Nigeria is considering granting the regulator control over oil contracts

Nigeria is contemplating the appointment of the state regulator to oversee the country’s current oil contracts, instead of the state oil company, as indicated by a draft legislative amendment reviewed by Reuters.

THE SIGNIFICANCE This has the potential to transform the governance of Africa’s leading oil producer in its petroleum sector, positioning the regulator as both an arbiter and a participant, which could obscure the distinctions between regulation and involvement, thereby heightening worries about possible conflicts of interest.

This also brings to light issues regarding corporate governance, as it strips the board of state company NNPC of its authority to approve the budget and develop strategy.

CONTEXT The legislation set for amendment is the 2021 Petroleum Industry Act (PIA), which authorized NNPC to act on behalf of Nigeria’s interests in various commercial oil contracts. The amendment will assign that responsibility to the Nigeria Upstream Petroleum Regulatory Commission (NUPRC).

A letter from the Attorney General to the minister responsible for gas, obtained by Reuters, stated that the amendment was essential because “certain provisions of the PIA have established structural and legal pathways through which significant revenues of the Federation are being redirected away from the Federation account”.

IMPORTANT QUOTE

“The noted decrease in net oil revenue inflows is primarily due to statutory leakages and unclear deductions within the existing PIA framework,” stated Lateef Fagbemi, Nigeria’s attorney general and minister of justice.