Legal Briefings

Aug 18 2017
Legal Briefings >> August 2017


by Adefolake Adewusi


The National Petroleum Policy (the “Policy”), considered and approved by the Federal Executive Council in July 2017, highlights the government’s intention to transit the Nigerian economy from its dependence on crude oil exportation as its primary source of income to the use of crude oil as a tool for economic growth. Government seeks to create a market-driven petroleum industry and aims at developing the downstream sector, particularly the country’s refining capacity.


The key aspects of the Policy are:

o      Governance;

o      Industry structure;

o      Actions along the value chain (i.e. upstream, midstream and downstream);

o      Developing national human resources;

o      Communications; and

o      Roadmap & Action Plan for Implementation.



The 112-page Policy features:


I.               A proposed Petroleum Industry Reform Bill which would clarify objectives and undertake institutional reforms of the regulatory bodies in the petroleum industry, making such institutions autonomous, accountable, transparent and operate in accordance with international best practice. As part of the institutional reforms, a National Petroleum Policy Directorate would be created within the Ministry of Petroleum Resources (MPR) to provide permanent technical support to the Minister. Also, a new single regulatory body known as Nigerian Petroleum Regulatory Commission (NPRC) would govern all sectors and segments of the petroleum industry. The NNPC will also be replaced by the National Oil Company of Nigeria (NOCN) and Nigeria Petroleum Asset Management Corporation, thus providing a clear separation of roles between policy and operations. It is worthy of note that some of these proposals were part of the provisions of the Petroleum Industry Governance Bill passed by the Nigerian Senate on 25th May 2017.


II.            Other features of the Policy are:

a.             Full legal separation of petroleum infrastructure, ownership & operations and trading, such that separate companies will carry out the different activities. Thus, asset owners in one segment of the value chain may own and operate assets in various sectors of the value chain if they wish, but such can only be done using separate legal entities. For instance, a holding company may have different companies operating in the upstream, midstream and downstream.


b.             The introduction of regulated tariffs for monopoly infrastructure areas of the petroleum industry, in a manner that will provide investors with the opportunity to recover all the eligible costs plus an adequate and reasonable return on investment.


c.              The introduction of a new fiscal policy embedded in a separate National Petroleum Fiscal Policy document issued by the government which would separate oil from gas. In this regard, it would no longer be possible to recover associated gas and non-associated gas costs from oil income.


d.             Encouragement of project financing through various means but with the government playing a minimal role.


e.             Exit from cash call arrangements by December 2017 and transiting to production sharing contract plus costs and incorporated joint venture arrangements. The government will evaluate existing PSCs at the end of their exploration and production phases to determine the appropriate financing structure and risk reward matrix needed for proposed renewals.


f.               Capping the proportion of petroleum revenues to be spent on current expenditure and dedicating the remainder to a Sovereign Wealth Fund.


g.             Involvement of the Niger Delta communities directly in infrastructure, social and petroleum development in their local community areas by, for instance, involving them in the development of marginal fields.


h.             Introduction of efficiency promotion measures in procurement processes.


i.               Advocating greater transparency in the allocation of oil licences and leases. Licence renewals or extensions will now be based on licence holders making progress in meeting exploration or production targets.


j.               Implementation of the “polluter-pays” principle including criminal prosecution of directors where appropriate and ensuring international publication of oil spills as well as the polluters' details (a “name and shame” policy).


k.             Building a strategic reserve of refined petroleum products to provide security of supply.


l.               Setting up of NNPC refineries as independent profit centres and the return of storage depots to the refineries.


m.           The divestment of non-performing refineries and encouragement of the construction of private refineries.


n.             A proposal for a commercial framework for midstream oil.


o.             An initiative to encourage the private sector of the petroleum industry to develop competent worker schemes. This is voluntary but would be made mandatory if there is insufficient progress.


p.             Embarking on a communications strategy for investors and government to understand their respective roles.


In the Policy Roadmap and Action Plan, it has been stated that while the government will set targets and monitor progress to ensure market development, achieving the national objectives for petroleum sector development in Nigeria is ultimately down to the private sector to deliver. However, the government’s genuine commitment to achieving the objectives set out in the Policy will be measured once the laws required to effect to the policy begin to emerge


If you require more information on how this new policy will affect the present architecture of Nigeria’s petroleum sector, create opportunities for investors in the petroleum sector, as well as the legal ramifications, please do not hesitate to reach us through our contact details published below.

Last changed: Aug 18 2017 at 4:46 PM