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Last week, both houses of Nigeria’s parliament passed the much-anticipated Petroleum Industry Bill (PIB), which will go into effect once it receives presidential approval, which is expected to follow in the coming weeks. Significant reform of the oil and gas sector has been under consideration for over a decade, and the new bill contains important provisions to generate much-needed investment and revitalize Nigeria’s energy sector, writes Colin Stevens.

The urgency of reforms has never been greater, due to Nigeria’s dependence on the oil and gas sector for foreign exchange and government revenues (representing 90% and 60% respectively). As global private sector investment is increasingly channeled into cleaner energy sources, the available investment pool is shrinking, made worse by the global pandemic. However, for a country like Nigeria, which has the continent’s second-largest oil reserves, to move away from fossil fuels, significant investments are needed to support infrastructure and human capital development.

The current administration’s commitment to reform

As a result, President Muhammadu Buhari’s administration has made passing the bill a key priority this legislature, tackling roadblocks which one says. KPMG report, have already prevented its passage in 2008, 2012 and 2018. The current bill seeks to introduce changes in royalty agreements and tax conditions to appease foreign oil producers, as well as to address the concerns of communities where the oil is extracted. Foreign oil producers such as Chevron, ENI, Total and ExxonMobil, all have Statere that billions of dollars in investment have been blocked due to the slow progress of the bill, giving confidence to local stakeholders that the passage of the bill will lead to a wave of investment.

Another key obstacle that the current administration has managed to overcome was the position of host communities, who had previously been sidelined during the process and sought to block passage of the bill. Petroleum Host Community Development (PHCD) attempts to address their concerns by providing direct social and economic benefits from oil operations to host communities, and by creating a framework to support sustainable development, through the creation of a trust, through which communities will claim a 3% share of the regional oil wealth generated by production.

Governance reforms

The need for governance reforms was also frequently cited as an obstacle to foreign investment in the sector. Under the new bill, the current Nigerian National Petroleum Corporation (NNPC) will change from a state-owned to a limited liability company, allowing for greater transparency and efficiency. The formal segmentation of the industry into the upstream and middle and downstream sectors, with separate regulators, will also allow clearer oversight. The passage of the bill was hailed by the country’s Center for Transparency Advocacy, which called it is “a positive step” towards a reformed energy industry.

Prepare for the energy transition

Before the bill was approved, commentators called for more provisions that explicitly address climate change concerns and pave the way for diversification towards sustainable energy production. Environmental provisions, including the establishment of sanitation funds and the requirement for environmental management plans are positive steps, but they only meet and do not exceed basic international standards, and are therefore not seen as sufficiently ambitious.

However, there is clear potential for the Oil Investment Bill to generate significant government revenues, which can then be invested in the renewable energy sector. Initiatives such as the government’s solar power plan, which will see 2.3 trillion naira (about 4.7 billion euros) from the COVID economic stimulus fund dedicated to installing five million solar systems, demonstrate a willingness to invest in low carbon energy production.

The result of these reforms, which to a large extent respond to major criticisms leveled at the Nigerian oil and gas sector over the past decades, is increased clarity for potential investors. Coupled with the opening of the global economy and a broader commitment to infrastructure investments and sustainable energy initiatives, the adoption of GDP bodes well for Nigeria.

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