No other bill has been more popular since Nigeria’s return to democratic rule in 1999 than the Petroleum Industry Bill (PIB) – maybe the Freedom of Information Bill comes near. The reason is not farfetched: anything petroleum in Nigeria generates passionate interest.
Former President Olusegun Obasanjo set up a committee christened the Oil and Gas Industry Committee (OGIC), with a mandate to take a comprehensive look at Nigeria’s oil and gas sector and offer better ways of managing the industry.
The reforms were expected to form the nucleus of Nigeria’s aspiration of becoming one of the most industrialized nations in the world by the year 2020.
The committee submitted its report, and its recommendations formed the basis of the Petroleum Industry Bill in 2007. PIB was first introduced to the National Assembly in 2009. Since then it has suffered a number of setbacks. The delays have been on account of diverse interests scrutinizing its provisions.
The bill was meant to change everything from fiscal terms to overhauling the Nigerian National Petroleum Corporation (NNPC). Its comprehensive nature has caused years of disputes between federal lawmakers, oil ministry/presidency and multinational oil companies.
What is the purpose of PIB?
– Create a conducive business environment for petroleum operations
– Enhance exploitation and exploration of petroleum resources in Nigeria for the benefit of Nigerians
– Optimize domestic gas supplies, especially for power generation and industrial development
– Encourage investment in Nigerian petroleum industry
– Optimize government revenue
– Establish profit-driven oil entities
– Deregulate and liberalize the downstream petroleum sector
– Create efficient and effective regulatory agencies
– Promote the development of Nigerian content in the oil industry
– Protect health, safety and the environment in petroleum operations
Dr Ahmed Usman, a consultant in Oil and Gas based in Yenagoa pointed out that the multiplier effects of PIB are, “more jobs for Nigerians
– as it will become illegal to employ foreigners for certain skills that can be sourced locally.
Where such skills are sourced from abroad due to unavailability locally, a local is mandated to understudy the expatriate.
“It is not only applicable to skill, but to materials sourcing. In simple language, it means more jobs for Nigerian local contractors, especially those from the oil producing regions. Gas is still under-focused in Nigeria and the potential from this source of energy lays untapped. PIB seeks to maximize this. If well explored, this will boost power supply in Nigeria,” Usman added.
Buttressing the advantages of PIB, Gabriel Owanga, an oil worker in Port Harcout said: “Government revenue from oil industry will increase. This means more funds in the hands of government to engage in developmental activities. The downstream sector becomes fully deregulated. In other words, subsidy will fully go.
Environmental protection will be addressed to a large extent. According to Abiodun Ariyibi, FCA, Ariyibi and Co, Lagos, “The contentious issues in the bill include the production sharing contract (PSC), a private agreement between one or more international oil companies (IOCs) and our national oil company (NNPC), which vests a license or general exclusive authorization in the NNPC, to explore for, exploit and produce hydrocarbons.
PSCs seek to protect the national economic interests of host countries in the areas of technology transfer, training of local employees and preference for local suppliers. Host governments take such national obligations seriously.
But the IOCs are used to taking advantage of their scientific advancement to the detriment of their host countries and would want that to continue by claiming that the bill would stall investments. PIB says no and that is the problem.”
Ariyibi noted that other contentious issues include the 10 per cent Petroleum Host Communities Fund. Speaking further, he said, “another is the alleged enormous power granted the petroleum minister under the bill. Another contentious issue is the opposition of IOCs to the proposed fiscal regime which they claim is unfavorable to them.”
Lawmakers from the Northern states have consistently rejected the 10 per cent Petroleum Host Communities Fund. In his reaction to the Northern Legislators, Nwabueze Emeka of Emeka and Solicitors, Lagos noted that the provision as contained in the PIB was meant to bring Nigeria’s host community relations in line with international best practice. He said, “for example, the Economic Commission for Africa (ECA) provides some guidance for improving community participation in the sustainable development of mineral resources in Africa. Examples include, Papua New Guinea Act of 1992, which stipulates that a minimum of 20 per cent of royalties received by the government, should be paid to land owning communities of the mining lease area (In this case royalties are paid directly by mining companies to the agreed beneficiaries and then reconciled to central government for audit).
“Special Support Grants (also in Papua New Guinea) paid to a given provincial government, which represent about one per cent of the gross value of mineral sales of companies operating in the said province. Preferred Area Status (also in Papua New Guinea), which requires companies to provide preferential treatment in terms of employment, education and training and business development assistance to communities located in the area in which the company mines.
He asked rhetorically, “have they forgotten about the holding of mineral rights to platinum and other resources in the Merensky Reef in Northwest South Africa by the baFokeng tribe. The tribe is a shareholder in the Impala Platinum Holdings Ltd, which is the second largest producer of platinum in the Western world.
Nwabueze said, “from these international examples, it is obvious that promoting community participation in extractive industries is centered on six pillars:
preferential employment of local labour; contracting of services and procurement of goods from indigenous local companies; infrastructure provision to local communities; allocation of benefits from mining to local communities;
local community allocation of national revenue; and community equity participation.
Simply put, the PIB provides for compliance with sections of the NEITI Act 2007 which emphasize management of the nation’s extractive industry wealth to the benefit of the people. Former Regional Executive Vice President, Shell Exploration and Production, Africa, Ann Pickard disclosed that the PIB threatens to make a bad situation worse.
Pickard while delivering a paper titled: “Nigeria’s Position as a Key Player in Global Oil and Gas Markets” at the 2010 Nigeria Oil and Gas Forum, described PIB as “a cumbersome document that lacks insight into the very basics of our industry”. She painted a post-PIB bleak future in the oil and gas industry. She criticized the fiscal provisions of the proposed law which she described as the “harshest in the world”.
International and local oil companies under the aegis of Oil Producers Trade Section (OPTS), which is a conglomerate of 18 international and indigenous oil companies in Nigeria at a two-day public hearing organised by the Senate Joint Committee on PIB stoutly opposed the passage of the bill.
They contended that though the PIB possessed a unique opportunity to resolve the numerous challenges confronting the oil sector, it only sets out to aggravate it and simultaneously reduce investment potential in the sector. Apparently disgusted with the proposed fiscal terms in the PIB, the OPTS in their presentation made by its representative and Managing Director of Mobil Producing Nigeria (MPN), Mr. Mark Ward, stated that the bill fell short of addressing the challenges in the oil industry but increases royalties and taxes, making Nigeria the country with the harshest fiscal regimes in the world.
“The PIB presents a unique opportunity to resolve many of these challenges. However, in our view, the bill does not resolve these challenges but it will in fact reduce the much-needed investments to sustain and grow the oil and gas industry,” Ward said while comparing the fiscal terms spelt out in the PIB with those of 20 other countries.
He also argued the trend in such countries was to provide a platform for the balancing of high royalties with lower taxes and vice versa, adding the PIB failed to guarantee this because, “it significantly increases royalties and taxes and virtually eliminates all at the same time.”
“The result is that Nigeria will have one of the harshest fiscal regimes in the world, so harsh in fact, that not only is Nigeria uncompetitive, but the projects are actually uneconomic, meaning there is no acceptable return on investments. Ward said with the low-regulated domestic gas price and the enormous expenditure required to develop gas infrastructure, the OPTS said an incentive-based approach to domestic obligations was the best way to achieve the gas development, which Nigeria so clearly needs to jumpstart the gas revolution.
Mutiu Sunmonu, the Country
Chair of Shell Companies in Nigeria was of the opinion that the PIB before the National Assembly is lopsided and will frustrate current investments in Nigeria’s oil and gas industry and impede on the ability to meet set targets on power generation. Speaking in Lagos at the Nigerian Extractive Industry Transparency Initiative, NEITI, PIB Stakeholders Forum, he said: “As it stands right now, the PIB will render all deepwater projects and all dry gas projects whether for domestic or export markets nonviable.
“The opportunities I have just outlined will be lost. And the opportunity to monetise some of the world’s best gas reserves will be lost. The opportunities to kickstart the power sector, the key to economic growth using easily accessible gas will also be lost. “If the PIB does not encourage the development of the domestic gas market, none of this will happen and the consequences are almost unthinkable,” he said.
On the fiscal provisions of the PIB, Sunmonu argued that “the PIB needs to address long term industry issues; for example, funding issues for Joint Ventures, JVs, where funding requirements have constrained production growth.” During his speech which was tagged ‘Investors Perspective on the PIB,’ Sunmonu posited that it was not enough to desire having a strong national oil company, but one that can compete favourably.
He said: “Any national oil company has to partner positively and, again, has to compete with those elsewhere that are also seeking external investment. NNPC has got to be able to fund its share of JV costs if it is going to attract such external investment and partnership.”
Published in the Daily Times on Monday, January 19, 2015