With the formal presentation of the harmonised Petroleum Industry Bill to the National Assembly by President Goodluck Jonathan last week, there are concerns by stakeholders over its ability to meet their expectations
Perhaps in the entire history of legislation in Nigeria, no bill has generated so much interest, anxiety and controversy than the Petroleum Industry Bill, PIB, which was finally submitted for consideration to the National Assembly, NASS, last week by President Goodluck Jonathan.
David Mark, Senate president, raised hope last year when he assured that Nigeria will soon get over the insomnia created by the non-passage of the bill, which was first presented to the NASS about four years ago. Mark, who presided over the sixth assembly that got the PIB, described it as the “Bible” of the petroleum industry and blamed the existence of three different versions of the bill in the NASS for its non-passage. One version of the bill was drafted by the joint committee of the NASS, another adjusted version by the petroleum ministry while yet another, the ‘original’ bill prepared by the Oil and Gas Reform Implementation Committee, OGIC, in 2008.
The existence of these versions made Diezani Alison-Madueke, petroleum minister, to inaugurate a presidential task force under the leadership of Udo Udoma, senator and former chairman of the Board of the Securities and Exchange Commission, SEC, to work alongside a technical sub-committee headed by Osten Olorunshola, director, Department of Petroleum Resources, DPR, to review and harmonise the various versions of the proposed law in 30 days. The minister presented the harmonised bill to the Federal Executive Council, FEC, recently. But that did not end the controversy. Reuben Abati, special adviser to the President on media and publicity, last week had to warn members of the public against being misled by a “fake PIB” in circulation. “The presidency has noted with concern and dismay that a document alleged to be the new Petroleum Industry Bill is now in circulation and has even been published on some websites,” Abati noted in a press statement, adding that “the presidency wishes to categorically disown the document currently being circulated and published as the new PIB.” Even then the House of Representatives last Thursday returned the bill to the presidency because they would soon be on vacation.
With this situation, it is not surprising that the bill has been raising some concern in the industry particularly from major stakeholders. To Emeka Okwuosa, a Lagos-based public energy and maritime consultant, concerns about the bill are numerous. According to him, certain provisions of the bill pose some threat to previous joint venture agreements, JVAs, between the Nigerian National Petroleum Corporation, NNPC, and the international oil companies, IOCs. He explained that the IOCs want the status quo to be maintained in respect of pre-PIB JVAs with NNPC ostensibly because they are afraid that tampering with the agreements will cede too much control to the government.
Another concern is the host communities’ equity participation in the upstream oil and gas industry. While the IOCs are rooting for eight per cent, the bill proposes 10 per cent equity stakes for host communities in respect of profits from oil produced in their areas. It was also alleged that the IOCs got sympathy in certain members of the NASS who felt with 13 per cent derivation earlier granted the oil-producing states by former President Olusegun Obasanjo, the host communities were becoming Oliver Twist, asking for too much.
Besides, the IOCs are not comfortable with the envisaged high fiscal regime and increased royalty in the proposed law. In the area of allocation of oil blocks, IOCs want a competitive, open, non-discretionary licensing and tender process under the PIB. This is because in the past, oil blocks allocation was at the mercy of whoever was ruling the country. It was an era of “discretionary” oil block allocation, which saw all manner of persons owning oil blocks.
The first bold effort at redressing this imbalance was taken by Obasanjo who introduced competitive bidding for oil blocks. But Obasanjo’s best was not good enough as the IOCs who are Nigeria’s traditional partners in the oil and gas business, shunned all the bid rounds, leaving them to local and Asian investors. The IOCs were particularly irked that Chinese and Indian firms were given the controversial right of first refusal, ROFR, to some of the juicy acreages at the disadvantage of other local and foreign investors that were interested in bidding for the same blocks. As a sign of their disapproval of the manner bid rounds were conducted under the Obasanjo administration, the May 11, 2007 exercise was boycotted by the IOCs because they felt that with the ROFR granted to some companies prior to the exercise, the exercise would only amount to a mere formality as the government might have allocated the oil blocks to its preferred firms.
According to Okwuosa, another lapse in the previous versions of the bill had to do with the absence of fiscal regime for gas. He said fiscal regime for offshore drilling was poorly drafted as it omitted ultra deep offshore drilling while there was no comprehensive blueprint for the privatisation of the NNPC to make it function like its counterparts in Brazil and other parts of the world. “The role of minister of petroleum resources in the post-PIB regime is not properly defined – for instance: Who oversees the reform implementation process? Should the minister’s discretionary power to award and revoke licences be retained? Should the minister’s role be restricted to policy making and setting directives for the industry only,” he asked.
Other concerns are the existence of multiple agencies in the oil and gas industry performing practically the same function and the lack of transparency and accountability, coupled with high incidence of corruption, which have been the bane of oil and gas operations in Nigeria. Described as an attempt to coalesce about 16 different laws governing the oil and gas industry, the bill a copy of which was made available to the magazine, unveils a decisive move by the government to turn the industry around, and make state-run oil firm, the NNPC, run as a profit-making organisation.
The bill states that the management and allocation of petroleum resources and their derivatives in Nigeria shall be conducted strictly in accordance with the principles of good governance, transparency and sustainable development of Nigeria by providing for an orderly, fair and competitive system; clear and effective legal and institutional frameworks for organising petroleum development activities; and a fiscal regime that offers fair returns on investments while optimising benefits to the Nigerian people.
Chapter two of the bill deals with the vexed issue of transparency and good governance. “In achieving their functions and objectives under this Act, the institutions and the companies established in pursuance of this Act shall be bound by the principles of the Nigerian Extractive Industries Transparency Initiative Act LFN 2007,” the bill stated.
Another important provision of the bill is the creation of the Petroleum Host Communities, PHC, Fund, which shall be utilised for the development of the economic and social infrastructure of the communities within the petroleum producing areas.
It further provides that each upstream petroleum company shall remit on a monthly basis 10 per cent of its net profit from onshore and offshore operations into the PHC Fund. The bill states that at the end of the fiscal year, each upstream petroleum company shall reconcile its remittance, warning however, that “Where an act of vandalism, sabotage or other civil unrest occurs that causes damage to the upstream facilities allocated to a community, such community shall forfeit its entitlement to the portion of the PHC Fund determined by the inspectorate to be sufficient for repair and remediation of the damage.”
The bill which makes far-reaching proposal for both the upstream, midstream and downstream sectors of the oil and gas industry stated that all acreage for exploration, development and production of petroleum in Nigeria shall be administered by the inspectorate, which becomes the ultimate reservoir of all data related to upstream petroleum operations. On the management of petroleum acreage, the bill proposes the adoption of a national grid system for petroleum acreage management for the inspectorate, which shall be based on the Universal Transverse Mercator, UTM, a more sophisticated geographical system of locating coordinates on the surface of the earth.
Another aspect of the bill, which is of concern to both the IOCs and indigenous players in the upstream sector, is taxation. According to the bill, “The assessable tax for any accounting period of a company shall be a percentage of the chargeable profits for that period aggregated separately as follows; (a) 50 per cent for onshore and shallow water acres (b) 20 per cent for frontier acreages and deep water areas.” If this tax regime in the bill is retained and eventually passed into law, it would mean that both indigenous oil foreign companies would pay 30 per cent of their profit as income tax to the government, while the hydrocarbon tax would be determined by the size of each company’s operations.
Contrary to the fears of IOCs, this is a decline in payable tax as 85 per cent and 50 per cent tax respectively were contained in previous drafts of the bill. The bill explains further that, “A crude oil company which executed a petroleum sharing contract with the Nigerian National Petroleum Corporation (NNPC ) in 1993 and which is yet to fully utilise its available investments tax credits, as at the effective date, shall be entitled to claim the balance as an offset against the assessable tax.”
Taiwo Oyedele, a consultant with PriceWaterhouseCoopers, allayed the fears of indigenous operators, stressing that they were not going to pay double taxes. He said that the bill seeks to separate the tax, which the companies were paying before now into two, namely Hydrocarbon Tax and Company Income Tax.
Tunde Afolabi, a leading indigenous upstream operator, cautioned that the tax structure in the bill should not be a disincentive to indigenous operators. Afolabi who is the chief executive officer, CEO, Amni International Petroleum Development Company, said, “My expectation is that the tax regime is not drastically different from what it used to be; that indigenous companies are given rebate to have a robust fiscal regime. If this is the case, it is a win-win situation for the government, the IOCs and the indigenous companies.”
On the issuance of licences and leases, the proposed bill says the minister may, on the recommendation of the inspectorate, grant a licence, to be known as Petroleum Exploration Licence, to carry out exploration on a non-exclusive basis; a licence to be known as a Petroleum Prospecting Licence, to prospect for petroleum; and a lease, to be known as a Petroleum Mining Lease. Finally nailing the coffin of “discretionary” award of oil block licences, the bill adds that where the minister decides to grant a licence or lease, it shall be to the winning bidder provided the winner has complied with all requirements specified in the bid process, part of which is that such licences may be granted only to a company incorporated in Nigeria under the Companies and Allied Matters Act or any corresponding law.
“The grant of a petroleum prospecting licence or a petroleum mining lease not derived from a petroleum prospecting licence in respect of any territory in, under or upon the territory of Nigeria shall be by open, transparent and competitive bidding process conducted by the Inspectorate,” the bill stated unambiguously, adding that the call for bids shall be made available to the general public through publications on the website of the inspectorate and in at least two newspapers with international coverage and two newspapers with national coverage while all bids received based on the bid parameters shall be handled in accordance with the published guidelines and monitored by the Nigeria Extractive Industries Transparency Initiative, NEITI. It also identified eight grounds for revocation of a licence or lease.
Isaac Aberare, general secretary, National Union of Petroleum and Natural Gas Workers of Nigeria, NUPENG, said it is a sharp departure from what it used to be. Though he is yet to see the copy of the new bill, Aberare nonetheless commended the enthronement of competitive bidding process in the industry, arguing that it will spur more investment in the industry. “It is part of the things we have been agitating for, so it is a welcome development,” he told the magazine.
Determined to correct the errors of the past, the bill is also not silent on the issue of gas flaring, which constitutes waste and hazards to health, safety and environment, HSE, as it empowers the minister to determine penalties for gas flaring in the country. It also includes gas pricing principles and made mandatory, the inclusion of gas utilisation plans as part of pre-requisite for the grant of oil licences. As a mark of the importance the bill places on the gas sector, it provides that the sector will be regulated in accordance with the national master plan for gas. The gas master plan is designed for the sustainable development and utilisation of the natural gas resources of the country. Furthermore the bill will ensure that no licence or lease for the production of oil and gas, whether onshore, offshore or deepwater, shall be granted to any applicant unless the application is accompanied by a comprehensive programme for the utilisation or re-injection of natural gas.
Hyacinth Udemba, a solar energy expert, welcomes the development, which he says will guarantee adequate gas supply to power the turbines of ongoing power plants across the country. Udemba lamented a situation where shortage of gas supply to power plants suddenly became an issue in a country said to be a gas enclave with a spec of oil. “Prioritising gas in the country is a welcome development because gas is needed to fire the turbines of the numerous power plants being built by the federal government to end the nation’s long nightmare in the power sector,” he said.
The bill has set an ambitious gas flare-out deadline for the country. “Natural gas shall not be flared or vented after 31st December, 2012, in any oil and gas production operation, block or field, onshore or offshore, or gas facility,” except with special permits granted by the minister. However, the minister may grant a permit of 100 days or more to flare or vent gas in cases of start-up, equipment failure, shut down, safety flaring or due to inability of gas customer to off-take.
Aside from the National Petroleum Inspectorate, NPI, which shall be a successor to the assets and liabilities of the Petroleum Inspectorate of the NNPC, the DPR and the Petroleum Products Pricing Regulatory Agency, PPPRA, the bill seeks to create the National Petroleum Directorate, NPD, which shall have power to enter into contract and incur obligations, acquire, hold, mortgage, purchase and deal with property whether movable or immovable, real or personal. Other creations of the bill are the National Frontier Exploration Services, NFES, the National Oil Company, NOC, Nigeria Petroleum Asset Management Company, NPAMC, and Petroleum Technology Development Fund, PTDF.
While the NOC shall be known under CAMA as Nigeria National Oil Company, it shall be limited by shares to replace the NNPC. Share at incorporation shall be held by the Ministry of Finance Incorporated and the Bureau of Public Enterprises, BPE, on behalf of the government. “Government shall, at any time within three years from the date of incorporation of the NOC, divest itself of an amount of the shares of the NOC to the public in a transparent manner as appropriately determined by government.” NPAMC, like NOC, shall be the successor company to certain assets and liabilities of the NNPC with shareholding in the like manner of the NOC but “shall be subject to the Fiscal Responsibility Act LFN 2007 and Public Procurement Act LFN 2007 while PTDF shall continue to mobilise funds to develop the requisite technical and management manpower requirement of the industry.
Anthony Goldman, CEO of London's PM Consulting, says the pendency of the bill has taken toll on investment in the nation’s oil and gas industry. “It has already forced the government to abandon a lucrative oil licensing round. Investment in new projects in the sector more generally has been constrained; ambitious plans for $80 billion integrated gas gathering and processing system remain exactly that: ambitious plans,” he said. The oil majors have also stated that over $50 billion of potential investments have been put on hold on account of the non passage of the bill, whose preparation has gulped almost N500 million. It is estimated that up to $120 billion in oil and gas industry investment, largely by Royal Dutch Shell, Total of France, and Chevron, United States oil major, had been stalled because of the bill.
Olorunsola says Nigeria’s crude oil and gas reserves have continued to witness a steady decline in the last three years. “Nigeria's oil and gas reserves has been on the decline in the last three years and this has never happened since 1956. This is not acceptable to the government and the industry has to think of how to turn things up again – and for the better,” he said. Ajibola Muriana, chairman, House of Representatives Committee on Upstream Sector, recently raised an alarm over current lull in investment activities in the oil and gas industry due to continued delay in the passage of the PIB. “We all know the implications of the bill not passed into law. However, we are told that those areas of contention are about to be resolved. So I can assure you that the bill once presented to us, definitely, within the next two weeks or one month, we will do justice to it,” he assured.
But last week’s return of the bill to the presidency indicates that the House does not appear to share Muraina’s optimism. The Senate has however promised to spare the bill of unnecessary delays before being passed into law. Ita Enang, chairman, Senate Committee on Rules and Business, said, “We will be very reasonable in our consideration of the bill knowing the importance that it has in investment in the petroleum sector. We will be reasonable in the timing and consideration,” he assured.
Nigeria has oil reserves of 3.72 billion barrels in addition to undeveloped gas reserves of 173.6 trillion cubic feet, tcf, while it contributes about 2.4 million barrels to the total daily output of the Organisation of Petroleum Exporting Countries, OPEC. Under the microeconomic framework and direction of President Jonathan’s Transformation Agenda, government is projecting a baseline gross domestic product, GDP, growth rate of 11.7 per cent per annum for the period 2011 to 2015 which it hopes will translate to real and nominal GDP of about N428.6 billion and N73.2 trillion respectively at the end of the transformation period.
It is assumed that the growth will be spurred largely by the oil and gas sector with government projections of N40.75 trillion in nominal terms required for the implementation of the programme. Government sources say if the PIB is passed, it would increase government’s revenue to more than N105.4 trillion naira or USD $680 billion dollars annually. All these projections may remain mere wishful thinking if the PIB continues to remain a controversial document and a source of discord between the executive and the legislature.