CONTEXTUALISING THE IMPORTANCE OF THE NIGERIAN NATIONAL PETROLEUM CORPORATION (NNPC) THROUGH LAWS AND POLICIES

ABSTRACT

The Nigerian National Petroleum Corporation (NNPC) is a joint venture partnership with international oil corporations (IOCs) from the United States of America, Britain, France and the Netherlands, which lays emphasis on maximisation of oil revenues over adequate financing of gas utilisation facilities. Nigeria is the largest oil producer in Africa holds the largest natural gas reserves on the continent and was the world’s fifth-largest exporter of liquefied natural gas (LNG) in 2018. Although Nigeria is the leading crude oil producer in Africa and her crude oil and natural gas resources are the mainstay of the country’s economy, production is affected by sporadic supply disruptions. Thus the disruption in supply affects by crude oil price changes. The International Monetary Fund (IMF) projects that Nigeria’s crude oil and natural gas exports earned $55 billion in 2018, which is $23 billion higher than in 2016.The growth in export revenue, which can be partly attributed to the rebound in crude oil prices, has helped improve Nigeria’s fiscal position. However, Nigeria’s fiscal deficit remained flat at 4% of its gross domestic product (GDP) because of a significant increase in capital expenditures and lower-than-expected non-oil revenue collection, in spite of improvements to the country’s tax administration. The Nigerian government still heavily relies on crude oil and natural gas revenue; its non-oil revenue comprises only 3.4% of GDP, one of the lowest in the world.

This research adopts the doctrinal research methodology from available literature. One of the problems surrounding the oil and gas sector is Corruption, over the years the NNPC took notice of the continuous rise in the smuggling of petroleum products despite the federal government initiative in establishing ‘operation white’s’ in order to curb the high rate of smuggling. This research recommends synergy between the NNPC and anti-corruption agencies such as the ICPC and the EFCC

 

 

 

 

 

 

 

 

 

 

 

CHAPTER 1

• Background to the study

One of the most important industries is the petroleum industry. Therefore their payment structure is very attractive and robust. Whichever position you are fortunate to be within this body, you can be guaranteed of a nice pay because they are among the Nigerian local organization with high payment[1].

Like other organization, the payment varies based on job specialization, professionalism, and perhaps locations.

Till now, the NNPC has remained the sole importer of petrol into the country, due to other marketers’ inability to import the commodity and access the US dollar. Information Guide Nigeria However, the decision to deduct remittances to FAAC has raised concerns, especially among state governors. One of them is the governor of Kaduna State, Nasir El-Rufai, who criticized the high cost of fuel subsidies as ‘unreasonable’[2].

On 16 August 2021, the President of the Federal Republic of Nigeria assented to the Petroleum Industry Act, 2021 (the “Act”). The key objective of the Act is to restructure and transform the Nigerian oil and gas industry. The Act provides legal, governance, regulatory and fiscal frameworks for the Nigerian oil and gas industry and development of petroleum host communities.

The Act repeals the following laws: Associated Gas Reinjection Act; Hydrocarbon Oil Refineries Act; Motor Spirit (Returns) Act; Nigerian National Petroleum Corporation (“NNPC”) (Projects) Act; NNPC Act (when NNPC ceases to exist under section 54(3) of the Act); Petroleum Products Pricing Regulatory (Establishment) Act; Petroleum Equalisation Fund Act; Petroleum Profit Tax Act (“PPTA”); and Deep Offshore and Inland Basin Production Sharing Contract Act. However, while some of the repeals will take effect from the effective date of the Act, others are contingent upon the occurrence of certain events. The provisions of certain laws^[1] are saved until the termination or expiration of all existing oil prospecting licenses and oil mining leases.

The President, in his capacity as the Minister of Petroleum Resources (the “Minister”) has inaugurated a steering committee, to be chaired by the Minister of State, Ministry of Petroleum Incorporated (the “Ministry”), to oversee the process of the implementation of the Act. The steering committee will be responsible for the seamless and timely implementation of the Act and ensure that the new institutions created under the Act have the full capability to deliver their mandates under the Act[3].

Oil was established in Nigeria in the Niger Delta at a place called Oloibiri in 1956. The discovery was made by Shell-BP, at the time the sole concessionaire. Nigeria joined the ranks of oil producers in 1958 when its first oil field came on stream producing 5,100 bpd. After 1960, exploration rights in onshore and offshore areas adjoining the Niger Delta were extended to other foreign companies and in 1965, the Environmental Assessment field was established by the Shell Company at the Southeast of Warri.

Pioneer production began in 1958 from the company’s oil field in Oloibiri in the Eastern Niger Delta in connection with Shell D’Archys discovery of Crude Oil. By the late sixties and early seventies, Nigeria started producing over 2 million barrels of Crude Oil in a day. Although production figures dropped in the eighties due to economic slump, 2004 saw a total rejuvenation of oil production to a record level of 2.5 million barrels per day. Petroleum production and export play a dominant role in Nigeria’s economy and account for about 90% of her gross earnings. This dominant role has pushed agriculture, the traditional mainstay of the economy, from the early fifties and sixties, to the background. However, current development strategies are aimed at increasing production to 4 million barrels per day

1.2 Statement of the Research Problem

It is imperative to examine what happens in every industry so as to put risk management measures in place. There are more concentrated risks that happen to specific industries particularly the financial and oil and gas sector. This research focuses on the risks facing the NNPC, which is an oil and gas industry. The importance of the oil and gas industry cannot be overemphasised as it is a significant sector to a Nation’s economy. There are however major challenges facing the oil and industry in Nigeria, which if not addressed adequately will negatively affect Nigeria’s economy.

Generally, the oil and gas sector is regulated by various laws and policies that limit where, when and how exploration of petroleum products is conducted. Interpretation of laws can also differ from state to state and that’s where political risk comes in because corporations wouldn’t know how to deal with situations arising from foreign transactions. In order to tackle this risk, the corporation needs to carefully analyse and build sustainable relationships with foreign oil and gas companies in order to remain in the business for a long period of time.

Furthermore, in starting up a business the question on pricing is key. In Nigeria, petroleum and money are considered some of our basic necessities, and whenever towns and villages in Nigeria experience petrol shortage, it is as a result of inefficient distribution of petroleum products and corruption on the part of the bureaucrats.   The price of oil and gas can be seen as the primary factor of deciding whether a company is fit to run its activities. Basically, the higher the extraction of petroleum product, the more price risk the corporation faces because the unfamiliar way of extraction usually costs more than a vertical drill down to a deposit (vertical drilling is used by operators to access oil and natural gas directly below a drilling site. It is used when drilling doesn’t go in a straight line).

In addition, the subsidy removal as at 2012 saw the price of PMS at 141 naira but the protest that ensued saw it reduced to 97 naira. In 2015 the price settled at 145 naira which is relatively high causing the prices of goods and services to rise. Transport fares have skyrocketed and there has been a general increase in the cost of production of goods and services, and the prices of food stuff in the economy have always been increasing. Observation of the retail prices of petrol (PMS), diesel (AGO) and kerosene (DPK) in Nigeria overtime has shown a great increase in their prices. In 1990 the prices per litre of PMS, AGO and DPK were 3.25 kobo, 0.70 kobo and 0.50 kobo, but as at the beginning of 2017 the prices of the same product per litre were N145.00, N160.00 and N83.00. Government has often explained these increases as being necessary to reduce or remove the subsidy on petroleum products much of which has to be imported because of the inability to meet products demand domestically.

It is imperative to state that the increase in the prices of petroleum products have a chain effect on the prices of other goods and services in the economy. Between 1978 and 2007, the various Nigerian regimes increased fuel prices a total number of 18 times. Most of the increase occurred in the 1990-2007 period when petroleum products prices were adjusted upwards sometimes twice in one year. One major problem this has caused was the instability of the prices of goods and services in the country. Whenever there is an increase in prices of oil products, it affects transportation, cost of goods and other services.^[4] This clearly disrupts the Nigerian society and the oil and gas industry. Accordingly, this research work seeks to address the following questions:

1. What is the overview of the NNPC?
2. What are the legal and institutional frameworks for regulating the Nigerian oil and gas sector?

1. What are the steps in curbing the challenges in the Nigerian oil and gas sector?

• Aims and Objective

This research contextualises the functions of the NNPC through Laws and Policies while its objectives are to:

1. Give an overview of the NNPC and its functions through laws and policies.
2. Analyse the legal and institutional frameworks in providing for the function of the NNPC.

3. Find out solutions to the challenges affecting the Nigerian oil and gas sector

 

• Scope and Limitation

This study focuses on the problems surrounding the oil and gas sector. However, this study is limited to the Nigerian oil and gas sector.

1.5 Significance of the Study

The significance of the oil and gas industry particularly in the context of Nigeria cannot be overemphasised as Nigeria heavily relies on this sector, which contributes significantly to the national economy. Thus, this research will be of benefit to the government and also lawmakers as they can come up with solutions to the challenges affecting the sector through the NNPC

• Research Methodology

The doctrinal methodology is adopted in this research. Thus the information gathered is from primary and secondary sources. The primary sources utilised are statutes such as the Constitution, the Petroleum Act and the NNPC Act. While the secondary sources includes; articles from the internet, books and newspapers.

1.7 Literature Review

This area of research work is a developing sphere for academic exploration because it only became relevant when the internet became a widespread medium for education, business, financial transactions and every other form of communication and activity.

Onoh J.K^[5] posits that when Nigeria gained her independence, the oil and gas industry had already been established and was exporting over 170,000 barrels per day. He explains that licenses were granted to those companies who discovered these petroleum products.

Richard et al^[6] opines that corporate performance comprises three categories which includes product performance in the market, customer and employees satisfaction and financial performance. He explains that corporate performance is defined as comprising profitability, customer satisfaction with product and services, employees finding creative ability to tackle future challenges and exploit future opportunities and efficiency.

Micheal Tanzer^[7] explains that the excessive demand for oil products prompted the government to officially open the Warri refinery of 1978 with the supply of 100,009 per day which gives the country a total amount of 260,000 barrels per day.

Roseline Okere  in her article^[8] spoke on some challenges affecting the oil and gas sector such as pipeline breakages, which led to massive leakages and huge accounting losses to the NNPC. In connection with her view, Brown Ogbeifun in his interview^[9] spoke about the repositioning of the NNPC office in reducing corruption posited that oil producing nations should be effective, reliable and an enviable infrastructure but Nigeria is the opposite.

It can be deduced from the foregoing, that the views and arguments surrounding the NNPC and the oil and gas sector are quite useful. However, they failed to talk about the various solutions in eliminating these problems. One of the proponents spoke on pipeline breakages and leakages but she failed to provide a solution in order to stop this outbreak

• Synopsis of Chapters

This work is divided into five chapters.

Chapter 1 provides a general introduction. It states the background to the study, statement of the problem, aim and objectives, significance of the study, scope and limitation, research methodology, literature review and synopsis of chapters.

Chapter 2 gives a conceptual clarification of terms and an overview of the NNPC.

Chapter 3 discusses some laws and policies regulating and guiding the NNPC.

Chapter 4 discusses the problems and the prospects of the NNPC.

Chapter 5 concludes the study with findings and recommendations.

[1] Dave Ibemere ‘NNPC: Report Reveals Subsidy Payment Cross Over N1 trillion in 2021’ [06 December 2021]  https://www.legit.ng/business-economy/economy/1446389-fuel-subsidy-cross-n1-trillion-2021-nnpc-deduct-n199bn-federation-account/#:~:text=NNPC%3A%20Report%20Reveals%20Subsidy%20Payment%20Cross%20Over%20N1,has%20crossed%20the%20N1%20trillion%20mark%20in%202021

[2] NNPC And Federal Government Divided As Fuel Subsidy Rises To N1.03tn g00dnewsDecember 6, 2021

 

[3] Aluko & Oyebode An Overview of the Petroleum Industry Act, August2021

[4] Petroleum products in Nigeria: A case study of NNPC Enugu

[5]J.K Onoh Performance Evaluation of NNPC1999-2015 using regression analysis techniques

[6] International Journal of economics,commerce and management united kingdom vol III,issue 11,November 2015 https://ijecm.co.uk ISSN23480386

[7] Performance Evaluation of NNPC1999-2015 using regression analysis techniques by micheal tanzer [1980]

[8] Oil industry’s challenges 2016 and hopes for boom in 2017 by Roseline okere 04 january 2017

[9] Challenges, way forward for NNPC, oil industry September 2, 2015

CONTEXTUALISING THE IMPORTANCE OF THE NIGERIAN NATIONAL PETROLEUM CORPORATION (NNPC) THROUGH LAWS AND POLICIES

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