Tope Adebayo LP (TALP), a Lagos-based multidisciplinary law firm, has called on the Federal Government to be cautious in enforcing contractual obligations in the downstream sector of the oil and gas industry in the country.
In a paper titled “Implementation Framework and Potential Impact of Domestic Crude Supply Obligations” that focused on the oil and gas industry, the company said the oil and gas sector is central to the domestic economy.
“While reiterating our commitment to the development of a domestic crude oil market driven by willing arrangements between buyers and sellers, the Petroleum Industry Act, 2021 (“PIA”) provides for domestic crude oil supply obligations by Nigeria’s Upstream Petroleum Regulatory Authority. (DCSO). Upstream Petroleum Lessees Committee (NUPRC) to strengthen regional refining capacity, prevent shortages and supply shortages, support strategic economic development, and promote energy security.
“In order to ensure a stable supply of crude oil to the domestic market, the 2023 Production Cut and Domestic Crude Oil Supply Obligation Regulations (PCDCOSOR), which was established based on the provisions of PIA, stipulates that even if there is no production in a quarter, export “Domestic supply obligations have taken precedence over commitments and are below allocated production quotas,” the report said.
The report also states that Regulation 9(2) of the PCDCOSOR gives the NUPRC the power to curb crude oil exports by processing and approving export license applications, which interferes with the DCSO, which imposes export volumes on lessees. He pointed out that he was guaranteed not to do so.
Further, “Both the NUPRC and the Nigeria Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) are responsible for the implementation of the DCSO.However, the NUPRC has oversight responsibility to ensure effective implementation; This is despite the Minister of Petroleum’s right to pre-empt petroleum and petroleum products in times of national emergency under the First Schedule of the PIA,” the report said.
According to the report, NMDPRA is tasked with providing the necessary crude oil to the NUPRC for operating refineries and regularly informing the NUPRC of any shortages or inadequate supply situations affecting local refineries. There is. It added that the committee’s responsibilities include allocating production quotas to lessees and publishing crude oil requirements for operating refineries provided by NMDPRA on its website and in three national newspapers for a period of six months. . ”
The report further urges industry participants to avoid potential regulatory changes, particularly through relevant provisions of the PIA, such as Section 109(4) and Section 231, while maintaining operational and commercial flexibility. It calls for a proactive approach that considers: “The DCSO introduced under the PIA is an important step towards strengthening Nigeria’s domestic refining capacity and energy security. However, the implementation of these obligations The success of this will largely depend on the balance between regulatory oversight and the protection of existing contractual rights, project commerciality, and bankability by constraining exports in favor of domestic supply. The European Commission’s role in supporting local refineries demonstrates the government’s commitment to supporting local refineries, but at the same time ensuring a clear and fair regulatory framework that does not undermine existing contractual obligations or disrupt market dynamics. It also emphasizes the need for
