The Gas Flaring (Prohibition and Punishment) Bill 2016 is currently being considered by the Senate for possible passage into law. The Bill, among other things, seeks to make provisions for the prohibition of gas flaring in any oil and gas production operation, blocks, field, onshore or offshore, and gas facility treatment plant in Nigeria. The Bill is made to apply all over Nigeria, and shall also apply to the Exclusive Zone, Free Trade Zones, and all the land in Nigeria, including land under the territorial waters of Nigeria, or that forms part of the continental shelf, or that forms part of the Exclusive Economic Zone of Nigeria. It is worthy of note that this is not the first attempt to legislate on gas flaring in Nigeria. In 1979, the Associated Gas Re-injection Act was enacted. The Act, in the main, prohibited gas flaring and fixed the flare-out deadline for January 1, 1984. However, this was not to be, as the deadline was subsequently moved to December 2003, then to 2006, to January 2008 and then December 2008. Also, on July 2, 2009, the Senate passed the Gas Flaring (Prohibition and Punishment) Bill 2009 (SB. 126) into law, which fixed the flare-out deadline for December 31, 2010. The Petroleum Industry Bill fixed it for 2012. The Gas Flaring (Prohibition and Punishment) Bill 2016, which is, in many respects, a reproduction of the 2009 bill, has also fixed the flare-out deadline for December 2016.
On the international level, there are also measures put in place to curb gas flaring globally. Some of such measures include the World Bank’s Global Gas Flaring Reduction Partnership and the Zero Routine Flaring by 2030 Initiative.Prohibition and cessation of gas flaring. Section 1 of the bill prohibits the flaring or venting of natural gas in any oil and gas production operation as soon as the Act comes into effect. Vide Section 4, no company engaged in the production of oil and gas shall flare gas after December 31, 2016. There are only two instances where gas is permitted to be flared under the bill. First is where flaring or venting is technically and economically justified. Second is in the case of start-up, equipment failure, shut down or safety flaring, in which case a permit must be obtained from the Minister of Petroleum Resources, and which permit must not last for more than 30 days. This is the only instance where the minister is empowered to permit gas flaring, as the bill takes away from the minister the general powers to permit gas flaring as vested in him by Section 3 of the Associated Gas Re-injection Act, 1979 (now CAP A26, Laws of the Federation of Nigeria, 2004).
Restrictions on grant of licences or leases
Section 8 of the bill makes it a condition that an application for the grant of an oil production license or oil mining lease must be accompanied with a comprehensive programme acceptable by the minister, for the utilisation of natural gas for general, domestic and export purposes. The utilisation programme must be in consonance with the National Gas Master Plan, domestic supply obligation, and national policies as may be made in respect of the gas sector from time to time by the Federal Government. Also, the bill prohibits the establishment of an oil and gas facility in Nigeria without the authorisation of the minister first obtained for the design, commissioning and production phases of the facility. The application for authorisation in each of these phases must cover issues of gas flaring and venting, flaring and venting assumptions and the methods of their calculations and a forecast of volumes for the flare and vent categories specified in the bill.
Obligations on operators, licensees and lessees
Licensees or lessees operating oil and gas fields in Nigeria before the commencement of the Act are mandated to, within three months of the commencement of the Act, submit to the minister a feasibility study, programme or proposals that they have for the gathering, utilisation and re-injection of any natural gas, whether associated with oil or not, which has been discovered in the relevant area. A licensee or lessee who is of the view that the gas produced from his field cannot be re-injected or utilised is required to shut the field. The bill imposes on operators with flared gas resources the obligation to within 90 days of its passage, categorise all of their flared gas resources and submit same alongside the gas utilisation plans to the minister before the flare out deadline. The minister is required to approve same within 60 days of receipt of the said plan, and make public all approved plans and all the data of the unplanned natural gas resources. Third party companies with commercial uses for the unplanned gas resources are permitted to bid for them within a period of 120 days of the minister making public the data of the unplanned natural gas resources. Within 60 days of their bidding for same, the minister shall review the bids and contracts with eligible bidders and it shall be signed for long-term access to these gas resources. All gas which remains unplanned for are required to be shut in or re-injected within one year of the finalisation of the third party contracts.
Also, each licensee or lessee is required, within three months from the commencement of the Act, to install the metering equipment as may be specified from time to time by the minister on every facility in its operation from which gas is flared or vented. The minister is expected to set annual flare reduction targets. Every licensee or lessee is required to meet this target. A fine is imposed for non-compliance, and is measured by the cost of gas at the international market.
Incentives for compliance
The bill makes provisions for special considerations to be given to entities that comply with its provisions. In this regard, under Section 15, all infrastructural projects undertaken to support a flare out will be entitled to five years tax exemption and other concessions as may be granted by the government. Also, all projects aimed at producing for the Nigerian market shall enjoy a five-year corporate tax exemption, land or equivalent of the cost of the land in tax deductions from VAT, tax write-off for insurance policy premium for five years after commissioning projects employing above 200 Nigerians or that has at least 40 per cent Nigerian equity ownership.
Penalties
The bill imposes various penalties for non-compliance with its provisions. These penalties include payment of fines at the cost of gas at the international market at any point in time, forfeiture of concessions granted and issuance of a Certificate of Forfeiture and revocation of the licence or lease under which the field or group of fields from which the violation occurred. Any penalty imposed is required to be made public, and where it is a fine for gas flaring after the flare-out deadline, then the operator of the field or group of fields is required to pay an amount equivalent to 50 per cent of the fine imposed as compensation to the local government council for community development activities in the adjoining communities where the gas flare or vent activity is perpetrated.
Conclusion and recommendations
The Gas Flaring (Prohibition and Punishment) Bill 2016 is another attempt to legislate on gas flaring in Nigeria. As history has taught us, more efforts should be channeled to enforcing, rather than enacting legislation. What happened to the gas flare tracking system launched with much fanfare by the government in November 2014?
It is also important that the issues that have made stoppage of gas flaring in Nigeria almost impossible since 1979 be addressed head on. In this regard, elaborate consultation with relevant stakeholders should be undertaken. I am aware that the sponsor of the bill, Senator Bassey Akpan, who is the Chairman, Senate Committee on Gas, has been involved in extensive industry stakeholder engagement on these issues. However, the bill doesn’t seem to embody a significant change from the current legislative status quo. Currently, oil companies pay fines for flaring gases. They are also at the risk of forfeiting concessions granted them under Section 4 of the Associated Gas Re-injection Act.
However, this hasn’t stopped gas flaring since 1979, and oil companies have paid billions of naira fines to the government. What is the likelihood that mere imposition of fine and threat of forfeiture of concessions under the bill can deter gas flaring, particularly where it is considered more economical to flare gas? What is the possibility that oil companies would not just continue the tradition of paying fines and continuing gas flaring?
Also, some provisions of the bill might need further clarifications. For instance, Section 4 of the bill seems to suggest that gas flaring is permitted after December 31, 2016 where it is economically and technically justifiable, without specifying, defining or stipulating the instances when flaring can be said to be economically and technically justifiable. This is a loophole that can be exploited to flare gas.
Another provision of the bill that needs clarification is Section 15(2). The section grants incentives for “all projects aimed at producing for the Nigerian marke,” without specifying what production is contemplated. Does it contemplate all projects aimed at producing gas for the Nigerian market, or all projects aimed at general production of gas for the Nigerian market, or all projects aimed at producing gas that otherwise would have been flared or vented, for the Nigerian market? This needs to be clarified.
Obviously, the flare-out deadline would be reconsidered. Perhaps it might be worth considering the possibility of leaving out a flare-out deadline in the bill. Fixing flare-out deadlines has, over the years, proved to be highly ineffective and unrealistic. In this regard, it is suggested that the minister be empowered to fix the flare-out deadline within a stipulated time frame after the commencement of the Act. This way, operational, business and industry realities would be considered in fixing realistic deadlines, to ensure the bill does not end up like its predecessor.
Finally, while we had hoped for a single piece of legislation for the Nigerian petroleum industry, the lawmakers seem to be thinking differently. First it was the Petroleum Industry Governance Bill, and now the Gas Flaring (Prohibition and Punishment) Bill. In the end, whatever legislative approach is deemed most suitable is welcomed, provided there are effective mechanisms for enforcing the legislation, because in the end, the efficiency of laws is determined not from their content but from their enforceability.
Declan, is a lawyer and Editor, Energy Law Review, and writes from Lagos. He originally wrote this article for the Punch Newspaper.