A Review of the Nigerian Energy Industry

Nigeria: Who is afraid of the PIB?

19 October 2014, Lagos – In this discourse, Sylvanus Ekpo, a media practitioner, examines the odyssey of the Petroleum Industry Bill (PIB), which is perhaps the most controversial and misunderstood bill under consideration in the National Assembly, and the conflicting interests that have delayed its passage into law …

“It is not the strongest or the most intelligent who will survive but those who can best manage change”- Charles Darwin

The Petroleum Industry, widely regarded as the highest revenue earner in Nigeria, plays very significant roles in the development of the country . It is the nerve center of the nation’s growth and development, employing a vast number of skilled and unskilled Nigerians, and expatriates.

Diezani Alison-MaduekeHaving fully understood the potentialities in the petroleum sector, former President Olusegun Obasanjo upon his inauguration in 1999 , in the midst of the clamour for more transparency and good governance in the sector , set up the Oil and Gas Industry Committee (OGIC ) under the chairmanship of veteran petroleum engineer and former Secretary General of the Organization of Petroleum Exporting Countries (OPEC), Mr. Rilwanu Lukman. The committee was mandated to examine better ways of managing the huge resources and revenue that were accruing to the country through the sector . Although several attempts had been made since the early 1950’s to tinker with the industry , none had been so holistic as the current effort on the PIB , ostensibly to push the industry beyond present day status to an enviable height. The Lukman committee eventually formed the basis for the PIB.

The PIB seeks to ensure that the management and allocation of petroleum resources in Nigeria and their derivatives are conducted in accordance with the principles of good governance, transparency and sustainable development in Nigeria. After several years of tinkering with its contents. The PIB finally berthed at the National Assembly on 18 July 2012.

Anticipated outcome of PIB:

The Bill seeks to achieve the following core objectives: Create a conducive environment for petroleum operations in the country; enhance and increase the exploitation and exploration of petroleum resources in Nigeria for the benefit of all; optimize domestic gas supplies, especially for power generation and industrial development; attract foreign investment into Nigeria’s petroleum industry and create efficient and regulatory agencies.

Benefits of PIB for Nigerians:
When fully operational, the PIB will help generate massive job creation for Nigerians. Those with the necessary skills set will find their place in the oil and gas industry. It will be illegal for foreigners to contend with Nigerians for the same job positions. They will be under studied by local counterparts for necessary skills transfer and materials sourcing.

More jobs will be created for Nigerian contractors especially in the oil producing states to fully address the long years of maximum neglect they have suffered through lopsided political actions. It is often said that Nigeria has more gas than oil. The future of gas in the country will find expression through the massive investment that will flow to the gas utilization sector, fully maximizing its use in homes, and boosting the power sector as well. The heady subsidy scheme that has become a racket for saboteurs will go with full deregulation and liberalization of the downstream sector.

In line with global best practices, it will create better room for environmental protection of the Niger Delta, and stiff sanctions for defaulters – oil spillage, deforestation etc. No doubt, government revenues will see a massive boost from the various taxes that will accrue to government coffers, especially from the following sources: Joint Venture Cash Calls Royalty, Petroleum Profit Tax, Rent, NNPC earnings from crude oil sales, proceeds from domestic market, penalty from gas flared, pipeline licenses and other fees, excise and VAT on domestic crude. Hopefully, with transparent dealings by all concerned, the $6billion theft of crude oil in the country will be checkmated.

Features of the PIB:
When fully operational, the PIB regime will undertake a comprehensive review of existing laws currently in use in the oil and gas industry . They include but not limited to the following: Associated Gas Re – Injection Act; Motor Spirits (Returns) Act 2004; Petroleum Act 2004; Petroleum Products Pricing Regulatory Agency Act 2003; Petroleum Equalization fund, 2004; Petroleum (Special) Trust Fund Act 2004; Petroleum Technology Development Fund Act 2004; Deep Offshore and Inland Basin Production Sharing Act 2004; and the Petroleum Profit Tax Act 2004

All or some of the above will be repealed to make way for the Petroleum Technical Bureau (PTB) ,Upstream Petroleum Inspectorate (UPI) , Downstream Petroleum Regulatory Agency , PTDF,PEF, and the Petroleum Host Communities Fund (PHCF).

Having regard to the PHCF, the controversy surrounding it seems to grow by the day . The PHCF essentially mandates oil and gas operators in the Niger Delta to contribute 10 % of their profits after adjusting for hydrocarbon tax and companies Income tax into their funds – to develop the economy and infrastructure of these communities and sanction all acts of vandalism through outright forfeiture of development projects.

Currently, Nigeria loses an estimated $6billion dollars (N924B) annually to oil theft , a huge strain on the nation’s petroleum resource. It also loses about $105 billion to theft of refined products , according to the President of PENGASSAN , Mr. Babatunde Ogun . Unrestrained access by vandals to gas pipelines that criss-cross the nation have led to huge revenue and pipeline leakages and maintenance problems for the organizations .Such acts of vandalism have also led to the despoliation of the environment , further aggravating the level of poverty and disease in such communities . These illegal activities led to a fire outbreak at Arepo and Ogun; the Nembe Creek was shut down by Shell after 60,000 bpd of crude oil was stolen by the oil mafia at Nembe Creek . In Bayelsa, Agip suspended production because 60% of its production is stolen . Strangely , no one has ever been caught.

According to the PENGASSAN President, “This is a threat to our national security and our democracy. If this kind of huge amount of money gets into the wrong hands, it can destabilize our democracy.”

Report of Senate Joint Committee on PIB:In July ,2013, the Senate of the Federal Republic of Nigeria held a 2-day public hearing where stakeholders including the Minister of Petroleum Resources , Mrs. Diezani Alison – Madueke , State Governors and Representatives of both Government Parastatals and Oil Companies made inputs on the bill before the senate joint committee. At the occasion, the Minister of Petroleum Resources said it would take five years before the provisions of the Bill could be fully implemented . She further said that it was incumbent on Nigeria to borrow best practices from other developed countries in order to create sustainable policies. She disclosed that the PHCF as presently encapsulated in the bill was intended to mitigate human and environmental conditions in oil producing regions and to assuage the feeling of host communities towards oil and gas companies.

In his presentation , the Mobil Producing Managing Director , Mr Mark Ward , speaking under the auspices of Oil Producers Trade Section (OPTS) opposed he passage of the bill in its present form , alleging that the P/B fell short of addressing the challenges in the oil industry. He said the bill sought to significantly increase royalties and taxes thus making Nigeria ” the harshest fiscal regime in the world “, noting that projects will become uneconomical. On the intended gas revolution in the country, Mr. Ward maintained that it was better to use incentive based approach to domestic gas obligations to jump start Nigeria’s much needed gas revolution.

From the Nigeria Extractive Industries Transparency Initiative (NEITI) comes the submission that the powers vested in the Minister of Petroleum Resources needed to be reduced for effective regulation and called for the establishment of autonomous institutions that would create standards of governance for protection of the Nigerian Environment.

The Revenue Mobilization Allocation & Fiscal Commission (RMAFC) , in its submission , negated the provision for 10% contribution of operator profits to the PHCF , rather advocating for the constitutional provision of 13% of revenue accruing from the Federation Account to be paid to oil producing states . It further recommended the remittance of revenue by petroleum regulatory agencies into the commission’s account under the PIB, the roles of the minister of petroleum resources are enlarged. Given the amount of work that has gone into the PIB from members of the National Assembly, it is only proper to salute their courage for coming this far in trying to reposition Nigeria’s Oil Sector.

In spite of all the set backs and road blocks put in their path, by local and international interest, it is clear that our Legislators mean well for this country and will do all in their capacity to stop the hideous campaign against the PIB. With Transparency and good governance as the key word in the oil industry, the worrisome statistics of oil theft, vandalism and dirty oil deals in the form of subsidy will be consigned to the dustbin of history. In a world , where there are new forms of hydrocarbons such as shale oil , it is only expedient that Nigeria takes the bull by the horns by harnessing the limitless possibilities that the PIB seems to represent , not only for now , but the future prosperity of our country . Those who oppose the PIB for whatever reasons, still need to be properly tutored on the dynamics of allowing the oil producing communities to survive after decades of irresponsible oil and gas exploitations with its attendant environmental hazards. In the soothing words of the Senate President, Senator David Mark, “Oil companies should not take advantage of Nigeria. What I do not want is when people begin to threaten that if you do not do this, we will pack out of Nigeria. That is not the correct thing. We are conscious of the fact that there is frustration in the oil industry”. We endorse this position.
*Daily Independent

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