.”

The governors did not immediately indicate whether they will challenge the law at the Supreme Court or seek a political alternative.

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