Forces against the oil industry bill

But for different interests in the Nigerian economy, the Petroleum Industry Bill (PIB), which has gone through several alterations, would have been passed into law several years ago.

Indeed, the Minister of Petroleum Resources, Diezani Alison-Madueke, had explained that the PIB would help to reform the way that Nigeria’s oil and gas industry is regulated, if passed into law, without further delay.

This is evident through the several promises that have been made by the minister in the last few years that the bill would be passed, thereby raising the hope of operators, especially indigenous players, only for it to be delayed further.

After 12 years spanning three different administrations, some powerful forces are now bent on scuttling the passage of the bill, which has in itself undergone serious metamorphosis.

What the PIB stands for

The PIB seeks to align the management of the nation’s petroleum resources in accordance with the universal principles of good governance and sustainable development, including bringing the industry legislative framework under a single comprehensive umbrella.

The reform spans through both the upstream and downstream segments, and the gas industry, providing what should ultimately be a more effective regulatory environment and a revised fiscal regime that assures improved revenue streams to the country in times of rising oil prices, simultaneously with fair returns on investments.

More specifically, the PIB outlines the following objectives: create a conducive business environment for petroleum operations; enhance exploration and exploitation of petroleum resources in Nigeria for the benefit of the Nigerian people; optimize domestic gas supplies, particularly for power generation and industrial development; and establish progressive fiscal framework that encourages further investment in the petroleum industry while optimizing revenues accruing to the Government.

Others are to establish commercially oriented and profit-driven oil and gas entities; deregulate and liberalize the downstream petroleum sector; create efficient and effective regulatory agencies; promote transparency and openness in the administration of the petroleum resources of Nigeria; promote the development of Nigerian content in the petroleum industry; and

The waiting game not yet over

Indications emerged recently that the PIB might not be passed until after the completion of the 2015 elections.

The Chairman House Committee on Petroleum Downstream, Dakoko Peterside, said in Lagos recently, “we are working on the bill and we are conscious of the fact that it is very critical to the economy of Nigeria, and so we are not taking it lightly. I want to reassure you again that we are taking the PIB very seriously and I’m very optimistic that the bill would be passed before 2015.”

Explaining why the bill will not receive expedite actions at the National Assembly as anticipated, the Chairman Senate Committee on Petroleum Downstream, Senator Magnus Abe, said the PIB in its current form is a very delicate structure that needs to be handled with care.

Abe listed a number of the challenges impeding speedy passage of the bill, saying: “There are issues with productivity with the Nigeria worker, the PIB will not solve it; there are issues of inefficiency in the Nigeria economy, the PIB will not solve it. There are lots of issues that are there with us that we can begin to solve before the PIB is passed. The PIB alone will not automatically solve all these problems.

“There are even challenges as to how long it will actually take us to actualise the true meaning of the PIB because even after we have pass these laws there are still pieces of paper that have to be implemented.

“Agencies have to transform and change their way of doing things. The whole PIB package is a very delicate structure that needs to be handled with some care. But the emphasis at this time is not on all of that because the basic thing, which is the passage of the PIB has not been done.

“So let us pass it first before we will begin to talk about all these other issues which would come after the passage of the bill.”

International Oil Companies (IOCs)

The IOCs believed that the bill would boost industry taxes enough to deter further investment in oil exploration and development, and rather than boost revenue, could actually cause Nigeria to potentially lose $185 billion over the next ten years.

The Oil Producers Trade Section of the Lagos Chamber of Commerce and Industry (LCCI), a group of companies including, Royal Dutch Shell, Chevron Corp., Exxon Mobil Corp., Total SA, and Eni SpA, who produce around 90 per cent of Nigeria’s oil through several joint ventures with the Nigerian National Petroleum Corporation (NNPC) are seriously mounting pressure against the bill to ensure that it is not passed in its present state.

They argued that the proposed taxes could cause a 25 per cent drop in oil production from 2.4 million barrels, as the lack of new investment would mean that new wells would be too few to tackle the declining production from old wells.

The group explained: “The terms proposed increase royalties, increase taxes, and lower allowances or incentives all at the same time.” Turning Nigeria into what he described as “one of the world’s harshest fiscal regimes.”

It noted that the PIB has the potential to increase the government’s share of oil profits to as much as 96 per cent, and that its share in natural gas profits will increase from 30 per cent to 80 per cent, making further exploration uneconomical.

They also stated that the energy companies were worried by the fact that under the new laws all penalties would be set by the Petroleum Minister, and the President would have the power to award licenses personally, without the need of competitive bidding. They claim that under this system there is no security for existing contracts, and no independent, unbiased arbitration if any disputes arise.

Northern Leaders

Some legislators, state governors, and other groups from the north didn’t support the clause in the bill that seeks to allocate funds to host communities in the country’s oil-producing areas. The Petroleum Host Communities Fund (PHCF) would “be utilized for the development of the economic and social infrastructure of the communities within the petroleum producing area,” according to the bill.

Oil companies will contribute 10 per cent of their net profits to the PHCF after royalties and other taxes have been deducted, if the bill is passed without amendments to the clauses on the fund.

The northern group argued against the fund because oil-producing communities in Nigeria currently receive 13 per cent oil derivation. The percentage is from oil proceeds received by Nigeria and is paid to oil-producing communities in the country because the oil resources come from their areas and is used to develop the communities in the volatile Niger Delta.

The group said oil communities also have the Niger Delta Commission and the Ministry of Niger Delta to develop the Niger Delta.

It explained that allocating the additional 10 per cent fund in the PIB would give the Niger Delta communities “too much money” to the detriment of other communities, especially in the north, which has no oil.

According to reports, the North had mobilised against, adding that the report of an independent consultant engaged by the region to scrutinise the bill returned a negative verdict.

Need for speedy passage

There have been calls from several quarters that the PIB should be passed to create room for more investment in the oil and gas sector.

Such call came from the Rivers State Governor, Chibuike Rotimi Amaechi,

while declaring open the 3rd Nigeria Union of Petroleum and Natural Gas Workers (NUPENG) Quadrennial Delegates Conference in Port Harcourt.

Represented by his deputy, Engr. Tele Ikuru, the governor said the call became imperative due to emerging changes in the global petroleum industry occasioned by the now rampant discovery of crude oil in numerous African countries and the United States discovery of technology to extract shale oil.

“The tides are turning. Maybe, some fifteen, twenty years ago, Nigeria was apparently the only country producing oil. We could choose who to sell to and who not to sell to. We could choose to beat prices and so on. If you listened very well in the course of this morning’s address, you will hear enumeration of several West African countries that have discovered oil to worsen the matter; the United States has now discovered a new technology for the extraction of shale oil. China has adopted this technology. United States has told us that in the next few years, precisely by 2022, they will stop importing 75 per cent of the total crude they import today,” he said.

The Group Managing Director NNPC, Andrew Yakubu, said passage of the PIB would attract Foreign Direct Investment into the oil and gas sector.

According to him, the PIB, when passed into law, will go a long way in complementing government’s reforms in the sector.

“The PIB offers an opportunity to increase investments in the entire value chain of the petroleum industry with attendant positive impacts on the economy,” he said.

Yakubu noted that the PIB was painstakingly drawn up with inputs from all stakeholders in the oil and gas sector with a view to replacing about 16 obsolete laws.

He enumerated the benefits inherent in the bill to include the creation of a commercially viable National Oil Company, establishment of an effective fiscal framework, promotion of Nigerian content and enhancement of exploration activities.

Other benefits of the bill, he said, included deregulation of petroleum product prices, promotion of health safety and environment and creation of a robust economic environment to attract investments.

He said the PIB would go a long way in unleashing and developing the gas reserves in the country, which he said is currently grossly underutilised and wasted through flaring.

“One of the very important resources for Nigeria’s future is natural gas.

“Nigeria holds huge gas resources with a proven reserve of 187 trillion cubic feet of Gas with unproven Gas potential of about 600TCF.

“The scorecard for gas has been low in terms of both development and local consumption, more so, large volumes of gas are still being flared.

“The bill, therefore, incorporates the earlier measures taken by government with respect to the domestic supply obligation in order to underpin the gas master plan,’’ he said.