On the Proposed Amendments to the PIA
Postscript by Waziri Adio
So much has been written or said in the past few weeks about the proposed changes to the Petroleum Industry Act (PIA), even when the amendment bill is yet to be tabled before the parliament or unveiled to the public. Without a doubt, a review is in the offing. But so also is a well-oiled campaign to stop it. I do not agree with all the proposed amendments to the petroleum law, but I think a wholesale condemnation of the intended review is totally wrong-headed. I think it is misleading to frame what is largely an attempt at re-ordering a troubled relationship between the Federation and its national oil company as a grave threat to Nigeria’s oil and gas sector. The government has not helped matters with the hushed manner in which it has gone about the review and how it has surrendered the space to those against the amendments. The PIA, or any legislation for that matter, should not be imbued with the status of the Ten Commandments, handed down from above, timeless, flawless.
Passed and signed in 2021, after more than two decades in the making, the PIA is one of the most consequential legislations of the 4th Republic. It provided an omnibus framework for the strategic oil and gas sector, improved clarity, enhanced competitiveness and strengthened oversight and transparency. The signing of the landmark law was widely applauded by individuals as disparate as sector investors and social activists. However, one of the rarely scrutinised parts of the PIA is the financial implication of the altered relationship between the Federation and the national oil company. This has become very apparent to keen watchers of Federation’s revenue in the four years that the law has been in operation.
Two things with significant revenue impact have happened in the relationship between the country and the company. One, the Federation Account stopped receiving transfers from the sale of Federation’s crude oil and gas. Federation’s equity interests in joint venture assets were transferred to NNPCL as part of its working capital. In return, the company with a legion of loss-making subsidiaries is expected to pay 80% of its profits as dividends to the Federation and keep the remaining 20% for its operations. How anyone agreed to this arrangement remains a mystery. But it is also easy to picture the arguments proffered: NNPCL would take away from the Federation the burden of providing cash calls to fund the JVs and would make ample money for the country if it is allowed to run as a business.
It is probable that the shining examples of Saudi Aramco, Equinor, PETRONAS and others would have been invoked as models. But I doubt if there was a proper modelling of how the dividend policy would impact Federation revenue in the short to medium terms or how it would compare with the revenue from the sale of Federation’s share of crude. For context, sale of Federation’s crude oil and gas, according to NEITI’s reports, accounted for more than 60% of Federation’s annual revenue from the oil and gas sector from 2015 to 2019, dusting Petroleum Profit Tax (PPT) to a distant second. Net revenue from the sale of Federation’s crude in those pre-PIA years ranged from a low $10.93 billion in 2016 to a high of $19.71 billion in 2019.
Now, let’s compare this with current realities. According to NNPCL’s report to the Federation Account Allocation Committee (FAAC) for the month of August 2025, the national oil company was expected to pay N271.18 billion as calendarized interim dividends every month this year. From January to August 2025, NNPCL should have paid a total of N2.17 trillion as interim dividends to the Federation. The national oil company has not paid a single kobo as dividends in 2025. Bear in mind that the dividends replaced revenue from sale of crude oil and other revenue streams from NNPCL to the Federation. Please read that again, and slowly too: not a shining kobo has been paid by NNPCL out of the N2.17 trillion projected as its interim dividends to the Federation for the first eight months of this year. Maybe there is a good reason for this 100% underperformance that is apparent to FAAC beneficiaries. But what a keen observer of FAAC sees is a company that has plunged further post-PIA. Leaving barrels with NNPCL has also created the perverse incentive for it to pledge the barrels for all sorts, a practice that has been on the rise, and with grave implications for future revenue.
The second fiscal shift is that NNPCL takes 30% of the profit oil from Production Sharing Contracts as its management fee. This is apart from the 20% that it keeps from its overall profit, which also implies that its various costs must have been covered. According to NNPCL’s report to FAAC for August, a total N1.06 trillion accrued as revenue from PSC profit oil from January to August 2025, out of which NNPCL retained N318.05 billion as its management fee. Another N318.05 billion or 30% was transferred to the Frontier Exploration Fund (FEF), managed by the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) while the Federation received N424.07 billion or just 40%.
In plain language, the Federation received only 40% of the revenue from PSC profit oil on account of this aspect of the altered relationship between the country and the company. It is equally noteworthy that while all the other revenue agencies are exceeding their budget targets, NNPCL was able to deliver only 15.14% of its year-to-date target of N2.8 trillion. The old NNPC was restricted to the deductions it made for sundry reasons from domestic crude allocations (and largely remitted federation export to the Federation Account). But the post-PIA entity has L as an extra alphabet and a larger field of play: 30% management fee, 20% of profit, and the latitude to withhold dividends. The joke of the altered relationship is definitely on the Federation. It needs to end.
The proposed amendments, a draft of which I have reviewed against the subsisting PIA, intend to address some of these dysfunctions of an agent benefiting more than the principal. If you think there are only one or two issues in the proposed amendments, you have been grossly misled. There are many changes outlined in 13 different sections of the PIA. Some of the proposed amendments are designed to provide greater clarity and streamline responsibilities in the law. But most are geared toward correcting the principal-agent problem and at improving Federation’s revenue. I will highlight a few of the planned changes, which I have grouped into four broad categories, and intersperse the highlights with my comments.
The first group of amendments looks to me like an attempt at rebalancing the revenue relationship in favour of the Federation. It is proposed that all payments from current and future PSCs and related contracts be paid in kind or in cash to the Federation Account. This means that royalty oil and tax oil currently paid in kind to NUPRC and FIRS but lifted and sold (and sometimes pledged or bartered) by NNPCL will now go straight to the Federation. This will address the incessant arguments and squabbling between the national oil company and the two other agencies. In addition, it will be important to end all in-kind payments and mandate cash payments to make things more straightforward. Paying for PSC royalty and tax with crude oil is not a universal practice.
Removing NNPCL as the concessionaire for PSCs, which we will come to shortly, also automatically eliminates the atrocious 30% of PSC profit oil that the national oil company collects as management fee. Even if NUPRC gets 4% as collection cost, which I hope not, it is still much better deal for the Federation than the 30% that NNPCL retains for just overseeing Federation’s interests in the PSCs. Related to this is the plan to change how frontier exploration will be funded and governed. Instead of the automatic earmark of 30% of PSC profit oil, the proposal is to fund FEF through appropriation by the National Assembly with a sum not exceeding 5% of profit oil and gas of PSCs from the previous year. This is clearly a neater arrangement. FEF has not been eliminated. But it is going to be funded in a manner that doesn’t leave excess money on the table and in a way that potentially augurs for better oversight and accountability. I think this set of proposals is in order, though not far enough for me because the transfer of JV assets to NNPCL and the dividend policy, which have had the most devastating impact on Federation’s revenue post-PIA, are yet untouched.
The second set of proposed changes will also impact revenue, but I think they should be reconsidered. There is a move to increase the funding pool available to the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA). In addition to various revenue sources, including “0.5% of the wholesale prices of petroleum products sold in Nigeria”, there is a plan to grant NMDPRA “1% of the cost of collection of the Commission” (NUPRC). It is difficult to justify extra revenue for the NMDPRA, given what it gets monthly at FAAC and from other sources, especially at a time when the Federal Executive Council has taken the right decision to review collection costs and other suboptimal and outrageous revenue retention practices.
Besides, the idea of having two regulatory agencies for the petroleum sector needs to be revisited. The oil and gas sector can do with a super regulator as it is the practice in telecoms and in electricity sectors. Upstream, mid-stream and downstream regulations of the petroleum industry can be different departments in the same organisation, headed by different executive commissioners. That will save cost, make for greater coordination and even address some of the issues around integrated operations that some of the proposed amendments seek to fix.
Another proposal with revenue implication that I think is wrong is to treat money from gas flaring penalties as revenue to be paid directly to the Federation Account and shared by all. The provision to be replaced states that: “money received from gas flaring penalties received by the Commission under this section shall be for the purpose of environmental remediation and relief of the host communities of the settlors on which the penalties are levied.” This is just fair enough and should be left as is. Gas flaring is seriously harmful to humans and the environment. It is better to use the penalties for the impact communities than put it in a general pool for all. Besides, this is not an awful lot of money.
The third set of proposals has generated the most heat. This is about replacing NNPCL with NUPRC as the concessionaire of PSCs and related contracts. It is worth re-stating that NNPCL is the national oil company while NUPRC is the upstream regulator. So, a persuasive argument can be made that combining regulatory powers and commercial functions is not a good look. It is an argument that I am inclined to support. But its proponents need to tone down on hyperboles such as the claim that making NUPRC the concessionaire would reverse all the gains of the PIA and scare away investors. One of the poignant ways in which those opposed to this particular amendment have framed it is to say NUPRC would become a regulator and an operator, which would blur the lines and unhelpfully take us back to the pre-PIA era. But a PSC concessionaire is exactly not an operator. A concessionaire usually holds the license on behalf the government while the operator is deemed a contractor who brings its expertise and resources.
Section 8 of the PIA relates to “the commercial regulatory function of the Commission” (NUPRC). Could the proposed transfer envisaged in this section be deemed as an extension of the commercial regulatory function of NUPRC? It is worth quoting the proposed addition to Section 8 in full to put things in fuller perspective: the commercial regulatory function of the Commission (NUPRC) shall be… “to act as the government representative in all model contracts attached to the licences and leases contemplated in Section 85 as well as replacing NNPCL as concessionaire in all subsisting Production Sharing Contracts, Profit Sharing Contracts and Risk Service Contracts, and in this role, be responsible for evaluating and approving all relevant work programmes and for verifying and approving all contractor costs for the purpose of determining cost recoverable expenditure under all such contracts.” (Section 85 is about model contracts and leases to be developed by NUPRC, though sections 85 (2) (d.) and 85 (4) (a.), which are to be deleted, refer to NNPCL’s representing government’s interests.)
The logical questions will be: is there anything in the proposed amendment that suggests that NUPRC will become an operator or that the responsibilities outlined and underlined amount to it serving as an operator or are at odds with NUPRC’s role as a regulator? I don’t think so. My sense is that this is all about removing the basis for the 30% that NNPCL charges as management fee on PSCs. It is a known fact that people fight over benefits not over work. I will suggest two options to bring down the needless heat: NNPCL to continue as the concessionaire without the 30% management fee (except the Federation has other reasons to feel that NNPCL has not been a competent overseer of its interests); or the concessionaire responsibility be given to a unit within the Ministry of Petroleum Resources or the Ministry of Finance (which actually used to have a solid oil and gas unit).
The last set of proposals centres around the ownership and governance of NNPCL. So much has been made out of this too, and unnecessarily too in my view. Under the current PIA, the national oil company is jointly owned, on behalf of the Federation, by the Ministry of Finance Incorporated (MOFI) and the Ministry of Petroleum Incorporated (MOPI). The plan is to excise MOPI and make MOFI the “sole bare agent of the Federation.” I don’t fully understand the rationale behind this proposal (which puts the onus for explanation on the government). But I don’t see how it changes much since NNPCL is still fully owned by the Federation. What difference does it make whether its “owners”, representing the Federation, are one, two or twenty? In the proposed amendments, there is ample reference to MOFI as “representing the Federation” and acting “on the instructions of the Governments of the Federation.”
So, there is no doubt about where the ultimate ownership lies and the fact that this has not changed. Also, I think there are enough guardrails in place. For those legitimately bothered about irregular disposal of NNPCL’s assets, one of the proposed amendments states thus: “Notwithstanding any provision to the contrary in the Companies and Allied Matters Act, and except by way of security, any sale or transfer of shares of NNPC Limited shall be at a fair market value and subject to an open, transparent and competitive bidding process.” Again, I think there is enough comfort here for the open-minded. Of course, the utility of eternal vigilance in matters of the commonwealth cannot be overstated.
