Petroleum Industry Act, 2021 (PIA) And its Impacts on Environmental Sustainability in Nigeria
By ATER, Solomon Vendaga
Abstract
The enactment of the Petroleum Industry Act (PIA) in 2021 marked a pivotal moment in Nigeria’s oil and gas (O&G) sector, culminating in a decade-long effort to address institutional challenges and conflicting interests. With the PIA, Nigeria aims to establish a unified legal framework for the petroleum industry, aligning itself with global best practices. This comprehensive legislation repeals several existing laws, signalling a shift towards streamlined governance. However, as Nigeria grapples with significant environmental challenges, particularly in being among the top global gas-flaring countries, the PIA’s impact on environmental sustainability becomes a crucial aspect for examination. This work sets the stage for a nuanced exploration of the PIA’s implications, acknowledging the nation’s commitment to the industry’s development while underscoring the imperative of addressing environmental concerns for long-term socio-economic well-being.
Introduction
Nigeria is one of the top seven gas-flaring countries. It is estimated that around 2 million people in the country live less than 4 km away from a flare site[1]. It is projected that between 2030 and 2050, climate change is expected to cause approximately 250,000 additional deaths per year from malnutrition, malaria, diarrhoea, and heat stress[2]. The risks are that about 2-4 billion dollars will be the cost to manage health challenges from the climate crisis and that the most impacted societies will be those in developing countries. Intergovernmental Panel on Climate Change (IPCC) has concluded that to avert catastrophic health impacts and prevent millions of climate change-related deaths, and the world must limit temperature rise to 1.5°C[3]. The report seriously warned that any additional increase would make the earth unbearable for all of us. According to research conducted by scientists, about 10% of global deaths are caused by climate change. This makes it correct to say that about 5 million people die of climate-related issues annually[4].
Environmental challenges affect not only the social and healthy lives of the people but also have negative economic impacts. For instance, Dataphyte noted that in the last decade, approximately $9.05 billion had been lost to gas flaring. This money would have offset 23.62% of the country’s total foreign debt of $38.32 billion.[5]
Amidst this complex scenario, the enactment of the Petroleum Industry Act (PIA) emerges as a potential catalyst for addressing these pressing environmental concerns. The PIA, by consolidating various legal, regulatory, and fiscal provisions, offers a comprehensive framework for the petroleum industry. While repealing outdated laws, the PIA introduces measures that can be harnessed to curb the detrimental effects of gas flaring and enhance environmental sustainability.
To align with global efforts, the PIA’s provisions should be strategically leveraged to promote the reduction of gas flaring, minimizing its impact on both public health and the economy. By incorporating stringent environmental standards and incentives for responsible practices, the PIA has the potential to contribute significantly to mitigating climate change-related health risks and preserving natural resources.
Furthermore, the PIA presents an opportunity for Nigeria to align with international recommendations, such as those put forth by the Intergovernmental Panel on Climate Change (IPCC). The imperative to limit the global temperature rise to 1.5°C, as underscored by the IPCC, aligns with the broader goal of averting catastrophic health impacts and preventing millions of climate change-related deaths. This work will consider the relevant provisions of the PIA on environmental sustainability.
Environmental Sustainability: What is it?
It is essential to know that environmental sustainability is inextricably linked to sustainable development. The former can only be discussed thoroughly by referring to the latter. So, the two will be considered.
Sustainable development was defined in the Brutland report as “development that meets the needs of the present without jeopardizing future generations’ ability to meet their own needs.” The traditional conception of the concept of sustainable development was built on an environmentalism framework that prioritizes ecological degradation issues[6].
Sustainable development underlines the interplay of social, economic, and environmental sustainability[7]. Whether sustainable development is viewed along the three-dimensional level with other developmental approaches or not, environmental sustainability has become a requirement for other sustainability indices.
It is instructive to know that a fourth dimension to sustainable development was introduced at the 2002 World Urban Forum in Nairobi. The Forum asserted that the four pillars, i.e., economic, social, environmental, and governance, are critical to sustainability, and failure to address issues surrounding the four pillars would prevent sustainable development from being achieved[8]. Since then, the indispensability of governance in sustainability goals has been increasingly recognized.[9][10] Moreover, as it is today, we have the governance flavour in sustainable development projects. This has also explained the reason why the government must develop efforts to address sustainable development projects which environmental sustainability is part of.
Morelli defines environmental sustainability “as a state of balance, resilience, and interconnectedness that enables human society to meet its needs while not exceeding the capacity of its supporting ecosystems to regenerate the services required to meet those needs, nor by our actions reducing biological diversity.[11]“. Interestingly, the ultimate goal of global and national environmental governance is to keep improving environmental conditions, ultimately leading to the broader objective of sustainable development[12].
PIA and Environmental Sustainability
The PIA 2021 includes provisions that emphasize the importance of environmental sustainability and protection in the petroleum industry. Some of the key provisions related to environmental sustainability in Nigeria under the PIA include:
1. Responsibility of regulatory bodies to maintain the safety of the environment
The Petroleum Industry Act outlines the responsibilities of two regulatory bodies in Nigeria’s petroleum industry. The Nigerian Upstream Petroleum Regulatory Commission[13] (NUPRC) is tasked with establishing and enforcing health, safety, and environmental standards for upstream operations[14], including the reduction of natural gas flaring[15]. The commission also monitors oil and gas activities to ensure they align with national goals such as reducing flaring and meeting domestic gas supply obligations.
On the other hand, the Nigerian Midstream and Downstream Petroleum Regulatory Authority[16] (NMDPRA) is a merger of three previous regulatory agencies: the Petroleum Products Pricing Regulatory Agency (PPPRA), Petroleum Equalization Fund [Management] Board (PEFMB), and the Midstream and Downstream Divisions of the Department of Petroleum Resources (DPR). The NMDPRA’s main objective is to establish a progressive regulatory framework that encourages investment and optimization in the midstream and downstream sectors of the petroleum industry. The agency is responsible for regulating technical, operational, and commercial activities in these sectors, with a focus on promoting safety, efficiency, and the supply and distribution of natural gas and petroleum products. Environmental protection is also an important aspect of the NMDPRA’s regulatory responsibilities.
Summarily, the NUPRC is responsible for overseeing health, safety[17], and environmental measures in upstream petroleum operations, while the NMDPRA regulates the midstream and downstream sectors, focusing on promoting efficient operations, the supply of natural gas and petroleum products, and ensuring environmental protection.
2. Environmental Impact Assessment (EIA)
The Act requires operators in the petroleum industry to conduct environmental impact assessments before commencing any project or activity. This assessment helps identify potential environmental risks and ensures that appropriate mitigation measures are implemented. This is to be submitted within one year of coming into effect of the Act or within six months of obtaining such license or lease[18]. This provision is commendable as it ensures that every operator has a prepared plan and the capability to mitigate any environmental issues that may arise from their oil and gas activities. It promotes a proactive approach to environmental concerns. However, it is worth noting that there is no specific penalty prescribed for non-compliance with this particular requirement. The general penalty of license or lease revocation, as stated in section 96(1)(i) of the Act, is the applicable consequence. This may be seen as unrealistic since license or lease revocation can have severe repercussions, potentially disrupting industry operations and even impacting the national economy. This could be a reason why the government has been hesitant to apply this measure in the past. This work suggests that other penalties, such as substantial fines, would be more realistic in most cases, reserving license or lease revocation for repeated or severe infractions.
3. Environmental Restoration
The PIA emphasizes the importance of environmental restoration and rehabilitation. It requires operators to develop and implement plans for the remediation of areas affected by petroleum operations, including the cleanup of oil spills and other forms of pollution. I think this informs the provisions of the host communities[19]. Another interesting provision of the Act is that fines collected from violation of its provisions on environmental sustainability ‘shall be for the purpose of environmental remediation and relief of the host communities of the settlors on whom the penalties are levied[20].’
4. Gas Flaring
The act addresses the issue of gas flaring, which is the burning of associated natural gas during oil production. It aims to reduce gas flaring and encourages operators to adopt strategies for the beneficial use of associated gas, such as gas re-injection, gas utilization projects, or gas sales. The Act provides that where a licensee or leasee ‘fails to conduct petroleum operations in accordance with good international petroleum industry practices[21]’ or where he ‘has failed to comply with environmental obligations required by applicable law or by the provisions of the applicable license or lease[22], his license will be revoked.
5. Environmental Standards and Regulations
The PIA empowers regulatory bodies to establish and enforce environmental standards and regulations for the petroleum industry. This includes setting limits on emissions, waste management practices, and other environmental parameters to ensure compliance and minimize negative impacts.
6. Fund for Environmental Remediation
The Act established a fund called the Environmental Remediation Fund[23]. This fund is aimed at financing the assessment, remediation, and restoration of areas impacted by petroleum operations. It is expected to be funded through various sources, including a percentage of the operational expenses of petroleum companies.
7. The Power of the Commission to take Charge of Gas Flare
The PIA grants the Commission the authority to acquire natural gas that would otherwise be flared, free of charge[24]. This provision aligns with the Flare Gas Commercialization Programme (FGCP) initiated by the Federal Government to eliminate gas flaring and achieve environmental and economic benefits. The FGCP aims to encourage third-party investors to develop sustainable gas utilization projects by participating in a competitive and transparent bidding process to purchase flare gas from the government. This provision in the PIA is seen as a positive development as it strengthens the government’s ownership rights over flare gas by enshrining it in an Act of the National Assembly, rather than being solely governed by subsidiary legislation. This legal backing reinforces the implementation of the FGCP and provides a more solid foundation for its execution.
8. Provision for Hydrocarbon Tax
The PIA includes provisions within its Petroleum Industry Fiscal Framework to protect the environment through hydrocarbon taxation. Chapter IV of the PIA is dedicated to the fiscal framework and consists of eleven parts. Accordingly, Part I focuses on the objectives and administration aspects of the fiscal framework. Sections 260 to 266 specifically address Hydrocarbon Tax, while Part III covers the Ascertainment of Chargeable Tax, and Part IV deals with the Ascertainment of Chargeable Profits and Consolidation for Tax Purposes. Part V outlines the criteria and obligations for Chargeable Persons, while sections 277 to 287 provide guidelines on the applicability of tax regulations, accounting practices, and reporting requirements. Appeals related to taxes are addressed in Part VII, and Part VIII covers the collections, recovery, and repayment of taxes. Part IX specifies offenses and penalties for non-compliance with tax regulations, and Part X provides for the application of companies’ income to petroleum operations. With the enactment of the PIA, holders of Petroleum Prospecting Licenses and Petroleum Mining Leases are now subject to both Corporate Income Tax (CIT) at a rate of 30% and Hydrocarbon Tax (HCT)[25]. The HCT rates applicable are as follows:
- 30% for converted/renewed onshore and shallow offshore Petroleum Mining Leases.
- 15% for onshore and shallow onshore Prospecting Petroleum Licenses and Marginal Fields.
- Deep offshore activities are exempt from HCT.
This implies that the highest headline tax rate for companies operating in the upstream oil and gas sector will be 60%. Consequently, existing holders of Oil Mining Licenses and Oil Prospecting Licenses will continue to be taxed according to the provisions of the Petroleum Profits Tax Act (PPTA), unless they execute a conversion contract in accordance with the provisions set out in the Petroleum Industry Act 2021[26]. These provisions within the fiscal framework of the PIA demonstrate the Act’s intention to protect the environment through the implementation of effective taxation measures within the petroleum industry.
Conclusion
The Petroleum Industry Act (PIA) represents a significant stride towards redefining Nigeria’s oil and gas landscape, fostering regulatory coherence and addressing long-standing industry concerns. As the nation confronts pressing environmental challenges, particularly in the context of substantial gas flaring, the PIA’s role in promoting environmental sustainability becomes paramount. The urgency of mitigating climate change impacts and the associated health and economic risks underscore the need for effective implementation and monitoring of environmental provisions within the PIA. The legislation’s success in balancing the imperatives of industry development with environmental stewardship will ultimately determine its lasting impact on Nigeria’s socio-economic fabric. As the nation navigates the complex terrain of its petroleum industry, a judicious and vigilant approach to environmental sustainability will be essential for ensuring a prosperous and resilient future.
Recommendations
Based on the foregoing, the following are recommended:
- Activities of factories engaged in petroleum exploration as well as the utilization of gasoline-powered machinery, fossil fuel from transport vehicles, etc. must be seen to be well regulated by the appropriate authorities as provided under the Act.
- The penal regime introduced by PIA on Environmental Impact Assessments (EIA) must be strengthened and applied when appropriate to ensure operators adhere to environmental standards.
- The government should establish transparent frameworks for managing fines collected from violations, ensuring community input in environmental projects, regular reporting on fund utilization, and preventing misallocation or misuse of funds earmarked for environmental remediation in host communities.
- Incorporation of incentives for research and development in green technologies within the petroleum industry under the PIA is one area to take very seriously. This should encourage operators to invest in innovative solutions that minimize environmental impact through measures like tax incentives or research grants.
- Tradable permits can also be handy in limiting the number of gas emissions. This research greatly recommends the enforcement of various trade permits under the extant law with the undertaken that operators ensure that they carry out their activities in an environmentally friendly manner.
Endnotes
[1] Omoniyi & Johnson, Impact of gas flaring on child health in Nigeria, available from https://blogs.worldbank.org/developmenttalk/impact-gas-flaring-child-health-nigeria#:~:text=Nigeria%20is%20one%20of%20the,lasting%2C%20has%20largely%20been%20ignored. Accessed 12th February 2023
[2] WHO, Climate change and Health https://www.who.int/news-room/fact-sheets/detail/climate-change-and-health accessed 12th February 2023
[3] Ibid
[4] https://www.bloomberg.com/news/articles/2021-07-07/climate-change-linked-to-5-million-deaths-a-year-new-study-shows
[5] Udu, What are 6.63 Billion Cubic Metres of Gas Flared in Nigeria Worth?Dataphyte (2022) https://www.dataphyte.com/latest-reports/what-is-6-63-billion-cubic-metres-of-gas-flared-in-nigeria-worth/ accessed 12th February 2023
[6] Nurse, K. Culture as the Fourth Pillar of Sustainable Development. Article prepared for the Commonwealth Secretariat, Malborough House, London (2006)
[7] OECD., Sustainable Development. Critical issues. Paris: Organization for Economic Cooperation and Development (2001).
[8] UNEP., Environmental Governance. UNFCCC Conference in Copenhagen UN-HABITAT (2002) State of the World’s Cities: 2008/2009 UN-Habitat, Nairobi.
[9] Ogunkan, D. V. Religious value: An instrument for sustainable environmental management in Nigeria. Global Journal of Human Social Science, (2010)10(3), 25–30.
[10] Adedibu, A. A. Management of Sustainable Cities in the 21st Century: Urban Governance. An induction lecture was presented at the TOPREC induction ceremony held at Shehu Musa Yar’adua center. 30th July 2015.
[11] Morelli, J., Environmental Sustainability: A Definition for Environmental Professionals. Journal of Environmental Sustainability (2011).
[12] Najam, A, Papa, M., & Taiyab, N., Global environmental governance: a reform agenda. International institute for sustainable development. Winnipeg, IIS (2006).
[13] S. 4(1) of PIA
[14] S. 6 (d) of PIA
[15] s7(e)(iv) of PIA
[16] S. 29 (1) of PIA
[17] S. 31(c) of PIA
[18] S. 102 (1) of PIA
[19] Chapter 3 of PIA
[20] S. 104 (4) of PIA
[21] s96(1)(a) of PIA
[22] s96(1)(I) of PIA
[23] S. 103 of PIA
[24] S. 105(2) of the PIA
[25] PwC, Tax Summaries, available at https://taxsummaries.pwc.com/nigeria/corporate/taxes-on-corporate-income#:~:text=Following%20the%20enactment%20of%20the,shallow%20offshore%20Petroleum%20Mining%20Lease. Accessed 10th July 2023
[26] Ibid
About the Author
Ater Solomon Vendaga is a Program Associate at Sabilaw Foundation. He is passionate about Taxation, Technology Law, IP Rights, Personal Development, Writing, and Social Inclusion. He can be reached via: 08025263078 or soloater12@gmail.com
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