The Growth theory takes into consideration the interface among growth elements such as savings and capital formation. It considers the contributions from different determinants factors of growth as anything that will enhance economic efficiency, growth and development.
4.2. National Legal Framework on Natural Resources Management
The study examines the various legal frameworks regulating oil exploration in Nigeria to determine their effectiveness, adequacy and to strengthen the laws with identified flaws.
The 1999 Constitution of the Federal Republic of Nigeria (as amended), being the grund-norm of all laws in the country, bestows unqualified ownership of natural or mineral resources in Nigeria on the government being within the statutory capability of the Federal legislatures. This is provided under section 44 (3) of the 1999 Constitution (as amended) thus:
Despite the earlier specifications of this section, the whole property in and use of entire natural resources, mineral oils and natural gas in any land in the country or territorial waters and the Exclusive Economic Zone are conferred by the Federal Government and shall be controlled in such a method as stipulated by the Federal legislatures.
In addition, section 2 (1) of the Exclusive Economic Zone Act 1978 which integrated section 44 (3) of the 1999 Constitution of Nigeria provides as follows:
Devoid of bias to the Territorial Waters Act, the Petroleum Industry Act or Sea Fisheries Act, autonomous and complete right regarding the exploration and development of natural resources of the seabed, subsoil and super adjoining aquatic of the Exclusive Zone shall be bestowed on the Federal Government and such privileges shall be exerted by the authority as it may often designate it in any particular circumstance.
The significance of concentration of resource-control in the Federal Government from other levels of government has led to the denial of the oil-producing areas of any right to the ownership, control and management of their extractive resources, alienation by the oil-producing communities of their oil has occasioning poverty, gross environmental degradation, militancy, violent disruption of oil production and agitation for resources control in the oil-producing areas. Resource control would enhance and develop the capacity for self-reliance for all levels of government and the entire country because it will promote modification of the nation’s economy from oil to other sectors such as agriculture, which was long abandoned [
35].
Before the enactment of the Petroleum Industry Act 2021, the Petroleum (amendment) Act 1969, Petroleum Profits Tax Act, Deep Offshore and Inland Basin Production Sharing Contract Act, and Associated Gas Reinjection Act (Repealed), among others, were legal frameworks that regulate the oil and gas sector. However, most of these laws and regulations were archaic, incoherent and were not in conformity with the contemporary economic and oil gas industry realities. Attempts at passing the Petroleum Industry Bill in 2009, 2012, and 2018 failed because of political interests and other undertones factors.
The Act creates new regulatory authorities called the Nigerian Upstream Petroleum Regulatory Commission replacing the Department of Petroleum Resources (DPR). The Commission is the regulator of the upstream petroleum sector. The Commission involves the award of new oil licences and endorsement of assignments of licence interests. The Nigerian Midstream and Downstream Petroleum Regulatory Authority is the regulator of the midstream and downstream petroleum sectors with statutory function to monitor the energy market to promote healthy competition. The power of the Minister of Petroleum has been revised and reduced to guardianship over petroleum activities. His current functions regarding the award, revocation, endorsement of licences and transfer of licences now necessitate suggestions or approval of the Commission. The Nigerian National Petroleum Corporation is to be replaced by the Nigerian National Petroleum Corporation Limited (NNPC LTD) with the obligation to file annual returns (audited account), and payment of tax to the Federal Government similar to other regular companies operating in the sector.
The reform aims to comply with the international upstream norms by introducing transparency in the sector. Transition of NNPC Limited to a viable firm that does not depend on the Federal Government’s funding. The current Petroleum Exploration Licences and Petroleum Mining Leases continue on their present terms with 20 years terms and must be approved via a fair, transparent and viable bidding process. The requirements to establish and fund Host Community Development Trusts Fund to initiate local projects, payment of 3% levy and decommissioning fund are now introduced. Marginal oil fields are to obtain distinct forms of licence to remedy the lacuna on the legal status and the likely significance of annulment or expiration of their OML. All agreements, licences and leases with the NNPC Limited are unclassified and must be published on the Commission’s website within one year.
The existing Petroleum Profits Tax has been substituted with the Hydrocarbon Tax, which relates to crude oil, crystallization and natural gas liquids product of associated gas. However, it not applicable to associated and non-associated natural gas or frontier acreage. The newly enacted Petroleum Industry Act can offer a further comprehensive legal regime for energy evolution in the industry even though the passage of the Act was procrastinated, if stringently enforced by the regulatory authorities with strong political will, sincere commitment and absence of political blockade or vendetta, the Act will transform the sector. The host community issues, uncertainties regarding price regulation, penalty regime and fiscal provisions, the Host Community Trust Funds fixed at 3% while the frontier exploration fund is fixed at 30% require further overhauling to guarantee total revolution of the sector [
36].
The Act will radically change our petroleum industry as it consolidates 16 different petroleum legislations into a single legal regime regulating the petroleum industry. The Act also seeks to deregulate the downstream petroleum sector to ensure market forces determine the prices of petroleum products rather than what we presently have, where the Minister determines the price of petroleum products [
37]. However, the Act fails to emphasize on energy transition, its impact and its outlook in the industry. The Act is anticipated to enhance certainty, draw more finance opportunities in the industry, and increase earnings for the government if stringently implemented. However, certain grey areas which require further modifications have been laid before the National Assembly by the President Muhammadu Buhari requesting the amendment to the managerial configuration of the Nigerian Upstream Petroleum Regulatory Commission, the Nigerian Midstream and Downstream Petroleum Regulatory Authority to increase the membership of the Non-Executive Board Members from (2) two to (6) six one representative from every geopolitical zone to give a sense of participation in the decision-making process of the oil industry section 34 (2) (b) of the Act.
Section 11 (2) (b) two (2) Non-Executive Commissioners to be substituted with six (6) Non-Executive Members, one from each geopolitical zone. Section 11 (2) (f) one delegate of the Ministry of Petroleum not lower than the rank of Director to be obliterated. Section 11 (2) (g) one delegate of the Ministry of Finance not lower than the rank of Director to be expunged. Section 34 (2) (f) (g) one delegate of the Ministry of Finance and Petroleum not lower than the position of Director to be expunged. Since the Ministries of Petroleum and Finance before now have a Statutory role of either administration or inter-governmental dealings, which can be implemented without being part of the Board.
Section 11 (3) and section 34 (3) on the appointment to the Commission’s Board shall be carried out by the President and dependent on the approval of the Senate. The appointment of the Executive Directors is to be amended to subject the confirmations of the Board to the Senate. The appointee should be a civil servant and not a political appointee to effectively manage these regulatory institutions via stringent public service rules for employees. This is to enhance growth and efficiency in the industry.
Emergency Economic Stimulus Bill 2020 aims to offer relief to companies on tax obligations for companies, deferment of import duties to certain commodities, restructuring of housing mortgage duties outstanding to the Federal Mortgage Bank of Nigeria for a scheduled tenure, employments security and mitigation of fiscal liability for Nigerians to combat the fiscal shocks caused by COVID-19 pandemic. There is a need for the amendment of the Bill to include oil and gas companies, specifically with the reliefs package.
The Finance Act 2020 was assented to by President Muhammadu Buhari with some modifications to section 39 of the Companies Income Tax Act on the stimuli accessible to financiers in the downstream gas utilisation processes by expunging the provisions of the Act that necessitates firms to acquire Ministerial sanction in advance before giving any loans regarding gas process as a tax-deductible expenditure. This provision will no longer apply; gas companies are now allowing other firms in the other segments of the economy to operate without such authorisation from the Minister. The explanation concerning the conduct of calculated investment grants has now been specified. Firms cannot replicate capital grants entitlement spurs under the CITA and the Industrial Development (Income Tax Relief) Act, for instance, the provisions governing the innovator category enticement. This modification is designed to circumvent dual entitlement of tax motivations by gas companies.
Section 38 of the Nigeria Value Added Tax (VAT) Act has increased the inventory of substances excused from Value Added Tax (VAT) as stated in the regulation dated 24 December 2018, which are Automotive Gas Oil, Aviation Turbine Kerosene, Household Kerosene, national produced Liquefied Petroleum, Premium Motor Spirit. The Act has efficiently solved the argument on the pertinence of VAT on the supply of enumerated fossil fuel commodities [
38].
Taking into consideration, the various guidelines and additional legal procedures start-up by the government to ameliorate the adverse effects of the COVID-19 disease on the country’s economies, such as the extension of tenure of loans or financial resources, rescheduling of the timetable for reimbursement of interest and reimbursement of principal, appraisal, relinquishment or modification of agreements, expectations and percentages; in addition to a relinquishment of charges.
The Ministry of Petroleum and Energy Resources offers a crucial management role for the oil sector, with numerous other organizations performing diverse supervisory capabilities.
The Nigerian National Petroleum Corporation Limited is the state oil firm, it oversees and promotes the commercial interest of the Federal Government being a commercial legal entity under the Petroleum Industry Act 2021 that is subject to tax liabilities, payment of dividends to its shareholders with several subsidiaries acting in different capacities as the regulatory authorities and positioned throughout the administration of the petroleum sector.
The Department of Petroleum Resources was replaced with the Nigerian Midstream and Downstream Petroleum Regulatory Authority and the Nigerian Upstream Petroleum Regulatory Commission are the regulatory bodies in charge of monitoring and regulating oil and gas operations in Nigeria. The Nigerian Midstream and Downstream Petroleum Regulatory Authority is the overseer of the midstream and downstream petroleum activities while the Nigerian Upstream Petroleum Regulatory Commission is responsible for the upstream sector.
Before the enactment of the Petroleum Industry Act, 2021 the Department of Gas Resources (DGR) a Ministry of Petroleum Resources Department established under the 2008 National Gas Supply and Pricing Regulation to allocate domestic gas supply obligations and regulate gas operations. However, the obligation is now being executed by the Nigerian Midstream and Downstream Petroleum Regulatory Authority.
The National Oil Spill Detection and Response Agency (NOSDRA) ensures alertness, uncovering and responses to oil pollution in Nigeria’s oil companies in compliance with the relevant legislation [
39].
The Nigerian Content Development Monitoring Board (NCDMB) is responsible for the implementation of the Nigerian Oil and Gas Industry Content Development Act 2010.
Nigeria-Saotome Principe Joint Development Authority (JDA) is a treaty between both countries to manage exploration activities in the region of maritime overlap between the countries’ National Environmental Standards and Regulations Enforcement Agency.
The concept of preparing the hybrid model designed by the authors is to combat the impacts of crude oil price shock on Nigeria’s economy, to promote economic diversification and to focus less on the petroleum sector [
40]. To promote energy diversification by integrating renewable energy and other low carbon energy sources into the national energy mix to promote technology development and to encourage active engagement of the citizens (especially youth) in the development of low carbon energy technologies. Review of the current legal frameworks on energy security, contracts and regulatory institutions in the oil and gas sector to ensure that they are compliant with the global low carbon energy transition objectives.
The implementation of the hybrid model (
Figure 1) will consequently enhance the positive and significant contribution of oil production and prices in economic advancement and attainment of real growth and progress as evidenced in the empirical results. The diversification approach to energy generation will further provide a veritable mechanism for controlling the adverse effects of the negative external shocks on Nigeria’s economy while preferring a better policy and legal options for improvement in the convergent of the system in its adjustment process to the long-run equilibrium.