Tuesday, April 24, 2012

Beyond the PIB- Regulatory Impact Assessment in Nigeria

By Feso Bright - Community Moderator
I have attended three industry events (2 Oil & Gas themed, 1 Agriculture themed) within the past week that have reinforced - to my thinking - the state of flux in Nigeria's business circles. However, more exciting is the recent spate of revelations from the Nigeria House of Representatives Ad-hoc Committee to 'verify and determine the actual subsidy requirements and monitor the implementation of the subsidy regime in Nigeria'. ‘Exciting’ is the million dollar word.....because I see so much opportunity emerging from these contemporary developments. Let me explain.

The 'Nigerian factor' is slowly changing; The Petroleum Club- Lagos recently hosted a Business Roundtable on Sustainable practices towards effective Oil Block/ Marginal Field Licensing rounds (largely anticipated to take place in 2012). The Lagos Oil Club also hosted two of Nigeria's finest private sector and public sector - offshore drilling and electricity- tsars
respectively to share their experiences in charting the course of excellence in the Nigerian Oil & Gas, Energy industry. Finally, ThistlePraxis Consulting and Etisalat hosted Sustainable Conversations on the Nigerian Agriculture Sector. In all these events was a central theme- a redefinition of the very DNA of the Nigerian factor: a COMMITMENT to structured approaches industry challenges, a FOCUS on strategic conversations, collaboration, stakeholder engagement and sustainability.

I once sat under the voice of an industry senior with over 30 years of experience who told me that "Nigeria is a jungle and anyone that wants to play (do business in) the Nigerian Oil and Gas industry must be ready to play by the rules of the jungle"; another industry senior recently told me that "you cannot bring Karl Marx (Western theories of application) to Nigeria". With all sense of responsibility I appreciate these positions but I beg to differ. It is right to argue that every business has a context and those environmental factors such as the PEST/ PESTEL will make or mar any business plan devoid of its inherent merits. 
 
It is understandable that the 'Nigerian factor' as we know it will introduce significant add-on costs and requirements to any business endeavour via agency and rent seeking behaviour from rogue elements in the political class, social and host community disturbances, dearth of technology and infrastructural enablement, severe economic distortions occasioned sometimes in the name of national/ regional interests. The Nigerian factor has been notorious for being identified the 'elephant in the room' that no one can quite point a finger at; the inspiration for some of the most astute 'financial engineering' on this side of the planet; a nomenclature given to the Nigerian symptoms of a Resource Curse. In response to these seemingly insurmountable external factors many-a-business have opted to tow the path of least resistance and follow the crowd along a path where the doctrines of sound business principles, strategic management and implementation have no place. 

With the Nigeria subsidy brouhaha has come a tipping point in the way business will be done in the Nigerian Petroleum Industry. Companies, Ministries, Departments and Agencies of government have been indicted for doing business 'the-Nigerian-way', the 'this-is-Nigeria-way', the 'Western-principles-of-business-don't-apply-here-way'. This is not even a discussion about the application of ''western'' principles and theories of business in an African economy- rather it is about the application of "common-sense" business frameworks. This tipping point is exciting -not because companies and individuals are being indicted- but because there is an increasing realization that the current industry culture of business and regulatory practices is not sustainable. I believe strongly that this is one of the motivating factors behind the three events I earlier referred to- organized to reinstate best practice in the industries. Is this development a new realization? No! Is there general consensus on the redefinition of the Nigerian factor? Far from it! Then what is different- you might ask? The answer is simple: The Nigerian factor is changing.

The voice of the hitherto 'street-smart' Nigerian factor is slowly changing from the language of strong individuals to the language of strong institutions and more sustainable business. At one of the events in mention the Nigerian Petroleum Act of 1969 was singled out for vesting so much power in the hands of a single individual- with the right of the Nigerian Petroleum Minister to grant oil mining leases, oil exploration and prospecting licenses- on a discretionary basis being highlighted as responsible for severe distortions in the petroleum sector. Not everyone has the same position; one position I find quite misguided was two references to the Nigerian Agriculture Minister. The first was that Nigeria needs a "young, dynamic and progressive minister"; another made a request that the "government should not change the Agriculture minister in an impending cabinet reshuffle". This is not to understate the value of good or even great leadership in a ministry...but reference to the fact that "if you change the minister then all the good work goes with him.....a change in minister is a change in policy". It is clearly evident that Nigeria is currently run by strong/ powerful individuals and not strong institutions and regulations. Let us bring this home.

The Petroleum Industry Bill (PIB) in Nigeria was introduced in 2009 but has been described by some as dead on arrival, far-reaching, lacking consensus and so on. Since then the Petroleum Industry has continued to be in a state of flux. Another exciting side to this is that the passage of the bill is now looking more inevitable. The Hon. Farouk Lawan-led committee has indicted the NNPC (Nigerian National Petroleum Corporation), other government agencies and departments responsible for safe-guarding the national coffers for contributing to its plunder and mismanagement; private sector companies have been accused of conspiring with rogue public sector officials to plunder Nigeria's treasury by cheating the government through an uncontrolled and highly profligate subsidy regime. The truth of the matter is that in spite of the sordid revelations about the depth of rot in the Petroleum Sector no one has so far ascribed a nominal value to the overall benefits and costs of the PIB. The problems associated with the passing of the PIB may not necessarily be the PIB itself but the impact of the PIB- for which we have little by way of regulatory impact assessment. I stand to be corrected but if there is one, I am positive that it is not within wide circulation.

Strong economies such as the UK, EU, OECD countries have adopted Regulatory Impact Assessment as a way to ensure that, down to the last dollar value, costs and benefits of an existing or proposed regulation can be detailed and assessed. According to HRM-Treasury-UK:

 "An Impact Assessment is a policy tool which assesses the impact, in terms of costs, benefits and risks of any proposed regulation which could affect businesses, charities or the voluntary sector. The IA process helps policy makers to think through the consequences of proposals, improving the quality of advice to Ministers and encouraging informed public debate. A final IA is signed by the accountable Minister and placed in the House libraries when the regulation or legislation is presented to Parliament. IAs are attached to the Treasury's public consultations".

According to the OECD Directorate for Governance and Territorial Development: 

Regulatory Impact Analysis (RIA) is a systemic approach to critically assessing the positive and negative effects of proposed and existing regulations and non-regulatory alternatives. As employed in OECD countries it encompasses a range of methods. At its core it is an important element of an evidence-based approach to policy making. OECD analysis shows that the conduct of RIA within an appropriate systematic framework can underpin the capacity of governments to ensure that regulations are efficient and effective in a changing and complex world. Some form of RIA has now been adopted by nearly all OECD members, but they have all nevertheless found the successful implementation of RIA administratively and technically challenging. 

The culture of RIAs is not new, nor is it easy: - over 30 years in the US and about a decade in Europe. Within Africa, South Africa began to catch on from 2009. As for Nigeria, there is the need to come up with an RIA appendage to the PIB stating what the benefits and costs are. It is not enough for the country to have a body of laws with no specific, tangible and measurable benefits. We should be able to determine how much annual benefit the PIB will add to the national coffers and to the business sector. How much additional value will the PIB create from Nigeria’s acreage on an annual basis? What are the incremental benefits from the Production Sharing Contracts for the indigenous players, multinationals and treasury?

These are indeed exciting times because notwithstanding the negatives such as the notorious 'Nigerian Factor' there is the increasing realization that change is inevitable. Benjamin Disreali once said- "change is constant; and the great question is, not whether you should resist change which is inevitable, but whether that change should be carried out in deference to the manners, the customs, the laws and the traditions of the people, or in deference to abstract principles and arbitrary and general doctrines". Therefore, Nigerian factor or not, the petroleum industry is faced with the prospect of change – an opportunity beyond the Petroleum Industry Bill, focused on its regulatory impact for all stakeholders and for a sustainable future. Let us get talking as Nigeria needs strong, dynamic and progressive institutions- from the Agriculture sector to the Petroleum Sector. Indeed, proactive and progressive regulations will propel Nigeria into an era of properly structured markets for its industries and sectors- but let each of these regulations come with a regulatory impact assessment.

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