Funmilayo Odude, Legal Practitioner, Damod Law Practice

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How does the Petroleum Industry Act protect our environment? 09 Sep 2021

Last month, Shell Petroleum Development Company (SPDC) put to rest one of the prominent Nigerian cases against it over oil spillage arising from its activities in communities in Ogoniland. The ‘oil major’ of Anglo-Dutch origins agreed to pay the sum of N45.9 billion as compensation to the communities. But perhaps the most consequential activity in the Nigerian oil industry in decades was the signing of the Petroleum Industry Bill (PIB) into law by President Muhammadu Buhari on the 16th of August 2021.

What changes does the PIB, now the Petroleum Industry Act (PIA) 2021, bring to environmental challenges caused by oil production activities in the country?

The impact of oil pollution in the host communities in the Niger Delta region of the country is undeniable. Since oil production began in Oloibiri town in present-day Bayelsa State in 1956, environmental pollution arising from oil spillage, pipeline explosion, gas flaring and venting, improper disposal of large volumes of petroleum-derived hazardous hydrocarbons, waste streams, sabotage, oil well blow out and oil blast discharges, among others, have had grave consequences for the people in the host communities.

In a United Nations Environment Programme (UNEP) report released in 2011, the impacts of oil pollution on public health, aquatic life and vegetation in Ogoniland were egregious. The environmental impact assessment study was carried out at the request of the federal government.

It is clear from the lawsuit against Shell that the court process is not a viable way to deal with such environmental issues. For instance, the UNEP report explains that, because Ogoniland has high rainfall, any delay in cleaning up an oil spill would lead to oil being washed away, traversing farmland and almost always ending up in the creeks. Thus, at one site, Ejama-Ebubu in Eleme Local Government Area (LGA), the study found heavy contamination present 40 years after an oil spill had occurred, despite repeated cleanup attempts.

The report states that it could take between 25 to 30 years to reverse many of the environmental and social consequences of oil spillage in the Niger Delta. Delay in tackling any oil spill, therefore, is tantamount to unmitigated injustice to the people affected. Any damages awarded by the courts after protracted litigation would be incapable of truly remediating the environment or restoring the communities as much as possible back to the way they were before the spillage.

Nigeria has evolved in its regulation of environmental impact of oil production activities since the 1969 Petroleum Act. However, the PIA represents a holistic legislation that provides for the rights, responsibilities and duties of the various stakeholders in the oil and gas industry while also making express provisions for fiscal responsibilities in safeguarding the environment.

The Petroleum Industry Act mandates a licensee or lessee who engages in upstream and midstream petroleum operations to submit an environmental management plan to the Nigerian Midstream and Downstream Petroleum Regulatory Authority, the regulator of the midstream and downstream sectors (the Authority) or the Nigerian Upstream Petroleum Regulatory Commission, the regulator of the upstream sector (the Commission) – two of the new institutions created by the PIA – as the case may be, for approval. This is in respect of projects that require environmental impact assessment.

The two factors to be considered in approving an environmental management plan is its compliance with the relevant environmental laws and the capacity of the applicant to rehabilitate and manage negative impacts on the environment. The PIA expressly provides that chemicals shall not be utilized for upstream petroleum operations, except the Commission grants an applicable permit and approval.

Whereas the responsibilities for oil spill recovery, clean up and remediation belong to the operators of licenses and leases under the National Oil Spill Detection and Response Agency (NOSDRA) Act and its Oil Spill Recovery, Clean-up, Remediation and Damage Assessment Regulations, the PIA provides a more enforceable framework by creating not just administrative but also fiscal provisions. The Act creates the environmental remediation fund for the rehabilitation or management of negative environmental impacts arising from the operations of licenses and leases. The fund is financed by contributions charged as part of the conditions precedent to the grant of a license or lease.

The contribution to be paid is determined by the size of the operations and the level of environmental risk that may exist. This fund is to be applied where a licensee or lessee fails to rehabilitate or manage any negative impact on the environment arising from its operations.

The reservations about the proper utilization of the fund are understandable, especially following the queries on the speed, accountability and transparency of the Hydrocarbon Pollution Remediation Project (HYPREP) by stakeholders including the National Assembly. The HYPREP was established in 2016 under the Federal Ministry of Environment to determine the scope, means and modalities of remediation of soil and ground water contamination in affected communities and remedy them. Many people have complained about the speed and low level of expertise for implementing the project. The provisions in the PIA regarding remediation and the environmental remediation fund, however, provide a workable framework which can make a difference where the political will exists.

The PIA further provides for a more stringent prohibition of gas flaring by not merely penalizing it but by also making the fines payable, as it is ineligible for cost recovery and is no longer tax deductible. The fines are furthermore targeted towards environmental remediation and relief for host communities through the settlors for which the penalties were levied.

The decommissioning framework in the Nigerian petroleum industry has evolved over the years. It was mostly provided for under the Environmental Guidelines and Standards for the Petroleum Industry in Nigeria (EGASPIN) issued in 1991 by the Department of Petroleum Resources (DPR) under the Ministry of Petroleum Resources. The guidelines were revised and updated in 2002, 2016 and 2018. EGASPIN outlines environmental and safety standards that must be complied with by oil operators in Nigeria, to prevent, minimize, and control pollution from the various aspects of petroleum operations. The revised 2018 version made provisions for decommissioning offshore facilities as well as inland and near-shore areas. The exploration and production contracts also contained clauses on decommissioning.

The PIA builds on the existing framework by expressly legislating the duties and responsibilities around decommissioning and abandonment. It makes extensive provisions covering the decommissioning and abandonment of petroleum wells, installations, structures, utilities, plants and pipelines, which are now regulated and supervised by the Commission or Authority as the case may be and is to be conducted in accordance with good international petroleum industry practice.

While EGASPIN provided three options to licensees and lessees to provide security for decommissioning, the PIA creates a decommissioning and abandonment fund which is to be set up and maintained by each licensee and lessee in the form of an escrow account accessible to the Commission or Authority and held by a financial institution that is not an affiliate of the lessee or licensee. This fund is to be exclusively used to pay for decommissioning and abandonment costs. Thus, even where the Nigerian National Petroleum Corporation (NNPC) by virtue of the contracts retained ownership of the assets and thus residual liabilities with respect to decommissioned assets, the fund ensures that the costs are still covered by the operators.

The Act also makes provisions for the host communities. While the most topical is the Host Communities Trust Fund which is to be funded by 3% of the upstream petroleum operators’ annual operating expenses, the Act further provides that upon the issuance of a license or lease, the operators are to conduct a community needs assessment comprising social, economic and environmental needs and are to develop and execute a development plan subject to the Commission or Authority’s approval.

The PIA provides a comprehensive legal and governance framework that remedies the labyrinth of regulations in the petroleum industry. Its impact on the industry and indeed Nigeria’s economy would be largely dependent on its implementation.

The President has approved a steering committee to guide the implementation of the provisions of the PIA and the transition process across a 12-months period. As the Commission and the Authority begin to make regulations after their set-up, there would be a harmonization of all the regulations in the industry and thus clarity and coherence with respect to regulations, reporting, and enforcement. It thus provides a chance for the country to achieve profitable exploration and commercialization of resources while minimizing or eliminating the negative effects of oil exploration and production activities on our environment.

Funmilayo Odude is a Partner at Commercial and Energy Law Practice (CANDELP).