By Adaobi Rhema Oguejiofor
In Nigeria, the Petroleum Industry Act 2021 (the PIA or the Act) though long-awaited, brought about much interest given its extended legislative journey and the far-reaching changes it introduced to the legal and regulatory landscape of the nation’s oil and gas sector. The PIA, which is divided into five (5) Chapters and three hundred and nineteen (319) sections, contains landmark provisions that include the restructuring of the regulatory framework, commercialization of the Nigerian National Petroleum Corporation, the introduction of new fiscal regimes for operators in the industry, social and economic benefit for host communities, and dispute resolution in the sector, among others.
The Act affirms idealistic objectives including global competitiveness and the development of strategic infrastructure. The enactment of the PIA is designed to mark a turning point for Nigeria’s petroleum industry and it will address some of the challenges affecting it. Also, it provides an opportunity to update the diverse laws that the Act replaces, some of which are now out of touch with the current economic realities.
According to Partner, Oil and Gas, Tominiyi Owolabi, the Act is far more than just a legal and regulatory framework; it is an economic law that has significant implications for the Nigerian economy. Also, Pricewaterhouse Coopers (PwC) suggests that Nigeria’s PIA is one of the most audacious attempts to overhaul the petroleum sector in Nigeria, noting that if it is implemented diligently, the Act will help facilitate the nation’s economic development by attracting and creating investment opportunities for local and international investors.
Similarly, Managing Partner, Mirisak & Associates, Asirim Nwuke, believes that the PIA can represent the gold standard of natural resource management, with clear and separate roles for the subsectors of the industry, the existence of a commercially-oriented and profit-driven national petroleum company, the codification of transparency, good governance, and accountability in the administration of the petroleum resources of Nigeria; the economic and social development of host communities; environmental remediation; and a business environment conducive for oil and gas operations to thrive in the country.
The numerous contracts in the oil and gas sector are usually intricate and have a lengthy duration, which makes the industry a seriously competitive global market like any other sector or field of endeavour in the oil and gas industry, there are bound to be disputes. These disputes are resolved in ways unique to the industry as conflicts that arise in the sector may cost businesses millions, harm their brand, and even sabotage further cooperative endeavours. These disputes typically spring up when something that was not anticipated or included in the main agreement between the parties can be damaging, expensive, and time-consuming. Seeing that part of the aims for enacting the PIA 2021 was the necessity to promote a business environment conducive to petroleum operations, as well as create an undisturbed and harmonious relationship between licensees or lessees and the host communities, it then becomes imperative for effective dispute resolution mechanisms to be put in place to address possible oil and gas-allied disputes.
Without denial, the various petroleum operations going on in the oil and gas industry along with the need to enter into countless numbers of contractual agreements make occurrences of disputes in the sector almost unavoidable.
However, the resolution of these disputes in the industry is especially important in the oil and gas sector for complex, high-value contracts because the oil and gas deals frequently involve billions of dollars and complex technicalities across international borders, making room for disagreements and potential breaches of contract. Nonetheless, a clear dispute resolution process helps to ensure a fair and efficient way to settle these disagreements.
Dispute resolution in the sector is also important because the oil and gas industry is global by nature and companies from many different countries collaborate on projects. Traditional litigation in national courts can be slow, expensive, and unfamiliar to some parties involved, making dispute resolution methods like arbitration better at providing a neutral ground acceptable to all.
Resolution of disputes in the sector is very crucial in maintaining relationships. Oftentimes, disputes can strain business partnerships but dispute resolution mechanisms like mediation can help find solutions that work for both sides, thereby fostering continued collaboration on critical projects and this is especially important in long-term ventures common in oil and gas. It is also helpful in project continuity as protracted legal battles can stall entire projects. Therefore, efficient dispute resolution minimizes delays and keeps projects on track, ensuring a steady flow of resources and avoiding financial losses.
Resolving disputes in the industry can also improve and maintain confidentiality. Many oil and gas deals involve sensitive commercial information. Litigation can expose this information publicly, while methods like arbitration can maintain confidentiality throughout the dispute resolution process.
In the Nigerian oil and gas sector, while direct negotiation and litigation were traditionally used for dispute resolution, the industry has recently seen a significant shift towards alternative dispute resolution methods, especially arbitration. Internationally, recent trends in the industry show a clear movement from formal litigation or arbitration to mediation as the best platform and approach for resolving disputes.
Nigeria’s Petroleum Industry Act (PIA) 2021 has proffered ideal mechanisms for the resolution of disputes. These mechanisms are expected to be the ideal methods applied to effectively solve disputes that may arise in the sector. The Act ushers in a new era for the nation’s oil and gas sector, bringing not only an improved regulatory framework but also a streamlined approach to resolving disputes.
The Act establishes a comprehensive and layered framework for dispute resolution, which prioritizes speed, efficiency, and minimal disruption to operations. It is aimed at resolving disputes efficiently and fairly. According to the PIA, under section 76(f), model licenses and leases will contain rules for resolving disputes including arbitration, mediation, conciliation, or expert determination. For instance, for both upstream, midstream and downstream operations, a license, lease or permit may be revoked by the Minister if a licensee, lessee or permit holder fails to abide by an expert determination, arbitration award or judgment arising from the dispute resolution provisions in the license or lease according to sections 96(1)(l) and 120 (j).
The framework comprises several stages including Negotiation, Alternative Dispute Resolution (ADR), Binding Arbitration, the Alternative Dispute Resolution Centre (ADRC), and Limited Court Intervention.
According to the PIA, negotiation is the collaborative first step. It encourages parties involved in a disagreement to attempt good-faith negotiations to reach a mutually agreeable solution before resorting to more formal methods. It promotes a collaborative approach and tries to avoid unnecessary escalation. This initial stage allows parties to discuss the disagreement openly and explore potential solutions collaboratively. However, the Act does not mandate specific procedures for negotiation, but it encourages a flexible and open approach.
The next stage in the framework is the Alternative Dispute Resolution (ADR), which can be applied if negotiation fails. The PIA strongly emphasizes the application of ADR mechanisms like mediation and conciliation in such cases. These methods involve a neutral third party facilitating communication and guiding the parties towards a mutually agreeable settlement, which helps parties find common ground.
The key ADR options outlined in the PIA are Mediation, which involves a neutral mediator facilitating discussion, helping to identify common ground, and guiding the parties involved towards a solution without imposing their views. The next key is Conciliation, which is similar to mediation, the conciliator actively participates in discussions, suggesting solutions and guiding the parties towards an agreement.
The next stage is Arbitration. If ADR methods prove unsuccessful, the PIA allows for disputes to be settled through binding arbitration. Arbitration involves an independent arbitral tribunal, usually composed of one or three industry experts, who hear arguments from both sides and issue a final and enforceable award. This option provides a definitive resolution but can be more time-consuming and expensive than ADR.
Also, the PIA establishes the role of the Alternative Dispute Resolution Centre (ADRC) under the Nigerian Upstream Regulatory Commission (NUPRC). This dedicated body administers mediation, conciliation, and arbitration processes, thereby offering a streamlined platform for dispute resolution within the industry. Some of the ADRC’s functions include maintaining a panel of neutrals, administering disputes, and promoting ADR awareness.
The ADRC maintains a roster of qualified and experienced mediators, conciliators, and arbitrators with expertise in the oil and gas sector. Also, Parties in disagreement can approach the ADRC to initiate mediation, conciliation, or arbitration proceedings. The ADRC administers the process, ensuring efficient case management and adherence to established procedures. The ADRC can even play a proactive role in raising awareness about the benefits of ADR within the industry. These awareness activities may involve organizing workshops, training programs, and disseminating informational resources.
The PIA discourages resorting to courts except in very specific circumstances. This minimizes delays and ensures disputes are settled within the specialized framework designed for the intricacies of the oil and gas sector. However, court intervention can be sought later, if either party believes the arbitral award is flawed or fails to comply with the provisions of the PIA.
The framework is beneficial to the sector as it brings about efficiency, cost-effectiveness, confidentiality, industry expertise and maintaining business continuity. It fosters a more amicable and efficient approach to resolving disagreements within the Nigerian oil and gas industry. This layered approach fosters a more efficient and amicable dispute-resolution process, which ultimately benefits the stability and continued growth of Nigeria’s petroleum industry.
Various stakeholders in the industry like the Upstream Regulatory Commission (the Commission) and the Nigerian Midstream and Downstream Petroleum Regulatory Authority (the Authority) play vital roles in the resolution of disputes. They have the power to resolve certain disputes arising from the operations of the Act.The Authority has powers under section 33 to issue regulations relating to dispute resolution and consumer protection. However, according to section 216, the Authority must subject to cases relating to national interest or exigency, consult stakeholders before issuing such regulations. It is important to note that under the Petroleum Industry Bill (PIB), the Commission had similar powers but they did not make it into the Act.
Also, under sections 163, 179 and 180, the Authority has the powers to mediate over disputes arising from rights of third parties to access areas for midstream and downstream gas and petroleum liquids operations, as well as open access respectively. Concerning Host Communities, section 234 gives both the Commission and Authority powers to issue regulations, which shall contain a grievance mechanism to resolve disputes between settlors and host communities. And under section 318, where there is a dispute concerning the date of first sale of chargeable oil or date of cessation of petroleum operations, the Commission is vested with powers to determine the said date and the decision cannot be appealed but may be challenged on constitutional grounds and principles of natural justice.
The PIA Introduced a new framework for resolving disputes in the oil and gas sector, potentially offering several strengths and advantages, such as its multi-tiered approach starting with negotiation and mediation before escalating to arbitration or litigation. This can encourage quicker and less expensive settlements in the sector. Also, the establishment of the Petroleum Industry Arbitration Panel (PIAP) offers a specialized body with industry expertise to handle disputes effectively, ensuring that disputes are resolved by those with a deep understanding of the petroleum industry.
Another advantage of the framework is that it reduces litigation time. Arbitration can be faster than traditional court proceedings, potentially leading to quicker resolutions. The mechanism aims to resolve disputes efficiently, minimizing delays and costs associated with prolonged litigation, and reducing the financial burden on parties. It also ensures confidentiality as arbitration proceedings can be confidential, which may be desirable for commercially sensitive disputes. It provides flexibility in choosing the appropriate dispute resolution process, considering the nature and complexity of the dispute.
However, the dispute resolution mechanism in the PIA is not without challenges and disadvantages. Despite the improvements, there remain some potential weaknesses, such as limited scope involving the fact that the PIAP’s jurisdiction might be limited to specific types of disputes as defined by the Act. Also, enforcing arbitral awards outside Nigeria might require complex procedures depending on the location of the other party and if parties fail to comply.
Another disadvantage is with regards to bias, non-neutrality and expertise of PIAP Members. Ensuring the PIAP’s neutrality and the arbitrators’ expertise in the specific petroleum issues is crucial for fair resolutions and appointment of arbitrators by the Minister or Petroleum Regulatory Authority may raise concerns about potential bias or conflict of interest. Also, the multi-tiered approach may lead to complexity, further leading to confusion and delays in the dispute resolution process.
Although the dispute resolution mechanism in the PIA has the potential to be more efficient and more effective than the previous system, its success will depend on the implementation details, including the PIAP’s composition and its operating procedures. By acknowledging the Act’s strengths and weaknesses, stakeholders can be able to better navigate the dispute, resolution, and mechanism under the PIA and work towards improving its effectiveness.
To address the weaknesses and challenges of the PIA, stakeholders recommended that it is important to have transparency in PIAP Operations. There should be clear procedures for arbitrator selection, case management, and cost structures, which can help foster trust in the system. Regular Monitoring and Evaluation, assessing the PIAP’s performance in terms of fairness, timeliness, and cost-effectiveness can help identify areas for improvement. Also, developing capacity within the PIAP for effective negotiation and mediation can further streamline dispute resolution and potentially reduce costs. Another way to address the challenges is through clear and comprehensive regulations defining the scope of the PIAP’s jurisdiction, which can minimize disputes about whether a particular case falls under its authority. Also, Nigeria can explore treaties or mechanisms to facilitate easier enforcement of arbitral awards in other countries.
By addressing these challenges and limitations, the PIA dispute resolution mechanism can evolve into a more efficient, trusted, and inclusive system for resolving disputes within Nigeria’s oil and gas industry. The provisions on dispute resolution by the PIA are supported by a number of legal and regulatory frameworks. First and foremost is the PIA itself. Section 299 of the Act emphasizes exploring negotiation and mediation as the preferred initial approach for dispute settlement. Section 300 outlines the specific categories of disputes that can be referred to the PIAP, encompassing a broad range of issues like licenses, agreements, host community concerns, and environmental matters. Sections 301-302 establishes the Petroleum Industry Arbitration Panel (PIAP) as the primary dispute resolution body. Parties can still opt for alternative mechanisms if mutually agreed upon.
Secondly, the PIAP supports the mechanism in the area of structure and functioning. Section 303 empowers the Minister of Petroleum Resources to establish the PIAP. Section 304 mandates the appointment of a Chairperson and members with proven expertise in the oil and gas sector and dispute resolution. Section 308 grants the Minister the authority, in consultation with stakeholders, to develop Arbitration Rules for the PIAP. These rules will govern the arbitration process, including timelines, arbitrator selection procedures, and confidentiality protocols.
For the area of dispute resolution process, Section 301 notes that if negotiation and mediation fail, either party can initiate arbitration by submitting the dispute to the PIAP. Following the established Arbitration Rules, the PIAP will likely involve steps such as:
* Formation of the Arbitral Tribunal, which involves the process for selecting arbitrators, potentially involving a combination of party nominations and PIAP appointments.
* Submissions and Hearings, where parties present their cases, including evidence and arguments, before the tribunal.
* Award Issuance, where the tribunal deliberates and issues a binding arbitral award that is enforceable as a court judgment.
When it comes to the enforcement of awards, section 310 grants arbitral awards issued by the PIAP the same binding force and enforceability as judgments of the Federal High Court. This allows for domestic enforcement within Nigeria’s legal system.
However, for international disputes, enforcement may require additional steps depending on the specifics. Nigeria’s adherence to international arbitration agreements and conventions will play a crucial role.
Finally, regarding regulatory oversight, section 309 authorizes the Minister of Petroleum Resources to issue regulations for the effective operation of the PIAP. These regulations can provide further details on the administrative procedures of the PIAP, fee structures for utilizing the PIAP’s services, as well as qualification criteria and selection process for arbitrators.
Areas for further consideration include that the Act does not clearly define the limited circumstances where parties can bypass the PIAP and go directly to court. Future regulations or case law may clarify this aspect. The framework emphasizes the independence and impartiality of the PIAP and its arbitrators. By establishing a robust legal and regulatory framework, the PIA aims to bring about a more efficient and predictable dispute resolution process within the Nigerian oil and gas sector. The success of this mechanism will depend on the effectiveness of the PIAP’s operations and the clarity of the supporting regulations.
In comparison with international best practices, the PIA framework offers some flexibility, but the prominence of the PIAP might push parties towards arbitration, while leading practices encourage a flexible approach, allowing parties to choose from negotiation, mediation, arbitration, or litigation depending on the specific dispute. Best practices also emphasize the importance of a neutral arbitral body and the enforceability of arbitral awards internationally, while the PIA needs to ensure a transparent selection process for arbitrators and potentially explore mechanisms to simplify international enforcement.
In the areas of transparency and accessibility, international best practices promote transparency in the dispute resolution process, while ensuring accessibility for smaller players in the industry. However, the confidentiality aspect of arbitration in the PIA framework could limit transparency, and cost concerns might still pose a barrier for some parties.
An efficient and effective dispute-resolution mechanism plays a critical role in promoting investment and growth within the oil and gas sector. This is because Investors are more likely to be attracted to a sector where there is a clear and reliable process for resolving disputes and a well-established mechanism reduces the perceived risk and uncertainty associated with potential disagreements. Also, an efficient system fosters a sense of fairness and predictability for investors. Knowing that disputes will be handled impartially and promptly encourages companies to enter into long-term contracts and projects. Similarly, a streamlined dispute resolution mechanism like the one outlined in the PIA can lead to quicker resolution of disagreements. This reduces delays and keeps projects on track, ultimately contributing to growth in the sector. Furthermore, a trusted dispute resolution system builds confidence among all stakeholders, including investors, host communities, and government agencies. This fosters a more collaborative environment conducive to long-term investment and sustainable growth.
By establishing a well-functioning dispute resolution mechanism, Nigeria, through the PIA framework, positions itself to become a more attractive destination for oil and gas investments. This can lead to increased investments, faster project completion, and ultimately contribute to the significant growth within the sector.