Economic Governance (Energy)
Rights of Citizens under the Petroleum Industry Bill

Being part of the paper presentation delivered by Spaces for Change’s executive director, Victoria Ibezim-Ohaeri on Consumer Rights Day at an event convened by Consumer Rights Project on March 14, 2014

Since its introduction over 4 years ago, the Petroleum Industry Bill (PIB) continues to face persistent setbacks to its passage despite its enormous prospects for improving the technical, operational and regulatory efficiency in Nigeria’s oil industry operations. If passed into law, the PIB would obligate the government to make its oil deals and revenue earnings more transparent and accountable, ending decades of corruption that has diverted billions of dollars of oil revenue that could have been used to clean up oil-devastated poor communities and create employment for restive youths. 

What the Rights of Citizens and Consumers of Petroleum Products under the PIB?

Right to “Participate” in the Management of the National Oil Company: By section 148of the Bill, NNPC will be unbundled into three independent commercial entities when the Bill is passed, as against the former arrangement where the NNPC served both commercial and regulatory purposes. The three commercial entities are: The National Oil Company (b) The National Gas Company and (c) The Asset Management Corporation. The Minister shall incorporate the National Oil Company as a public company limited by shares, not later than three months after the Bill is passed. The NOC shall be vested with certain assets and liabilities of the NNPC.

The Federal Government is required to divest 30 per cent of its shareholding in the NOC and list the shares on the Nigerian Stock Exchange (NSE), to sell to the Nigerian public. This means that citizens will have an opportunity to become shareholders in the National Oil Company. The involvement of the public in the ownership and management of the proposed NOC, would not only promote private participation, but also significantly help to check government’s monopoly and interference.

Anyone, including all consumers of petroleum products can become a member of the National Oil Company (NOC) by acquiring shares in the company. Shares may be acquired through outright purchase, except where the company’s articles specify that certain people are automatically entitled to receive one or more shares.

Right to Apply for a Licence: A petroleum exploration licence (PEL) grants the holder non-exclusive right to carry out geological, geophysical and geochemical exploration for petroleum within the area of its licence and to drill holes not deeper than one hundred and fifty (150) meters using only percussion drilling techniques. This license does NOT include any right or option to win, get, work, store, carry away, transport, export or otherwise treat petroleum discovered in or under the said licence area.

On the other hand, a petroleum prospecting licence (PPL) grants the holder exclusive right to carry out petroleum exploration operations within the area of its licence, and includes the right to carry away and dispose of crude oil, natural gas or bitumen won during prospecting operations as a result of production tests.

The PPL is granted by the Upstream Petroleum Inspectorate, and is valid for three years while the PEL is granted for a period of five years, consisting of an initial exploration period of three years and a renewal period of two years with respect to onshore and shallow water areas. But in the case of deep water areas and frontier acreage, PEL is granted for a period of eight years, consisting of an initial exploration period of five years and a renewal period of three years. (Sections 175, 176 and 177)

Ø    Who is entitled to the grant of a license?
The Minister may grant a licence or lease only to a company incorporated in Nigeria under the Companies and Allied Matters Act or any corresponding law. (Section 172(5))
A petroleum exploration licence may be granted to any qualifying company over any area, excluding areas that are the subject of petroleum prospecting licences or petroleum mining leases. The only condition however is that the recipient of any petroleum exploration licence, petroleum prospecting licence and petroleum mining lease shall at all times be a company that qualifies as an operator of the upstream petroleum operations.

Right to Have Access to Oil and Gas Information: The Bill prohibits the inclusion of confidentiality clauses in licences, leases, agreements or contracts for upstream petroleum operations that are for the purpose of preventing access to information and documents by third parties in respect of any payments of royalties, fees and bonuses of whatever nature, and taxes. (S. 174).

This clause is necessary to facilitate transparent oil dealings between government-owned commercial entities and oil operators.

Right to Enter into Contractual Relations: A company granted a license or lease under subsection 172 (1) of the Act shall be empowered to enter into any contract for the exploration, prospecting, production and development of oil or gas, or both, upon such terms and conditions as the licensees or lessees may determine, and with any company qualified under conditions prescribed by the Bill.

Take note that the power to enter into contracts does not confer the right to assign an interest in any licence or lease without the prior written consent of the Minister.

Right to Adequate Compensation: Under S. 198 and 199,  licensed oil operators are directed to refrain from damaging or destroying commercial trees, images or objects venerated by the people and communities living in areas where petroleum prospecting or mining take place. Communities are entitled to “fair and adequate compensation” for any damage or destruction of commercial trees and valuable objects resulting from such operations. Compensation shall also be paid where economic trees are damaged as a result of negligence on the licensee’s part, or where oil leaks cause spillage or pollution which destroys crops, trees and other means of livelihood. In event of failure to pay compensation, defaulting licensees may have their licenses suspended or revoked.

Rights of Host Communities:

Generally speaking, the term “oil producing community” is used to describe an area which oil is extracted from[1]. It refers to areas where petroleum extraction activities are mainly carried out which involves seismic testing, drilling sediment cores, and testing wells in order to locate potential oil and gas deposits, drilling and extraction of oil and gas from known reserves.

Under Section 118 of the bill, every company that is involved in oil and gas exploration and production is required to remit into the fund on a monthly basis, 10 per cent of its net profit, calculated by the adjusted profit minus the Nigerian hydrocarbon tax and minus the companies’ income tax. In addition to the benefits of involving the oil-producing communities in the management of oil and gas resources, the Fund will be utilized for the development of the economic and social infrastructure in oil-producing areas.

Right to a Safe Environment: Under S. 198 and 199,  licensed oil operators are directed to refrain from damaging or destroying commercial trees, images or objects venerated by the people and communities living in areas where petroleum prospecting or mining take place. Communities are entitled to “fair and adequate compensation” for any damage or destruction of commercial trees and valuable objects resulting from such operations.

Section 200 obligates licensees, oil companies involved in upstream petroleum operations to adhere to sound oil field practices, protect the environment, and promote sustainable development. Every licensee or lessee engaged in upstream petroleum operations shall within three months after having been granted the license or lease, submit an environmental management plan to the Inspectorate for approval.

By Sections 290 and 291, it is compulsory for all licensed oil and gas operators to comply with all national environmental health laws, respect human rights and comply with internationally acceptable principles of sustainable development.

Ø    Who is entitled to compensation for environmental damage?
By section 296 of the PIB,any person” in lawful occupation of licensed lands is entitled to compensation for any loss or disturbance of the surface of the land. In this connection, any person” includes anyone or entity living or located within or near wellheads, oil prospecting and production sites, and oil installation facilities that has suffered loss or damage – to their houses, crops, farmlands, fishing equipment, boats, venerated objects, water sources and installations, trees, domestic animals or any other property or activity that takes places “on the surface of the land” – will be recompensed for property and economic losses resulting from oil operations’ disturbances. Claimants may be private individuals, communities, companies or public bodies (including federal and local government authorities and agencies).

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