A Review of the Nigerian Energy Industry

Chances of PIB passage dims

*National Assembly set to expire

Oscarline Onwuemenyi

19 September 2014, Sweetcrude, Abuja – Supporters of the Petroleum Industry Bill, PIB, may have to wait for much longer if any dream of passing the bill is to be achieved. More precisely, they may have to wait for a new National Assembly to be inaugurated to have another go at the very controversial bill, going by events at the legislative body.

Debate over the PIB has been going on for more than six years at the nation’s highest law making Institution, and there are worries that the impasse may persist as the current National Assembly – the second to take up the bill – nears its expiration early next year.

The legislature resumed from a long holiday last Tuesday for what appears to be the last parliamentary lap before the festive season starts in October and the general elections in January, 2015. Of course, as expected, the PIB made yet another appearance on the agenda list. But, despite what may look like a ‘movement’ in the bill when it scaled the Second Reading in the Senate many months ago, there is still a lot of fear that the PIB may yet meet its waterloo in the chambers of the lower House, as was the case during the last legislative chapter.

House-of-Reps-sessionLast month from the House of Representatives came cheering news that the Petroleum Industry Bill is set for the third reading on the floor, an indication that the bill which has been a subject of contentious debate in the National Assembly, may soon be passed into law.

The Chairman, House Committee on Local Content, Asita Honourable, who broke the news in Abuja at a public presentation explained that most of the fears expressed by some stakeholders and sections of the country have largely been addressed, adding that the law can always be amended in the course of implementation.

According to him, “The PIB is due for third reading now in the House of Representatives, and we all know that the third reading is the last stage of every bill. The fear that some people have against passage of the bill is that of uncertainty. Some people are apprehensive about what will come after the passage of the bill. In other words, some people feel that a section of the country wants to hijack the process. But the good thing about laws is that they can be amended any time it is discovered that certain aspects are not working according to plan or at any time the country feels certain areas need to be strengthened.

“So, nothing about laws is cast in stone. We cannot say because we want to pass a perfect PIB, refuse to pass it. The National Assembly is desirous of passing the law because there is no alternative for us to have standards and regulations guiding the oil and gas sector. Right now, the laws and rules governing the oil and gas sector are not certain and do not make for influx of the much-needed investment that can guarantee maximum benefits possible.”

The lawmaker declined to give a timeline for the passage of the bill, saying that, “I am not the presiding officer in any of the chambers but I know that the PIB will be passed within the lifespan of the current National Assembly.”

Honourable charged Nigerians to pile more pressure on the National Assembly to ensure the bill is passed before the expiration of the current National Assembly. “Let us collectively hope that this time the lawmakers will pass it. But, again, like I continue to say, let Nigerians continue to pile pressure on the National Assembly to do what is right for the country. If the pressure is sustained, the National Assembly will not have any excuse not to pass the PIB. Yes, some civil society groups have organized protests at the National Assembly demanding the passage of the bill, but more of that is needed in order to ensure the bill is passed unfailingly,” he said.

At this point, however, it is reasonable to contend that no bill in the history of the Nigeria’s experiment with democracy has undergone as much political and economic machinations as the Petroleum Industry Bill. Thus, from the goings-on since the very idea of an all-encompassing reform law for the nation’s oil and gas industry was muted, it seems that the PIB was always doomed for death even before it was birthed.

The PIB, which is designed to bring Nigerian petroleum laws up to date with global trends and present realities, if passed, is expected to overhaul the country’s corrupt oil industry, open the sector for more investment, and give more oil earnings to government. The bill has nevertheless suffered interminable delays since it was first presented to the Sixth National Assembly in 2008, which later abandoned it after some time-wasting legislative manoeuvres. It has suffered further tortuous journey since its reintroduction. After subsequently holding a public hearing in July 2009, the National Assembly once more succumbed to pressure from vested interests and abandoned the bill.

Opposition has come from oil multinationals, who have behaved pretty much as they pleased for decades; from entrenched interests within the bureaucracy; and from the corrupt Nigerian National Petroleum Corporation (NNPC), whose executives gorge themselves at public expense by exploiting the rampant opacity that defines its operations; from marketers, politicians and briefcase traders, who colluded with top bureaucrats to cream off over N2 trillion in fraudulent petroleum subsidy claims last year; and from sectional power brokers.

Some of the bill’s mandates will replace all existing oil and gas legislation, which include about 16 previous bills, besides various acts and decrees that administered the sector for about 50 years. It will also redesign the oil and gas governance structure (including the establishment of seven new institutions), commercialize and restructure the state-run Nigerian National Petroleum Corporation, revise fiscal regime for onshore, shallow water and deepwater oil and gas production, and change the provisions for awarding, renewing and revoking licenses and leases.

One of the objectives of the PIB is to enhance government revenues through better tax codes and restructure joint ventures between the NNPC and oil majors. But oil majors, who are said to have benefitted immensely from the profit sharing contracts of 1993, have raised concerns that the fiscal terms in the new bill could deter investment in the oil and gas industry. The PIB also will finally outlaw gas flaring with fines equal to the cost of the flared gas.

IOCs, NNPC at loggerheads
International oil companies operating in Nigeria, notably Shell Petroleum Development Company and Chevron Nigeria Limited have had a long running battle with the Nigeria National Petroleum Corporation (NNPC) over aspects of the Petroleum Industry Bill which is currently undergoing tremendous tweaking at the National Assembly.

They had expressed worries over the increase in the gas tax from 30 percent to 80 percent, increase in royalty payment from seven percent to 12.5 percent for big producers and the minimal tax allowances for investment incentives on gas.

Mark Ward, who is chairman and managing director of ExxonMobil Nigeria and the president of the Oil Producers Trade Section (OPTS) of the Lagos Chamber of Commerce, which includes Royal Dutch Shell, Total, Chevron, ExxonMobil, and Agip, said at a recent workshop organized in Lagos by Ernst & Young that tax terms in the bill are “so uncompetitive these risk rendering offshore oil and gas projects unviable, and could halt investments.”

The OPTS said the effect of the PIB will be that: most gas projects will not go ahead; Nigerian government’s objective to triple power generation (using gas) will not be achieved; the new fiscal regime renders all new deepwater and several onshore projects uneconomic; Nigerian oil and gas sector will not be globally attractive; joint venture funding issues are not resolved; contract approval challenges are not resolved; there is lack of clarity around key terms; and investment will be lower as viability declines.

Without the new investments, Nigeria’s oil production is expected to drop by 42% within the same period, Ward said, adding that oil and gas production from existing fields is declining and new investments are required. But, the new PIB would make many projects non-viable. It was not clear how the new management company will fund joint venture operations.

The Northern opposition
The latest assault to the PIB by some legislators purporting to represent the “North” could very well knock down the intended legislation and continue to hold up progress in our oil and gas sector.

The apparent grouse of the lawmakers from the North is the proposal to reserve 10 per cent of all oil and gas earnings for the oil producing areas through the Petroleum Host Community Fund. Echoing other lawmakers from the North who had earlier vowed to frustrate its passage, Senator Bukar Abba Ibrahim of Yobe State complained that the PIB is lopsided, noting that the inclusion of an additional 10 per cent for oil producing states was one revenue stream too many as such states already enjoyed seven other special sources.

According to Abba-Ibrahim, “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 N500 billion being projects only in oil producing communities. They also have the Niger Delta Ministry with over N400 billion Federal Government grants in the name of amnesty and oil companies doing social corporate responsibility.”

He noted that adding another 10 per cent to the already existing revenue generators for the zone was unfair. “Adding another 10 per cent to all these seven sources, I don’t know how you are going to have peace where resources allocations are so skewed to one side and unfair. ”

He said this addition in the PIB was unacceptable and suggested that the money should go into the treasury so that every Nigerian could benefit from it. “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.”

The lawmaker added that the North was also opposed to the PIB because of its failure to make provision for the exploitation of other minerals all over the country. “We have over 800 million 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 is, however, optimistic that the bill when passed, would sanitise the Petroleum Industry and address the issue of corruption in the sector.

Declining investments
Meanwhile, signs are increasingly showing that Nigeria may be losing out from billions of dollars’ worth of investment in the oil and gas industry due to its inability to resolve the fiscal logjam in the proposed Petroleum Industry Bill currently in the National Assembly.

Participants who spoke at a panel discussion on Financing Investment in the Oil and Gas Industry: Challenges and Opportunities, at the just concluded World Petroleum Congress (WPC), in Moscow, Russia, posit that funds running into several billions of United States dollars are available for investment in the Oil and Gas industry globally, but that such funds could only be deployed to areas where the environment is conducive and friendly for investments.

Nigeria needs over $60 billion to invest in the Oil and Gas but the controversies surrounding the Petroleum Industry Bill. Because of this the international oil companies have held on to their money pending when the bill would be passed.

An expert on the Nigerian oil and gas industry, Mr. Franklyn Brooks, who spoke to Sweetcrude on the sideline of the panel discussion said, “We discovered that there are lots of funds that are available which can be invested in the oil and gas sector. The estimation was that in the next 20 years the industry would require trillions of dollars of investment globally.”

According to Mr. Brooks, it has been established that funds are available to support all the projects that have been earmark to be carried out at different locations around the world. “But the environment must be friendly and attractive for investment for such funds to flow in that direction,” he added.

Peter Voser, the Chief Executive Officer of Royal Dutch Shell Plc, said in an interview posted on the company’s website that the current draft of the PIB, which is still the subject of discussions and consultations would make it highly unlikely that Shell – and the whole industry – could invest in offshore and domestic gas projects.

According to him, “This would be counterproductive to what Nigeria needs, which is gas for power generation and revenues to develop the nation.” He added that the uncertainties surrounding the new PIB might change the company’s views on investing in Nigeria, depending on how the PIB is implemented.

Shell, Chevron, ExxonMobil, Total SA and Eni, who pump about 90 percent of Nigeria’s oil through ventures with the NNPC, had said in a joint presentation to the legislature that the proposed higher taxes in the PIB would make exploration of oil and gas uneconomical.

In 2012, Shell, Total, ConocoPhillips and Agip divested part of their stakes in the oil and gas industry. The multinationals were said to have sold a 45 percent stake in the seven oil concessions in five transactions.

Total, France’s largest oil company, has sold its 20 percent stake and operating mandate of its Nigerian offshore project to a local unit of China’s Sinopec for $2.5 billion.

Shell, a subsidiary of Royal Dutch Shell Plc (Shell), sold its 30 percent interest in Oil Mining Lease 30 (OML30) in the Niger Delta to Shoreline Natural Resources Limited.

ConocoPhillips, a United States (U.S.) oil company, disposed of its Nigerian onshore assets.

Last week, the Federal Government reportedly commenced negotiations with the IOCs operating offshore in order to review some contents in the bill. Since the delay in the bill is partly caused by the opposition from the multinational oil companies, it is believed that if a common ground is reached, it would go a long way in expediting the legislative process.

Nigeria maintains one of the most developed upstream oil and gas sectors in Africa, but has not truly reached its potential partly owing to poor legislation. The passage of the bill apparently would usher in the long-awaited reform of the oil and gas industry, which remains a major contributor to the Nigerian economy.

For a nation that is dependent on oil revenues for 90 per cent of its revenues, the PIB is too important to remain mired in the divisive politics of resource-sharing that has made a mockery of our federal status and held back investments in the sector. This insufferable arrogance must be discarded.

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