PIB: The Danger Of Two-Regulator Model By Mahmud Nasir Jafar

But carving a 50-year-old organization into two administratively separate and foreseeably uncooperative regulatory agencies isn’t one decision that can be easily reversed.

One of the greatest fears of oil and gas sector operators and insiders is the existence of stressful regulations. The new Petroleum Industrial Bill (PIB), which has just been passed by the President, isn’t an answer to their prayer—and it should bother the public too. The bill proposes to discontinue the existing single-regulator model and establish two regulators to oversee the upstream and downstream segments of the industry. 

For about 50 years, the oil and gas sector has been regulated chiefly by the Department of Petroleum Resources (DPR), from which so many agencies have emerged and now function as standalone institutions governing the oil and gas sector. In the new bill, the government intends to disband DPR and have it replaced by two regulatory agencies: Nigerian Upstream Regulatory Commission (NURC) and the Nigerian Midstream and Downstream Petroleum Regulatory Agency (NMDPRA).

As their names suggest, NURC is designed to oversee regulation in the upstream segment while NMDPRA is tasked with the responsibilities of regulating the downstream and the least-discussed midstream sector. This may seem like a logical solution to the oil and gas sector, only that the problem has only just begun. 

For those with a bare understanding of the industry, the “upstream,” “downstream,” and “midstream” segments may be confusing. The upstream segment is the activities involving searching and extracting raw crude deposits from the earth, underneath the water, and from the basin of the inland body of water. The downstream segment, on the other hand, involves the distribution and marketing of petroleum products after being processed. Midstream is the chain of activities between the upstream and downstream segment and known as processing. The processing of crude oil involves activities like converting the crude oil into finished products like petrol, diesel, and lubricants. 

However, whatever has been underlined as the deficiency of a single regulator isn’t going to fizzle out with a two-regulator model. In fact, establishing two regulators only proves to expand and waste the nation’s recurrent expenditures for a country seeking creative means of cutting down the cost of governance. Similarly, two regulators in the industry are going to be characterized by an absolute lack of cooperation and the absence of harmonized operations and data. The proposed two regulators are still going to be managed by employees of the DPR and other sister agencies, including the Nigerian National Petroleum Corporation

(NNPC), Petroleum Equalization Fund (PEF), Petroleum Products Pricing Regulatory Agency (PPPRA). 

This culture of skipping the root of a problem and rushing to create committees or duplicate agencies is a typically Nigerian practice and it’s only succeeded in worsening the problem we set out to solve. What DPR requires is strategic strengthening and unconditional autonomy to function without political interferences. And as long as the political class have easy access to the operations of any regulator or regulators, even a thousand regulators aren’t going to drive the change we expect. The problem is staring us in the face — and we must brace up for this attempt at frustrating oil companies operating in all sectors of the economy. 

The two-regulator model is indeed a farewell to the ease of doing business. For instance, in the new bill, one oil company that has divisions in upstream, midstream and downstream segments of the industry is now forced to report to two regulators and secure services that could’ve been easily offered by one. For the government, this promises to frustrate data management for oil business and keeping a record of activities, whether financial or operational functions of the regulators.

If the government or proponents of the new PIB had bothered to study the 2011 report of the Steven Oronsaye Panel, which was ironically authorized by the government itself, it would’ve instantly emphasized the danger of a duplicate regulator. The report took notes of the strengths and weaknesses of existing agencies in the country and concluded that misguided duplication has stalled our public institutions and cautioned us against redundancy. The solution proffered by the report is abolition and merger of 102 government agencies and parastatals and reduction of the number of statutory agencies from 263 to 161. It’s doubtful our policymakers read the studies and investigations they invested so much to produce.

The proposed disbanding of the DPR, as stated by a writer elsewhere, is akin to carving the Central Bank of Nigeria (CBN) into two to ensure efficiency in the age of FinTech. If the same thinking infused in solving the problems of our oil and gas industry is applied in addressing the banking sector, CBN would’ve also been broken up into two regulatory agencies, with one overseeing commercial banks and the other regulating microfinance banks and FinTech.

As PIB awaits presidential assent, the viability of a two-regulator model must be acknowledged. The sentiment has been that it’s impossible to have a perfect bill and that there’s always room for amendment. But carving a 50-year-old organization into two administratively separate and foreseeably uncooperative regulatory agencies isn’t one decision that can be easily reversed. The bill was deliberated for about twenty years before it was finally passed by the National Assembly, and it’s frightening that the danger of financially wasteful and administratively sluggish two regulatory agencies hasn’t been underlined by our policymakers. But, then, expanding the recurrent expenditures of oil and gas administration serves the interests of our self-serving political elite. 

Source: Sahara Reporters.