Uncertainty over PIA regulations scares investors

…Says executive orders create confusion

The use of executive orders to alter provisions of the Petroleum Industry Act (PIA) is creating uncertainty for investors in Nigeria’s oil and gas industry, the immediate past president of the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN), Festus Osifo, has said.

According to Osifo, investors needed certainty over the laws, taxes, royalties and other fiscal obligations governing their investments before committing capital to projects that could take years to become profitable.

Osifo speaking at a media briefing in Lagos recently said concerns arose when government began making changes to provisions of the PIA, including fiscal provisions, shortly after the law was enacted in 2021.

He expressed that the PIA was expected to provide a stable framework for the oil and gas industry, but changes to some of its provisions have raised questions about the reliability of the legal framework.

“When PIA was passed in August of 2021, we were extremely excited because we believe that is the single piece of legislation that will change the fortune of the Nigerian oil and gas industry,” Osifo said.

He said the law had created the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) and the Nigerian Midstream and Downstream Petroleum Regulatory Authority, while also transforming the former Nigerian National Petroleum Corporation into Nigerian National Petroleum Company Limited (NNPCL).

Osifo said the two regulators had largely performed their responsibilities, while NNPCL had also changed from its former structure as a corporation to a commercially oriented company. He, however, said policy changes introduced after the enactment of the PIA had weakened the certainty investors expected from the legislation.

One of the concerns, he said, was the movement of fiscal provisions from the PIA to the Nigerian Revenue Service legislation.

“As early as 2023, you know, the PIA has a section that talks about the fiscals, all right? And it talks about the royalty, and all the fiscal aspects of the PIA. But when we were passing the Nigerian Revenue Service Bill, those fiscal provisions was moved from the PIA to the Nigerian Revenue Service bill,” he said.

Osifo said the development did not send the right signal to investors because it suggested that provisions investors had relied upon when making investment decisions could subsequently be changed.

He also raised concerns over an executive order which, according to him, altered the arrangement around the Frontier Exploration Fund and other provisions associated with the PIA.

“So again, we also contested it, that is it okay for us to use an Executive Order to override a provision of a law? And for us, we think the answer is a no,” he said.

He said the concern among investors was not limited to the immediate financial effect of a particular executive order, but also the possibility that similar measures could affect other provisions of the legal framework in the future.

Osifo recalled that an executive of an international oil company had contacted him after the order was issued to express concern over the development.

“I remember that day when that order was passed, a CEO of one of the IOCs placed a call to me and said that no, they don’t think this is right. And we also gave that feedback back to government,” he said.

According to Osifo, investors in the oil and gas industry require a predictable regulatory environment because of the scale and duration of the investments involved. “For us, one of the ways to attract investment is for you to have some level of certainty,” he said.

“For an investor to know that I am investing $10 million today, and on this $10 million, these are the amount of money that I’m going to pay as taxes. These are the amount of money, if it’s a producing company, I will pay as royalty.”

He said such certainty allows investors to determine their expected returns and assess whether a project remains commercially viable over time. “So I will do my economics. Then in doing my economics, I will know that in five years’ time, in 10 years’ time, this is the profit I’m going to make. So investors need that certainty for them to invest,” he said.

Osifo said uncertainty over future taxes, royalties and other obligations could make investors reluctant to commit funds to Nigeria, particularly where the expected returns could take many years to materialise. “If I’m investing today and I’m doubtful that tomorrow the laws will change and the laws might not favour me, I will be a bit worried in how I carry out my investment,” he said.

He urged the government to allow the PIA and its regulatory framework to operate for a reasonable period before making further substantial changes.

He stated that the association had expected the legislation to be implemented for at least five years before significant adjustments were considered, adding that some experts had suggested an even longer period.

Osifo also linked the stability of the regulatory framework to the ability of Nigeria to attract fresh investment into oil exploration and production. He said oil and gas investments were different from short-term investments because projects could take several years before generating returns.

“In oil and gas business, you don’t just invest today and you think you will reap tomorrow. At times, for this investment, you start reaping even after the 30th year,” he said.

“So if the investor is not sure that at the 6th or 7th year, what is going to happen to the law, they will be weary in investing,” he added.

Beyond the PIA, Osifo said Nigeria’s ability to attract investment would also depend on the consistency of government policies and the extent to which the regulatory framework was allowed to function without frequent changes. He said policy uncertainty had remained one of the constraints facing investment in the Nigerian oil and gas industry.

Osifo said the objective should be to create a framework that would give investors reasonable assurance about the regulatory conditions under which their investments would operate over the medium and long term.

The former PENGASSAN president however acknowledged areas where the PIA had produced changes in the industry, including the creation of new regulatory institutions, the restructuring of NNPCL and the establishment of mechanisms for host community development and frontier exploration.

He said the Host Communities Development framework had provided a clearer structure for funding development in oil-producing communities, while the Frontier Exploration Fund was designed to support exploration outside the traditional Niger Delta oil-producing areas.

However, he maintained that the gains of the legislation would be difficult to sustain if investors continued to face uncertainty over the rules governing their investments. He therefore called for greater consistency in the implementation of the PIA and other policies governing the oil and gas industry.