The PIB is supposed to address all the problems in Nigeria’s oil and gas sector at once: to establish a new legal framework, to create efficient and effective regulatory agencies, to reform the scandal-prone national oil company and to develop a new set of guidelines governing operations in the up and downstream sectors.
Most controversial in the proposal are the envisaged discretionary powers for the Minister of Petroleum Resources, the establishment of a new Petroleum Host Communities Fund (PHCF) and, particularly from the perspective of international investors, the provisions on taxation, which might render major investment projects unprofitable.
Amid an ever more competitive oil and gas landscape in sub-Saharan Africa, the need for reform is, in principal, recognised by all. Foreign investors and international oil and gas companies (IOCs) see a particular need for incentives to invest with regard to deepwater exploration, allegedly Nigeria’s growth sector, where in 2012 the Total-operated 180,000pbd Usan field (divested to China’s Sinopec later in the year) has so far been the last to ramp up offshore.
More advantageous conditions are also a decisive factor for attracting substantive additional investments in the gas sector, where the currently rather uncompetitive gas pricing scheme and the gas supply obligation (in the absence of adequate infrastructure) stirred investor criticism.
While there is principal agreement that reform is urgently necessary, there remain numerous highly contentious issues in the bill. Most controversial are the proposed discretionary powers for the Minister of Petroleum Resources, the establishment of a new Petroleum Host Communities Fund (PHCF) and, particularly from the perspective of international investors, the provisions on taxation.
While discretionary powers have always been a feature of the ministerial post, they would be preserved and even strengthened under the current proposal.
This would give the office holder an unprecedented plenitude of discretionary power, lowering checks and balances and curbing transparency. In an industry already infamous for rampant corruption, this must be perceived as an invitation for continued malpractice. Especially feared among oil and gas companies is the power to set royalties at the incumbent’s gusto.
The Petroleum Host Communities Fund (PHCF) is a new fund that will provide for the economic, social and infrastructural development of communities within the petroleum-producing areas.
The fund will be filled through a monthly 10 per cent net profit tax from every upstream producing company. Crucially, the bill does not deliver a proper definition of what actually constitutes a “host community” and is silent on the fund’s administrative structure.
As expected, the proposed fund has sparked lively opposition from states that would not profit from it, especially as oil-producing states already benefit from an extra 13 per cent derived from oil revenues.
Finally, the provisions on taxation are another major bone of contention, fiercely opposed by the oil and gas industry. Under the government proposal, government take would, according to industry estimates, increase on Joint Venture operations (JV) from 86 to 91 per cent, on Production Sharing Contracts (PSC) from 30 to 77 per cent and on Gas JV from currently 0 to 60 per cent. In addition, an envisaged five per cent tax hike for deep water projects would prevent any new investment in that segment, according to industry spokespersons.
Further, the increased taxation on gas would continue to make this sector uncompetitive for investment.
Political Dynamics at Play
Given what is at stake, how likely is it that the PIB will become law anytime soon? To begin with, one should take into account that the bill has already been around for quite some time.
The current legislative initiative, which started in July 2012, is the second attempt to get it passed. Before, a first try initiated in December 2008 had eventually failed due to political intrigues, wrangling between legislative chambers and the executive as well as lack of public support.
The bill in its current form has already passed the 1st and 2nd readings in the House of Representatives and the Senate, and both chambers held their mandatory public hearings in the course of 2013.
At the moment, the bill is back at the respective committees, where deliberations have to conclude, after which each house will receive its separate version. The final step will then be to go through the two versions on a clause by clause basis and merge them to one single document to be resubmitted to the president.
Even though the bill is thus quite advanced in terms of mere process, whether the PIB will actually be passed anytime soon is highly doubtful for several reasons:
Mounting Internal Opposition Against the President
Internal opposition against President Jonathan is mounting ahead of the February 2015 general elections, and support for him is dwindling in both chambers. Jonathan has come under increased pressure since his widely expected candidacy for a second term would contravene the informal power rotation system within the ruling People’s Democratic Party (PDP).
Also, his government is heavily criticised for not showing enough effort in solving the country’s problems, most notably the Boko Haram insurgency in the northeast, which has become ever more violent in recent months.
At the end of 2013, 37 lawmakers defected from Jonathan’s PDP to the new opposition alliance All Progressives Congress (APC) in the House of Representatives, meaning that for the first time ever, the ruling PDP lost its majority in this chamber.
Even though the PDP regained its majority shortly afterwards by convincing several deputies to switch back again, the episode highlights the volatile nature of the legislature.
As regards the senate, defections to the APC were announced there as well in early 2014, reducing the PDP’s majority even though the party’s majority in this chamber is still comparatively safe. Nevertheless, discontent within the PDP is growing further, and future defections are far from unlikely. The APC for its part has directed its deputies in the National Assembly to pursue a strategy of total legislative blockade.
Lawmakers Disapprove of the Current Petroleum Minister
Petroleum Minister Diezani Alison-Madueke, already one of the most controversial figures in Jonathan’s administration, has a feud of her own with the House of Representatives, where she is currently facing an inquiry for allegations of misspending more than 10 billion Naira (about 45 million euros) on the private use of official airplanes.
So far, the minister has refused to attend hearings at the house’s Committee of Public Accounts, earning her futile reactions from lawmakers. The deputies could hinge their support for the PIB on the dismissal of Alison-Madueke, who is, however, a key ally of the president.
Time Running out
Any progress on the PIB would need to happen quickly before the 4th quarter of the year, when the National Assembly will again be preoccupied with the annual budget, and before the 2015 electoral campaign swings in and brings legislative activity to a complete standstill. At this stage, any further procedural delay provoked by spoilers could thus mean the end for the bill.
Given this triple challenge of mounting internal opposition against the president, a personal vendetta between Parliament and one of Jonathan’s key allies and increasing time pressure ahead of the all-important 2015 general elections, any rapid progress on the PIB seems rather unlikely.
The PIB is a key piece of legislation for Jonathan’s administration, but the number of internal foes whose aim it is to prevent any success for Jonathan is growing by the day. With the 2015 elections looming, the already huge divide between government and opposition, but also within the ruling party, is growing further.
It can be expected that the PIB, which has already been around for quite some time, will be up for resubmission after the elections. Meanwhile, IOCs and the state-owned Nigerian National Petroleum Corporation (NNPC) are, behind the scenes, trying to obtain concessions from lawmakers on some of its most salient points.
In addition to the temporal delay, one can therefore expect any eventual version of the PIB to be watered down on key items in order to accommodate these stakeholders.
The author, Malte Liewerscheidt, is Senior Risk Analyst Sub-Saharan Africa, EXOP GmbH. EXOP GmbH is a risk management company that analyses and forecasts commercially relevant political and security risks worldwide.
– African Arguments