A Review of the Nigerian Energy Industry

PIB: A game of numbers, interests

Sebastine Obasi

05 February 2013, Sweetcrude, Lagos – Will national interest be paramount in the passage of the new Petroleum Industry Bill, PIB, now before the National Assembly? This has been the recurring question on the lips of Nigerians as the PIB is being assailed by vested and conflicting interests.

Sweetcrude learnt that the International Oil Companies, IOCs, are strongly opposed to the passage of the bill as presently constituted. Some of them were alleged to have threatened to leave the country if the new bill is passed into law. They are not comfortable with the bill, as they contend that its passage would confer “undue” advantages on indigenous players. The IOCs are also worried that the Federal Government plans to increase its revenue generation from Joint Ventures, JVs, and Production Sharing Contracts, PSCs, as contained in the bill.

Consequently, the IOCs are lobbying the federal legislators to favour them; failure of which they would leave the country, a development they insinuate might have negative effects on the future of the oil industry in Nigeria. In the absence of the PIB, the government has continued to lose billions of dollars in tax due and unfavourable PSC terms approved since 1993, which is no longer valid for current economic realities. The PSC was to be reviewed after 15 years, which expired in 2008. That review did not see the light of the day because the IOCs threatened to leave the country, thus forcing the government to yield to their inordinate demands.

Upholding national interest
A lawmaker revealed that “The IOCs are desperate to ensure an amendment to the PIB to sustain the current revenue leakages despite the five-year tax waivers for investors in gas projects dedicated for domestic gas supply for power generation.”

But Enyinnaya Abaribe (PDP-Abia), Chairman, Senate Committee on Information, Media and Publicity stated that the Senate would consider the interest of Nigeria in the passage of the PIB. “Our assurance to Nigerians is that their interest comes first and the Senate will not fail to protect the corporate interest of the country. That is why we are considering the PIB. We have always said that we will not deviate from our oath of office and that we will take on the PIB like every other law that we have passed,” he said.

If Abaribe was speaking the minds of the Senate, he may not have taken into cognizance the fact that sectionalism has crept into the upper legislative chamber.

North is aggrieved
Bukar Abba-Ibrahim (ANPP-Yobe), Chairman Senate Committee housing, said that the North was opposed to the PIB due to its “lopsidedness”. According to the Senator, the clause in the PIB, which indicated additional 10 percent revenue for oil producing communities was unacceptable.

“Derivation is only one out of seven sources of revenue for the oil producing states. They have the Federal Government’s take home, the NDDC with over N500billion being projects only in oil producing communities. They also have the Niger Delta Ministry with over N400billion Federal Government grants in the name of amnesty and oil companies doing social corporate responsibility. Adding another 10 percent to all these seven sources, I don’t know how you are going to have peace where resource allocations are so skewed to one side”, he said.

Abba-Ibrahim pointed out that the addition in the PIB was unacceptable as the money should go into the treasury, so as to benefit all Nigerians. “Nobody planted or farmed oil. It is God who put it there and it will not last forever. It will get to a point where the oil will finish and another natural resource will come up and every Nigerian will benefit from it,” he said.

For the lawmaker, the North was also opposed to the PIB because it did not make provision for the exploitation of other minerals in other parts of the country. “We have over 800million tonnes of limestone in Gulane, Fune and Guljimba Local Governments of Yobe, but as a state government, you cannot go and exploit, it has to be Federal Government,” he said.

Sweetcrude also learnt that the North was not happy that the PIB did not prioritise gas supply to the region, just as it pointed out that revenue accruing to Bayelsa, Delta, Rivers and Akwa-Ibom States is bigger than all the 19 Northern states put together. The region also criticized what it termed divestment moves through the establishment of a National Oil Company and National Gas Company.

Niger Delta ask for more
Notwithstanding the position of the North, the Niger Delta region still believes that a lot more should be included in the PIB, to take care of their interest. According to Edwin Clarke, elder statesman, the PIB still leaves much to be desired, particularly on engaging Niger Deltans as stakeholders in the oil industry.

“There are still issues with the provision of the new PIB especially as it concerns the economic empowerment of the Niger Deltans. It would be good we have a quota system that measures the participation of Niger Delta indigenes in the organizations involved in the petroleum sector in the region including the IOCs, NNPC and indigenous oil companies. The new regulatory bodies proposed by this bill should also be subject to similar Niger Delta content requirements” he said.

On environmental protection, the Ijaw leader said that what the new bill provided for is still far from the requirement for the mitigation of the environmental degradation. “The damage done to the environment through oil and gas operations by the oil companies has been quite enormous and as a result something ought to be done either to reduce or stop the damage. The current issues of environment need to be addressed by putting in place measures to stop the activities of these oil companies that are destroying our environment and ecology. There is far less than the provision in the bill can offer,” he said.

He added, “But an additional provision in the new bill would ensure that these new bill would ensure that these measures are implemented in such a way that there are significant consequences for nay organization that continues to violate the law. The clean-up and remediation activities must start in earnest, while gas flaring and persistent pollution must be made to stop.

Minister has too much power
One other contentious issue in the PIB is the perceived over concentration of power in the hands of the Minister of Petroleum Resources. According to the proposed bill, the Minister shall grant licenses and leases on the recommendation of the Directors General of the Institutions and in accordance with guidelines impose special terms and conditions that are not consistent with the provisions of the Act on any license or lease to which the Act applies… Also every company will be responsible for filing its own tax returns unlike the current arrangement where the NNPC files tax returns on behalf of PSC partners. Each party will own and be able to claim capital allowances on cost of equipment.

Varied views
In its reaction, the Petroleum and Natural Gas Senior Staff Association of Nigeria, PENGASSAN, has vowed to oppose the Federal Government if it makes the law draconian. Babatunde Ogun, the PENGASSAN President pointed out that the bill had some shortcomings that should be addressed before it is passed into law. “Every Nigerian solidly, believes that there is the need for change. The Bill as it is today has some challenges that we believe that as unions and stakeholders in the oil and gas, who need to add value to the government affairs, should look at it critically,” he said.

According to the labour leader, “We must not use draconian law to pass the bill. That is why the unions are saying, let us engage government, bring all stakeholders to look at it and see what happens internationally. As oil and gas workers, we strongly believe that Nigerians must not be shortchanged and that there should be conducive environment for the investors.”

For Emeka Okwuosa, an expert in Maritime and Shipping law, the non-passage of the PIB may create negative impact on the economy. “People want to know what the law is before they can invest. Not passing the law doesn’t favour anybody. Until the law is passed and the position of the law is made clear, investors wouldn’t come in. At the moment, they are holding on, they are standing still they can’t move forward, they can’t move backward till this issue is solved once and for all. If the bill is not passed, it doesn’t augur well for the economy,” he said.

His opinion is corroborated by Taiwo Oyedele, a partner in the Tax and Corporate Advisory Services Unit of PriceWaterhouseCoopers, a management consulting firm, who stated that the PIB introduces some positive development including moves to address host community concerns, promotion of local content, removal of minimum tax, removal restriction on capital allowances claimable, and tax deduction for abandonment provision.

“The proposed changes may not really be revolutionary, but the PIB, if passed in its current form will mean that fiscal issues are no longer business as usual,” he said.

The passage of the PIB is expected to engender a fundamental restructuring of the industry and end the uncertainty which has prevented Nigeria from holding an oil licensing round for five years. Since its introduction, the PIB has continued to face persistent setbacks despite the bill’s prospects for improving the technical, operational and regulatory efficiency in Nigerian’s oil industry.

PIB was first presented during former President Olusegun Obasanjo’s administration, but efforts to pass it were hampered by vested interests, political intrigues and absence of effective stakeholder consultation and citizen engagement.

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