Article authored by Olayinka Alao, Managing Partner, Renaissance Practice

Introduction

The
Nigerian Energy and Natural Resources Industry is comprised of the Oil and Gas,
Power, and Mining sub-sectors. A marked feature of this Industry is the predominance
of the Federal Government’s influence and control which may be attributed to
the highly centralized federal system of government adopted in the country.
Instructively, the Nigerian Constitution vests entire property in and control
of all minerals, mineral oils and natural gas in, under or upon any land in
Nigeria or in, under or upon the territorial waters and the exclusive economic
zone of Nigeria in the Government of the Federation.[1] The reason for this may
not be unconnected to the fact that ever since crude oil was first discovered
in Nigeria, the Sector has grown to become the largest revenue and foreign
exchange earner for the country. The Power Sector is also effectively under the
supervision of the Federal Government notwithstanding the fact that power is a
matter in the concurrent legislative list and should thus be within the
competence of both the Federal Government and State Governments.[2] This is because the scope
of powers granted to the Federal Government on electric power is wider than
that granted to the State Governments. In any case, the doctrine of covering
the field is apposite and of full validity in Nigeria, meaning that even where both
the Federal and State Government validly enact laws on power, the Federal law
will supersede the State Laws and the State Laws will be kept in abeyance until
the Federal law is repealed.

The Oil & Gas Sector

Oil
was first discovered in Nigeria in commercial quantities in the year 1956 in
Oloibiri – present day Ogbia Local Government Area of Bayelsa State.
Thereafter, more discoveries were made in Afam and Bomu in Ogoni Territory of
present day Rivers State. By 1960, a total of Eight Hundred and Forty Seven
(847,000) tonnes of crude oil had been exported. Presently, Nigeria’s daily
production of crude oil is between 1.8million bpd – 2.1million bpd with a
maximum crude oil production capacity of 2.5million bpd.[3]

 

Furthermore,
according to a report by the Department of Petroleum Resources[4], majority of Nigeria’s oil
and gas assets are located in the Niger Delta region with seventy- eight (78)
of the One Hundred and Fifty Nine (159) oil fields in Nigeria. Similarly, two
of the three crude oil refineries in Nigeria are also located in this region:
the Warri Refinery and Petrochemical Company situate in Delta State; and the
Port-Harcourt Refining Company Limited situate in Rivers State. Both refineries
are owned, managed, and operated by the Nigerian National Petroleum Corporation
(NNPC), the Federal Government owned State Oil Company.

As
earlier pointed out, all oil and gas resources within the territory of the
country is vested in the Federal Government as of right. Accordingly, any
private investor that wishes to participate in the exploration and exploitation
of these resources must do so with the consent and approval of the Federal
Government first had and obtained. These consents and approvals are issued only
to a company incorporated in Nigeria under the Companies and Allied Matters Act
and  are broadly of three kinds: the Oil
Exploratory License (OEL); the Oil Prospecting License (OPL); and the Oil
Mining Lease (OML).

Oil
Exploration Licence

An
Oil Exploration Licence (OEL) is granted by the Minister charged with the
responsibility for petroleum matters under the powers conferred by Section
2(1)(a) of the Petroleum Act and it confers the holder with the right to
conduct preliminary exploration surveys. The scope of grant as well as the
permissible activities within the purview of this Licence are succinctly set
out by Section 15(1) of the same enactment.[5] Similarly, the legal rules
governing the issuance and operation of an Oil Exploration Licence
are found in Paragraph 1 of the First Schedule to the Petroleum Act. The Licence
which is non-exclusive, is granted for a period of one year and subject to
renewal annually.[6]

Additionally,
the Licence is granted only in areas over which there are no existing rights,
such as Oil Prospecting Licences and Oil Mining Leases. However, the grant of
an Oil Exploration Licence in respect of any area does not preclude the grant
of another Oil Exploration Licence or of an Oil Prospecting Licence or an Oil
Mining Lease over the same area or any part of it.

Oil
Prospecting License

An
Oil Prospecting License (OPL) allows for more extensive exploration surveys. It
is an exclusive licence given for a period not exceeding 5 years for land and
territorial waters areas and seven years for continental shelf and Exclusive
Economic Zone areas including any renewal periods. It includes the right to carry
away and dispose of oil discovered while prospecting.[7] As stated in section 15(1)
of the Petroleum Act, “prospect” in relation to petroleum, means the search for
petroleum by all geological and geophysical methods, including drilling and
seismic operations.

Essentially,
petroleum prospecting is the search for commercially valuable accumulations of
petroleum.[8] The grant of this Licence
is made by the Minister by virtue of his powers under section 2(1)(b) of the
Petroleum Act following a successful open bidding exercise. An OPL granted to a
foreign company is typically issued with a covenant by the foreign company to
assign the OPL to the NNPC upon making a commercial discovery. The foreign
company will subsequently enter into a joint venture arrangement, production
sharing contract or a risk service contract with the NNPC.

Oil
Mining Lease

The
grant of an Oil Mining Lease (OML) allows for full scale commercial production upon
the discovery of oil in commercial quantities (currently defined as a flow rate
of 10,000bpd)[9].
This right is granted by the Minister by virtue of his power under Section 2(1)(c)
of the Petroleum Act. The Lease confers the exclusive right to carry out
prospecting, exploration, production and marketing activities in and under the
specified acreage for a period not more than 20 years upon the payment of
royalty reserved therein among other considerations to the Federal Government
of Nigeria.[10]

It
is useful to note that an Oil Prospecting Licensee who has fulfilled the work
commitment according to Paragraph 30 (b) and 31 of the Petroleum (Drilling and
Production) Regulations of 1969 and the conditions otherwise applicable to the
individual License may request that the License be converted to an OML. However,
an OML will only be granted upon confirmation of the potential for economic
production of petroleum from the licensed area. Only the holder of an OPL is
entitled to apply for conversion of an OPL to an OML, through the DPR for
approval.

Regulatory Agencies

The
Oil and Gas Sector is a highly regulated Sector with several government
agencies assuming supervision over players and stakeholders in the Sector. Some
of the key agencies are:

The
Ministry of Petroleum Resources

The
Ministry of Petroleum Resources acting through the Minister of Petroleum
Resources Resources exercises general supervision over all petroleum operations
carried on under licences and leases issued under the Petroleum Act[11] and may make regulations
prescribing anything required to be done under the Act.[12] Likewise, the Minister of
Petroleum Resources is by virtue of the Petroleum Act,[13] the competent authority
to issue the respective licences for oil exploitation in the country.

The
Department of Petroleum Resources (DPR)

The
DPR is an arm of the Ministry of Petroleum Resources established with the
primary aim of monitoring and ensuring compliance with the terms governing the
award of licenses to companies engaged in petroleum operations as well as
compliance with international Sector standards and practices. In the same vein,
the DPR issues permits called Oil and Gas Sector Services Permits (OGISP) which
could either be in the form of general, major and specialized permits to oil
and gas companies without which they would be unable to operate in the Sector.

The
Nigerian National Petroleum Corporation (NNPC)

The
NNPC is the Federal Government owned Oil Company established to undertake the
exploration of crude oil on behalf of the Nigerian State, and protect the
interest of the Federal Government in the oil and gas Sector. Typically, the
NNPC collaborates with other private owned oil companies in the exploration of
oil and gas resources,[14] albeit retaining the
majority interest and control over the oil and gas asset concerned. This
collaboration may be in the form of a Joint Venture Agreement (JVA) which is
the most common especially for oil and gas assets onshore, Production Sharing
Contracts (PSC) typically employed for offshore oil and gas assets, amongst
others.

Nigerian
Content Development and Monitoring Board (NCDMB)

The
NCDMB implements and ensures compliance with the provisions of the Nigerian
Oil and Gas Sector Content Development Act of 2010 also called the Nigerian
Local Content Act.[15] The Act was enacted with
the sole aim of providing for the development of indigenous content and
expertise in the Nigerian Oil and Gas Sector by ensuring that priority would be
given to indigenous service companies.[16] The Act also makes
obligatory the utilization of Nigerian human and material resources for the provision
of goods and services in the Petroleum Sector with acceptable quality, health,
safety and environmental standards in order to stimulate the development of
indigenous capacities.[17]

The Electric Power Sector

The
history of electricity development in Nigeria can be traced back to the end of
the 19th Century, when the first generating power plant with a total capacity of
60kW was installed in Marina, Lagos, in 1896. As of today, the country has a
total installed capacity of 12,522MW out of which 85% is produced by gas while
the remainder is produced by hydro-electric and coal sources.

It
is also worthy of mention that prior to recent reforms, the Electric Power Sector
was highly centralized and monopolized by the Federal Government acting through
the then National Electric Power Authority (NEPA). Unsurprisingly, NEPA
unilaterally controlled all aspects of the generation, transmission and
distribution sectors of the Sector up until the deregulation of the Sector which
led to the unbundling of NEPA and its successive holding company – Power
Holding Company of Nigeria (PHCN) in 2013. The PHCN was unbundled into 18
companies as follows: six (6) generating companies, one (1) transmission
company (i.e. Transmission Company of Nigeria-TCN), and eleven (11)
distribution companies. Of these, only the TCN is solely owned by the Federal
Government, while the Federal Government’s interests in other companies formed
from PHCN has been significantly reduced by the Government’s divestment of its majority
interest to private individuals. This unbundling process marked the climax of
reforms initiated in the Sector.

Under
the new framework pursuant to the enactment of the Electric Power Sector Reform
Act 2005, private investors who intend to participate in the Electric Power Sector
are required to obtain licences from the Nigerian Electricity Regulation
Commission. Specifically, Section 62 (1) of Electric Power
Sector Reform Act (EPSRA) 2005 provides that any person intending to engage in
the business of electricity generation, transmission, system operation,
distribution or trading shall be required to obtain an operator’s licence from
the Nigerian Electricity Regulation Commission. On the basis of this section,
the following are the various permits that are obtainable under the Nigerian
regulatory regime:

Generation
Licence

A
Generation License authorises the licensee to construct, own, operate and
maintain a generation station for purposes of generation and supply of
electricity in accordance with the Electric Power Sector Reform Act, 2005.[18] Notably, an Electricity Generation
License is only required for any power generation activity above 1MW. An
Electricity Generation Licence could either be On-Grid, where the holder is
expected to enter into an agreement with the TCN for connection, evacuation,
and wheeling of the power to the national grid; Embedded, where the holder generates
power and evacuates through either the existing distribution facilities of a
distribution licensee (privatized Discos) or through an independent
distribution licensee; or Off-Grid, where the Licensee generates and sells
power directly to a single buyer. 

Transmission
Licence

This
is a Licence granted under Section 65 (1) of the ESPRA, and it authorizes the licensee
to undertake grid construction, operation and maintenance of a transmission
system within Nigeria, or to set a transmission system that connects Nigeria
with a neighbouring country.

System
Operation Licence

A
System Licence is granted under Section 66 (1)(a-e) of the ESPRA and it
authorizes a licensee to undertake system operation activities as specified in
the Licence such as: generation scheduling; commitment and dispatch; transmission
scheduling and generation outage co-ordination; transmission congestion
management; international transmission co-ordination; procurement and
scheduling of ancillary services and system planning for long term capacity;
administration of wholesale electricity market among others.

Distribution
Licence

A
Distribution Licence is granted under Section 67 (1) of the Act and it authorizes
the holder to distribute electricity from grid supply points to the point of
delivery to consumers or eligible customers. Furthermore, a distribution licensee
is empowered to construct, operate, and maintain a distribution system and
facilities for the purpose of supplying their customers electricity;
installation, maintenance and reading of meters; billing and collection of bill
payments; and other distribution services as may be prescribed.

Trading
Licence

This
is a Licence granted under Section 68 (1) of the Act and it permits the licensee
to engage in the purchase and resale of electrical power and ancillary services
from power generation companies and independent power producers to their
eligible customer.

Regulatory Agencies

Some
of the key regulatory agencies of the Nigerian Electric Power Sector are:

Nigerian
Electricity Regulatory Commission (NERC)

The
NERC was established under Section 31 of the EPSR Act as an independent
regulatory agency and charged with the responsibility of regulation and overall
co-ordination of the activities of the electricity sector in Nigeria. The NERC
also licenses persons engaged in generation, transmission, and distribution of
electricity in the country as well as determines electricity tariffs upon
consultation with relevant stakeholders. Some of the general objectives of the
NERC include: to create, promote and preserve efficient Sector and market
structures and to ensure optimal utilization of resources for the provision of
electricity services; to create, promote and preserve efficient Sector and
market structures and to ensure optimal utilization of resources for the
provision of electricity services; to ensure that regulation is fair and
balanced for licensees, consumers, investors and other stakeholders.

Energy
Commission of Nigeria (ECN)

The
Energy Commission of Nigeria (ECN) was established under Decree No. 62 of 1979
as amended[19]in
1988 with the statutory mandate for strategic planning and coordination of
national policies in the field of energy. The functions of the ECN include to serve
as a centre for gathering and dissemination of information relating to national
policy in the field of energy; to inquire into and advise the Government of the
Federation or the State on adequate funding of the energy sector including
research and development, production and distribution; to monitor the
performance of the Energy Sector in the execution of government policies on
energy; to serve as a centre for providing solutions to inter-related technical
problems that may arise in the implementation of any policy relating to the
field of energy.

Transmission
Company of Nigeria (TCN)

Nigeria
operates a centralized national grid managed by the TCN under a technical
service contract with Manitoba Hydro International. The TCN is solely owned by
the Federal Government and undertakes the following licensed activities:
electricity transmission; system operation; and electricity trading.

 

Nigerian
Bulk Electricity Trading Plc (NBET)

The
NBET is a government-owned public liability company established in accordance
with the provisions of the EPSR Act as an electricity trading licensee that
engages in the purchase of electrical power and ancillary services (from
independent power producers and the successor generation companies) and
subsequent resale to distribution companies and eligible consumers. The primary
objective of the NBET is to ensure bankability of the Electricity Sector.

The Mining Sector

Nigeria
is blessed with abundant mineral resources spread out in all parts of the country.
Some of these resources with significant deposits in the country include: Coal,
Iron Ore, Lead/Zinc, Tin, Gold, Gypsium, Uranium amongst other. Section 1(1) of
the Nigerian Minerals and Mining Act, which is closely worded with Section
44(3) of the Constitution of the Federal Republic of Nigeria, provides that:

the entire property in and control of
all mineral, in, under or upon any land in Nigeria, its contiguous continental
shelf and all rivers, streams and watercourses through out Nigeria, any area
covered by its territorial waters or constituency and the Exclusive Economic Zone
is and shall be vested in the Government of the Federation for and on behalf of
the people of Nigeria.

Accordingly,
based on the above quoted provision, exclusive proprietary ownership of
minerals is vested in the Federal Government of Nigeria. Furthermore, Section
2(1) of the Nigerian Minerals and Mining Act 2007 prohibits the conduct of any
mining activity in the country except in accordance with the requirements of
the Act. In the same vein, the Act provides that only a body corporate duly
registered in accordance with the Nigerian Companies and Allied Matters Act
(CAMA) 1990 may be granted a mining right. There are basically five types of
mining rights that may be issued under Section 46 of the Act to wit:

Reconnaissance
Permit

A
Reconnaissance Permit is granted for a period of one year and it authorizes the
holder to obtain access into, enter on or fly over any land within the
territory of Nigeria available for mining purposes to search for mineral
resources on a non-exclusive basis.

Exploration
License

An
Exploration Licence confers on the holder, exclusive rights to conduct
exploration activities within the land area covered of not more than 200 square
kilometers for a period of 3 years subject to renewal for two further terms of
two years each.

Mining
Lease

A
Mining Lease grants the holder on an exclusive basis, the rights to access,
use, occupy and carry on mineral exploration within the mining lease area for a
period of 25 years subject to renewal on the 24^th anniversary of
each term upon compliance with the terms of the current lease.

Quarry
Lease

A
Quarry Lease confers the holder with the rights to carry out quarrying
operation including the excavation and disposal of quarriable minerals such
asbestos, china clay, gypsum, marble, etc over a land area not more than 5
square kilometers for a period of 5 years subject to renewal.

Small
Scale Mining Lease

A
Small Scale Lease is granted over am area not less than 5 acres but not
exceeding 3 square kilometers and the terms of its grant is as determined by
the Small Scale and Artisanal Mining Department of the Ministry of Solid
Mineral and Department.

Regulatory Agencies

Pursuant
to the reforms initiated in the Natural resources Sector following the
enactment of the Nigerian Minerals and Mining Act 2007, the following are the
key agencies with oversight roles over the Sector:

The
Ministry of Solid Minerals

The
Minister of Mines and Steel Development is charged with the overall
administration of the mining industry including the issuance of Mining Leases
to investors in the Sector.

The
Mining Cadastre Office (MCO)

The
MCO considers, processes and issues applications for mineral titles excluding
Mining Lease, and maintains cadastral registers. The MCO is also responsible
for reviewing, suspending, and revoking mineral titles; receiving and disposing
applications for renewal, extension of mining area amongst others.

Mines
Inspectorate Department (MID)

The
primary function of the MID is the supervision of all reconnaissance,
exploration and mining operations with a view to ensuring that they comply with
the provisions of the Act. The MID also monitors and ensures strict compliance
by mining title holders with extant rules and regulations relating to health
and safety, mining operations amongst others.

Conclusion

Nigeria
is richly endowed with Natural Resources, much of which is yet to be harnessed.
Presently, the proven reserves of crude oil in the country is about 25 billion
barrels making it the world’s 10^th largest reserves.[20] The country also has huge
deposits of natural gas of about 184 Trillion Cubic Feet representing 38% of
Africa’s reserves, and 2.6% of global reserves.[21] Equally, there are
numerous potentials in the Electric Power Sector particularly as regards power
generation, transmission, and distribution. This is because with a population
of 180million, and daily power generation averaging between 3,000 – 5,000
megawatts, Nigeria is in deficit of her energy needs. This portends uncommon
opportunities for investment with high prospects for profitable returns in this
Industry. Interestingly, all these three sectors: the Oil and Gas Sector; the
Electric-Power Sector; and the Mining Sectors have all witnessed reforms in
recent years which has introduced efficiency, with less bureaucratic hurdles in
the operations and management of these Sectors. This is more so coupled with
the Federal Government’s ease of doing business initiative which is aimed at
attracting foreign investment to the country.[22] Indeed, it is without a
doubt that Nigeria is prepared and positioned for high-yield investments in her
Energy and Natural Resources Industry.