The Petroleum Industry Act: Progress, Pitfalls, Proposed Amendments And The Road

INTRODUCTION

From a regulatory, fiscal, and policy perspective, the introduction of Nigeria's Petroleum Industry Act ("PIA") in 2021 represented a comprehensive inflexion point for Nigeria's oil and gas industry. The PIA sought to promote the sustainable development of petroleum resources, ensure efficient and equitable resource management, and maximise socioeconomic benefits for the nation, with the hope that some of the systemic inefficiencies and challenges that previously plagued the sector for decades would be resolved.

A review of the progress made thus far is one of mixed fortunes. Significant successes have been recorded, most notably the establishment of two independent regulators, namely the Nigerian Upstream Petroleum Regulatory Commission ("NUPRC") for upstream activities and the Nigerian Midstream and Downstream Petroleum Regulatory Authority ("NMDPRA") for midstream and downstream activities, and the commercialisation of the Nigerian National Petroleum Corporation ("NNPC") into NNPC Limited.

This article assesses the PIA's implementation timeline by providing a preliminary assessment of its adoption and impact on Nigeria's oil and gas sector since its enactment. It will also discuss the challenges to full implementation before providing recommendations that relevant stakeholders can adopt.

Restructured Regulatory Landscape

The PIA's most significant institutional reform was the unbundling of the former Department of Petroleum Resources ("DPR") and the Petroleum Products Pricing Regulatory Agency ("PPPRA"), replacing them with new, more specialised entities. The NUPRC was established as the primary regulator for the upstream sector. ¹ , assuming the upstream functions of the defunct DPR. Concurrently, the NMDPRA was created to regulate the midstream and downstream petroleum sectors. ² . In a parallel move, the Nigerian National Petroleum Corporation (NNPC) has also morphed into a commercially-oriented, profit-driven entity, Nigerian National Petroleum Company Limited ("NNPC Limited")³ . NNPC Limited is now guided by the Companies and Allied Matters Act 2020 ("CAMA") and is no longer meant to depend on government funding, with expected declaration of dividends to its shareholders, the Ministry of Petroleum Incorporated and the Ministry of Finance. ⁴

Fiscal Reform and Lease Conversions

The PIA introduced a comprehensive overhaul of the sector's fiscal and licensing framework. Existing Oil Prospecting Licenses (OPLs) and Oil Mining Leases (OMLs) were replaced with Petroleum Prospecting Licenses (PPLs) and Petroleum Mining Leases (PMLs), respectively. The PIA's new fiscal regime replaces the previous, often-cited Petroleum Profits Tax (PPT) with a new Hydrocarbon Tax ("HT") and an updated Companies Income Tax ('CIT'). The HT is chargeable on the profits of onshore and shallow water operations. ⁵ at a rate of 30% for PMLs and 15% for PPLs, while profits from deep offshore projects are not subject to the HT⁶ . Instead, companies with upstream deep offshore operations are subject to the CIT. Notably, the PPT regime remains in effect until the expiration of the license or a voluntary conversion of icenses occurs. The PIA allows the holders of these licenses to voluntarily opt into the new regime, but they are not required to do so automatically.

While these new tax and licensing frameworks were designed to be more competitive and attractive to foreign investors, their full impact has been blunted by a few factors. The perception of "shifting fiscal parameters," such as the new tax act limiting tax deductibility for decommissioning funds⁷ , continues to limit investor confidence and has created a climate of policy inconsistency that may discourage longterm planning by existing operators.

Host Community Development Trusts (HCDT)

A centrepiece of the PIA's social provisions is the HCDT. ⁸ , a legal framework designed to foster sustainable prosperity for host communities and build lasting peace between operators and communities. The HCDT was introduced to supplant the previous, often-criticised Global Memoranda of Understanding model, which lacked legal backing and a transparent funding mechanism. Under the HCDT, settlors (licensees and lessees) are legally mandated to make a mandatory annual contribution of 3% of their preceding year's operating expenses to the trusts. The primary goal is to ensure that communities directly impacted by oil and gas operations receive tangible benefits and are incentivised to safeguard industry assets.⁹

Implementation has progressed significantly since the Act's passage, with the NUPRC reporting the incorporation of 184 applications for HCDT incorporation, with 167 of these applications approved. As a result, 146 trusts have been successfully registered with the Corporate Affairs Commission ('CAC'). Crucially, this legal structure has translated into a flow of funds for community projects, with over N97.9 billion and $149.4 million remitted to host communities for development initiatives, and 102 trusts having opened and funded accounts.10 The HCDT has also reportedly helped to reduce vandalism, pipeline theft, and communal unrest, creating a shared interest in asset protection.

Gas Development Incentives

In line with global energy trends, a key objective of the PIA is to harness Nigeria's vast gas reserves and promote gas as a strategic "fuel for national development" and a cleaner transition fuel. The change in nomenclature from "Oil" to "Petroleum"¹¹ in the new licenses and leases was designed to explicitly represent gas as a standalone and independent target for investors. The PIA has enabled the advancement of several significant gas projects. The Nigeria-Morocco Gas Pipeline (NMGP), a landmark $25 billion project led by NNPCL¹² , which had a Final Investment Decision (FID) originally set for December 2024, will now potentially be completed in 2025¹³ . Furthermore, the Nigeria LNG Train 7 project is 80% complete and is scheduled for commissioning in 2027¹⁴. This expansion will boost Nigeria's total LNG capacity from 22 to 30 million tonnes per year, a critical step toward achieving the goals of the "Decade of Gas"

strategy launched in 2021¹⁵. The PIA also established the Midstream and Downstream Gas Infrastructure Fund¹⁶ to finance domestic midstream gas infrastructure, further demonstrating a commitment to developing the domestic gas sector.

It is equally important to note the introduction of a comprehensive gas pricing framework to establish a viable domestic gas market. The PIA has mandated the NMDPRA to determine the Domestic Base Price ('DBP') for natural gas. ¹⁷, as well as wholesale prices for strategic sectors such as power and gas-based industries. The NMDPRA has since issued the Gas Pricing and Domestic Demand Regulations in 2023, which are designed to be "market-based" but are guided by principles that ensure the price is sufficient to voluntarily attract upstream producers to supply the domestic market. ¹⁸ . It is intended to address the historical challenge where gas suppliers prioritised the more lucrative international markets, leading to shortfalls in domestic supply. ¹⁹ .

THE PETROLEUM INDUSTRY ACT 2021: PITFALLS

Slow Pace of Adoption and Fiscal Hurdles

The PIA permits holders of existing OPLs and OMLs to voluntarily convert to the new PPL/PML regime within 18 months of the Act's effective date. ²⁰. This voluntary conversion, however, comes with a significant caveat: holders of OMLs who convert before the end of their term may be required to relinquish up to 60% of their OML area. The rate of conversion has been slower than anticipated. Based on recent reports, NUPRC had approved the conversion of 27 contracts, including 16 OMLs for NNPC and its partners. ²¹. The list of approvals indicates that while some conversions have occurred, the overall pace suggests a cautious approach from operators. This hesitation is not without merit. Companies are required to carefully evaluate the trade-offs of switching to the new regime, considering the specifics of their assets and the potential for reduced acreage.

Host Community Trust Tensions

While the HCDT framework has also demonstrated tangible progress²² Several operational hurdles have delayed and complicated the process. The implementation process of the HCDT framework has been complicated by a lingering legacy of distrust between operators and communities. The formation of trusts is often delayed by petitions and legal disputes, frequently driven by competing community factions or political elites seeking to dominate the boards of trustees. There is also a concern about transparency in the calculation and disbursement of funds. Some community stakeholders have reported a lack of input in the community needs assessments conducted by the settlers, raising questions about whether projects truly reflect the priorities of the local population.

Gas Development Shortfalls

One of the primary issues is the persistent problem of gas flaring. Despite the PIA and previous regulations aimed at eliminating this practice, Nigeria remains one of the top gasflaring countries globally. ²³ The legal and institutional frameworks are in place, but their enforcement remains weak due to a lack of political will and insufficient infrastructure.

Historically, the penalties for flaring were too low to serve as a real deterrent. Furthermore, even with these low penalties, some producers have not paid them in full or at all, indicating a major gap in enforcement and compliance. Another key shortfall lies in the domestic gas supply obligation. ²⁴²⁵. While this domestic gas obligation aims to promote gas as a fuel for national development, its effectiveness is undermined by the fact that many gas suppliers have not been compliant because they have prioritised more lucrative international sales over the domestic market, leading to a significant shortfall in gas availability for local consumption.

Revenue Gaps

A major point of contention is the PIA's provision that allocates 30% of NNPC Limited's profits from production sharing, profit sharing, and risk service contracts for a new Frontier Exploration Fund. ²⁶. Critics argue that this provision may undermine Section 162 of the 1999 Constitution, which mandates that federal revenues be deposited into a Federation Account for distribution among the three tiers of government (federal, state, and local). The retention of this 30% by NNPC Ltd could significantly reduce the oil revenue accruing to the Federation Account, making it difficult for the various government bodies to meet their statutory obligations.

EMERGING CALLS FOR AMENDMENT

Perhaps most telling, since its enactment, the PIA is already facing pressures for revision. Proposed amendments currently under consideration include transferring the government's concessionaire role in Production Sharing Contracts ('PSCs') and Risk Service Contracts from NNPC Limited to the NUPRC; restructuring the ownership of NNPC Limited by vesting all shares solely in the Ministry of Finance Incorporated ('MOFI'); raising HCDT contributions from the current 3% to as high as 10% of operators' operating expenses; and revising provisions governing integrated upstream–midstream operations to require joint regulatory oversight by NUPRC and NMDPRA. While advocates of the amendments argue they could enhance transparency, streamline ownership, and provide greater benefits to host communities, critics warn they risk eroding the balance carefully struck by the PIA. Concerns include the possibility of regulatory capture if NUPRC becomes both regulator and concessionaire, diminished corporate autonomy for NNPC Limited, and a perception of instability that may deter future investment. That amendments to the PIA are already being reconsidered highlights both the ambition of the reform and the persistent structural tensions in Nigeria's petroleum governance framework.

RECOMMENDATIONS AND CONCLUSION

For the PIA to fully deliver on its promise of a revitalised and competitive petroleum sector, the government must first resolve fundamental structural challenges. This includes addressing regulatory ambiguities through targeted legal amendments to eliminate overlaps between NUPRC and NMDPRA, thereby creating a single, streamlined point of contact for investors. Equally important is the need to restore macroeconomic stability by stabilising the naira and ensuring reliable access to foreign exchange, without which private marketers cannot re-enter the downstream sector to drive competition and efficiency.

At the same time, political and industry leaders must enhance policy consistency and resist the temptation of frequent legislative or executive interventions that alter fiscal terms. The fact that substantive amendments are already being proposed—ranging from raising host community contributions to restructuring NNPC Limited's ownership and altering regulatory roles— illustrates both the ambition of the Act and the fragility of its implementation. While fine-tuning is sometimes necessary, frequent shifts risk creating an environment of policy instability that undermines investor confidence. Long-term success requires a careful balance between adapting to realities and preserving predictability.

Finally, the PIA's HCDT framework and broader governance structures must be strengthened to ensure inclusivity, accountability, and trust. This calls for mandatory publication of audited accounts, deeper involvement of host communities in decision-making, and protection from political interference. Alongside this, a robust security strategy is needed to address crude oil theft and corruption, combining community-led security initiatives with strict enforcement and penalties for non-compliance. Only by reinforcing these institutional, economic, and governance pillars can the PIA evolve from a legislative milestone into a genuine engine for sectoral transformation.

Footnotes

1 Section 4 of the PIA

2 Section 29 of the PIA

3 Section 53 of the PIA

4 Section 53 (3) of the PIA

5 Section 260 of the PIA

6 Section 260 (3) of the PIA

7 Based on the combined reading of Section 68(1e) and Section 86(a) and 86(b), the Nigeria Tax Act 2025 significantly limits the tax deductibility for decommissioning funds. For upstream operators, any surplus in the fund will be taxed back at the end of the project's life. For licensees and lessees, the deductibility is now conditional upon depositing at least 30% (86a) of the fund into a regulated escrow account with an accredited Nigerian bank. Failure to meet these specific requirements will result in the contribution to the fund being disallowed as a tax-deductible expense.

8 Section 240 (1) of the PIA

9 Section 243 (2) of the PIA

10 Keynote address delivered by Engr. Olatokuno Karimu, Assistant Director and Head of the Host Community Development Branch at the NUPRC during the 2025 HCDT Roundtable held in Lagos, themed 'Four Years After the Petroleum Industry Act: Rethinking the Experience, Restating the Future: https://www.majorwavesenergyreport.com/stakeholders-hailhcdts-impact-on-host-communities/

11 Section 70 of the PIA

12 NUPRC's 2025 Action Plan – https://www.nuprc.gov.ng/wpcontent/uploads/2025/01/Upstream-Gaze-Magazine-Vol.-8.pdf

13 Nigeria-Morocco Gas Pipeline Project set for next phase: https://pumps-africa.com/nigeria-morocco-gas-pipeline-projectset-for-next-phase/#:~:text=to%20South%20Sudan- ,Special%2Dpurpose%20company,Africa%2C%20and%20the%20A tlantic%20basin.&text=The%20pipeline%20itself%20will%20span ,energy%20access%20in%20the%20region

14 The Nigeria LNG Project Train – https://www.nlng.com/train7_project/index.html

15 NUPRC: The future of Nigeria's Petroleum Industry – https://www.nuprc.gov.ng/wpcontent/uploads/2025/06/Upstream-Gaze-Magazine-Vol.-9-8.pdf

16 Section 52 of the PIA

17 Section 33 of the PIA

18 Regulation 8(1) of the Gas Pricing and Domestic Demand Regulations

19 Gas Development and Utilisation Under the Petroleum Industry Act by Advocaat Law Practice: https://advocaat-law.com/wpcontent/uploads/2023/12/GAS-DEVELOPMENT-ANDUTILISATION-UNDER-THE-PETROLEUM-INDUSTRY-ACT.pdf

20 Section 92 (4) of the PIA

21 NUPRC Conversion Contracts – https://www.nuprc.gov.ng/conversion-contracts/

22 Host Community Trusts receive N97billion Development Fund – http://energyinsights.ng/host-community-trusts-receive-n97bn149m-development-fund-nuprc/

23 World Bank Global Gas Flaring Tracker Report – https://thedocs.worldbank.org/en/doc/1f7221545bf1b7c89b850 dd85cb409b0-0400072021/original/WB-GGFR-Report-Design05a.pdf

24 Section 173 of the PIA

25 Section 110 of the PIA

26 Section 9 (4) of the PIA

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