Nigeria’s energy sector is undergoing significant reforms under President Bola Tinubu’s administration, with policies that restructured fuel subsidies, electricity tariffs, and investment incentives. While these measures are intended to stimulate economic growth and attract investors, they have also sparked intense debates on their social and economic impact.
In this exclusive interview by Valuechain, Prof. Emeka Duruigbo, the Roberson King Professor of Law at Thurgood Marshall School of Law, Texas Southern University, shares his insights on the implications of these reforms. He examines the successes and shortcomings of the government’s policies, the progress in domestic refining, and the impact of the Petroleum Industry Act (PIA). Drawing from his expertise in international energy law, he also highlights lessons Nigeria can learn from the U.S. in energy regulation, environmental protection, and governance.
EXCERPTS:
How would you assess the energy sector reforms undertaken by the current administration in Nigeria?
I will start with fuel subsidy removal, which is arguably the most significant reform in the suite of energy policy reforms introduced by the current government. The subsidy regime was riddled with problems, including breeding corruption, concentrating most of the benefits on the upper segments of the society, and increasing fuel consumption that led to higher levels of environmental pollution. Leaving fuel prices largely to the dictates of the market, and not the influence of government subsidies, will ensure proper pricing of energy products and services, leading to adjustments in consumer behaviour. Yet, this outcome is not assured if people at the lower rungs of the economic ladder are left with fewer choices. Thus, subsidy reforms could result in the unsavoury consequence of further squeezing the poor financially.
Avoiding this unpalatable destination requires accompanying removal of petrol subsidies, for instance, with provision of good public transportation systems and cash compensation for the economically marginalized segments of the society to cushion the impact of high energy costs. Accordingly, I believe while subsidy reforms are necessary for economic and environmental reasons, the reforms by the Tinubu administration should have been more carefully planned and implemented to avoid negative social impacts.
A related recent reform initiative is the removal of subsidy in the power sector where customers categorized as Band A customers pay cost-reflective tariffs (i.e. they pay more) while the government is gradually withdrawing subsidy for customers on other bands.
Other reform measures worthy of attention are the number of executive orders issued by the present government that aim to improve the investment climate and position the country as the preferred investment destination for the petroleum sector in Africa. The three Orders include the Presidential Directive on Local Content Compliance, Presidential Directive on Reduction of Petroleum Sector Contracting Cost and Timelines and Presidential Directive on Oil and Gas Companies (Tax Incentives, Exemption, Remission, etc.). These Orders, introduced with the principal objectives of enhancing regulatory clarity, accelerating project timelines, and incentivizing investment in Nigeria’s energy sector, have reportedly yielded remarkable results as they are believed to have eliminated middlemen from the oil and gas industry value chain and contributed to shortening the oil industry contracting cycle to six months.
Nigeria has witnessed an increase in domestic refining capacity on the back of the Dangote Refinery, Port Harcourt Refinery and other ongoing local plants. What do you have to say about this development considering how the country struggled with importation in the past?
It’s good news! Domestic refining of crude oil is important for Nigeria’s energy security and economic growth. Fuel importation is a drain on the Nigerian economy both through the corruption in the process and the strain on foreign exchange earnings. Because of fuel imports, Nigeria has not been sharing the gains of higher oil prices as what it realizes from crude oil exports is exhausted on gasoline imports. Hopefully, the improvements in local refining would be enduring, and not similar to stories from the past that end up being mere public relations gimmicks.
What would you say has been the impact of the Petroleum Industry Act (PIA) on the energy sector since its enactment?
The enactment of the PIA, after many years of delay and rigmarole, was welcomed with a sigh of relief and greeted with much enthusiasm by various stakeholders in the energy sector. There are good reasons for the optimism as the PIA provides a clear and comprehensive regulatory framework clamoured over the years by major players in the industry. Several components of the Act can facilitate investment and usher in development for the Nigerian population. The provision for host community trusts is an important concept, of which I can state, with modesty, that I am one of the pioneers both in my scholarly writing and my community engagements in the Niger Delta. Additional funds to host communities managed under a thought-out legal structure can change the fortunes of people in these communities. The sections on asset transfer and divestment provide greater clarity than in the past, providing needed guidance on transfer authority and post-divestment liability. The environmental restoration fund and decommissioning funds by oil operators are innovative ideas that will ensure cleaner air and less water contamination and soil degradation during and following petroleum exploration and production in Nigeria. The fiscal provisions should attract investment and improve revenue generation for the country. So far, it appears that the PIA is working out well, while lessons being learned can be used to further improve the legislation.
What lessons can Nigeria learn from the U.S. in terms of energy regulation and policy?
The most important probably is respect for the rule of law. The remarkable and enduring success of the United States derives a great deal from respect for property rights and sanctity of contracts. So long as investors can feel comfortable that their rights are guaranteed and remedies are readily available in the event of a breach, they will feel comfortable releasing their funds and unleashing their creative energy. Another lesson Nigeria can learn in the area of energy regulation and policy is that the society is dynamic; therefore, regulations should keep pace with technological developments and human progress. Major actors in this space, from legislators and regulators to courts, commentators and practitioners should also be more proactive and approach their work with every dint of seriousness and in the national interest, above all.
In what ways can Nigeria adopt U.S. best practices in mitigating environmental impacts of oil and gas exploration?
Go beyond enacting legislation and formulating policy to enforcing and implementing them. While there is always room for improvement, Nigerian environmental laws are good enough to mitigate the environmental impacts of oil and gas exploration and production. Regulators should maintain their independence from the industry and avoid agency capture by the private sector. Public interest litigation or cause lawyering has played a key role in promoting corporate and governmental accountability in the United States. There may be many lawyers and nongovernmental organizations in Nigeria interested in this area of practice or advocacy, but they need financial support and adequate training to make a real impact.
How do environmental regulations in Nigeria compare to U.S. standards?
The United States has a highly sophisticated environmental regulatory framework. The U.S. practices federalism in the regulation of the environment. There are federal and state laws on major environmental issues. There is also the notion of cooperative federalism where the federal government sets the basic standards and the states are responsible for implementing and enforcing them, fostering collaboration and efficiency. In that regard, States enact laws along the same lines as the federal statute that maintain or exceed the national standards, taking into account their local conditions and peculiarities. The U.S. also employs the concept of technology-forcing, where the government introduces standards that would require changes in existing technology for industry to meet them. Apart from command and control legislation, where actors are told to do or refrain from doing something under the threat of penalty, the U.S. employs a variety of tools to protect the environment, such as legislation promoting economic approaches that revolve around subsidies, taxes, and emissions trading. Other measures include information-based legislation, such as the Toxics Release Inventory (TRI) and California’s Proposition 65 that do not directly regulate corporate conduct but indirectly modify the behaviour of corporations by requiring them to report their emissions or disclose the components of their products, thereby enabling consumers to make a choice as the suitability of the product in comparison to others. The common law continues to play a role, providing causes of action in negligence, private and public nuisance, trespass, and strict liability, especially where existing legislation has not caught up with technological advances or does not provide for monetary damages to successful litigants. Some of the options discussed above also exist in Nigeria. I have been consulting with and advising lawyers and NGOs litigating against oil and gas companies on behalf of Nigerian plaintiffs in international litigation. My examination of Nigerian laws shows comparable standards and legal theories, in some respects, to the ones in the United States. However, gaps, remain and periodic reviews and reforms of the laws to conform to social, political, and economic changes are necessary.
How effective are Nigeria’s local content laws in promoting indigenous participation in the oil and gas industry?
I was at an industry dinner during the Offshore Technologies Conference (OTC) in Houston over a decade ago when the local content statute was passed by the National Assembly. Some of the legislators who orchestrated or shepherded the legislation were in attendance and received a heroes’ welcome. I sat at a table with the president of the leading professional group for Nigerian engineers and I asked him what he thought of the legislation. He gave the law high marks regarding its potential to help Nigerians break into the industry. Over the years, I have interacted with some Nigerian professionals who have been given room to participate in the industry at a meaningful level because of the local content requirements. So, on that note, I can say that the local content law and initiatives have been a positive development for Nigeria. I have also observed that compliance has not been wholesale, prompting cries of immigration quota and work permit violations, while the technical and financial capacity of Nigerian companies to take full advantage of the legal provisions is not always present. I think progress in this area should continue.
What are the common legal challenges faced by foreign investors in Nigeria’s oil and gas sector?
The Nigerian legal system is weak and does not inspire confidence. Disputes take too long to resolve. Neither the foreign investors nor the local participants in the system are impressed, prompting many to opt for foreign arbitration and international civil litigation. The quality of judicial decision-making has dropped considerably from what Nigerians were accustomed to under legal giants when I studied or practised there, such as Justices Oputa, Eso, Obaseki, Karibi-Whyte, Nnamani, and Bello, among others. Access to legal materials is cumbersome, hampering high-quality research. Corruption in the system, both perceived and real, creates uncertainty and instability, which further frustrates commercial activity.
How can Nigeria improve transparency and governance in its energy sector, drawing from U.S. experiences?
Nigeria can use modern technology to make a difference. Sunlight is said to be a disinfectant and a policeman. Let the people have access to information in the energy industry. This information should be readily and easily accessible on the electronic devices that people use regularly. They will be empowered to ensure that the laws are faithfully implemented. People should also have greater access to their legislators. Let the lawmakers conduct regular town hall meetings and hear from their constituents while apprising them of developments in the legislative chambers and within the ministries, departments, and agencies over whom they exercise oversight. Legal reforms are needed. Justice-delivery reform is essential. For instance, the Supreme Court should not be required to accept all appeals, so they can be unburdened to deliver speedy justice, rather than oil and gas cases taking decades to conclude. Specialized courts should be introduced to handle complex commercial matters. Texas, the leading oil and gas state in the United States, which by the way produces about 4 million barrels of oil per day, compared to less than 2 million in Nigeria, introduced business courts last year. Among other cases, the courts will handle oil and gas disputes.
The industry in Nigeria continues to witness divestment of interests in onshore and shallow water assets by IOCs, with indigenous companies buying off these assets. What is the implication of these divestments on the sector in Nigeria?
The divestments generate mixed reactions. There are good and bad parts. The good part is that it opens the industry further to indigenous participation, a key goal of oil-producing countries since the early days of the concept of Permanent Sovereignty over Natural Resources and the formation of OPEC. In that sense, it could translate into a real transfer of wealth to Nigerians. The divestments of Eni, Equinor, Exxon and Shell and the acquisitions of their respective upstream assets by Oando, Chappal Energies, Renaissance, and Seplat provide opportunities for Nigerian business and professional people to build their capacity and become bigger players in the industry. On the negative side, there is the concern that the divesting companies are offloading their looming environmental liabilities and community responsibilities to new companies whose financial and technical capability to address them can be questioned. The fact that the companies seem to be divesting partly to avoid the challenges of insecurity and sabotage in their onshore operations is lamentable and underscores the need for the government to provide a more secure operating environment.