Tuesday, September 14, 2010

Nigeria loses $100 billion investment over oil industry reform


•As FG effects 158 changes in PIB

Strong indications have emerged that Nigeria has, over the past five years, lost about $100 billion worth of oil and gas investment, following the Federal Government’s decision to reform the entire petroleum industry, including the restructuring of the fiscal regime.

Shell’s Executive Vice-President of Upstream Australia, Ms Ann Pickard, who is equally the company’s Executive Vice-President of Exploration and Production in Africa, said the losses were due to the uncomfortable posture of the major industry players because of the Petroleum Industry Bill (PIB).

This emerged as the Federal Government equally acknowledged that the bill had been the source of major concern by the industry operators, disclosing that in response to these concerns, intensive discussions had been held with a variety of stakeholders to find a common ground.

As a result of these discussions, 56 changes were made to respond favourably to comments by the petroleum industry through Oil Producer Trade Section (OPTS), 36 changes were made in response to comments by the Federal Inland Revenue Service (FIRS), and 66 changes made in response to other stakeholders, while changes were also made to reflect comments by International Monetary Fund (IMF) and by an international law firm which served as an independent reviewer.

Pickard said that Nigeria, one of Shell’s prime investment destinations, tried to introduce a new tax code and consequently, lost about $100 billion worth of oil and gas investment over the past five years.

The Shell boss, who had been at the vanguard of the campaign against the PIB, said “above-ground risks” in Nigeria’s oil and gas industry included petroleum retention licence issues, unions and changing fiscal regimes.

The Special Adviser to the President on Petroleum Matters, Dr. Emmanuel Egbogah, while addressing some industry operators at the Petroleum Club, Lagos, stated that following the changes made in the PIB, the final version of the government memorandum incorporating these changes had been sent to the National Assembly for their consideration.

The Senate and the House of Representatives, it was gathered, had been working independently on the bill and it was currently awaiting harmonisation and final reading before passage into law.

Egbogah said that the Federal Government’s efforts at reforming the oil and gas industry were aimed at re-positioning the industry for better performance. The fiscal provisions of the PIB, though would result in slightly higher government take than what is currently existing, would still leave investors with very competitive terms relative to other jurisdictions.

He said that it was the Federal Government’s expectation that the reforms would encourage continuous investment by all investors, adding that the proposed acreage management system would provide significant opportunities for other big and small companies in Nigeria or any other part of the world to participate in further development of Nigeria’s oil and gas industry.

According to him, the structural changes would ensure clarity in the different roles of the agencies and most importantly foster transparency in the activities of the industry.

Egbogah said the industry had some misconceptions about the PIB, which include that the NNPC would be the operator of the Incorporated Joint Ventures (IJVs), explaining that there was no provision in the Government Memorandum to make NNPC the operator.

The Special Adviser to the President on Petroleum Matters said: “The IJVs constitute a “Chavez style” takeover of the petroleum industry. Unlike in Venezuela, the Government Memorandum states specifically that the IJV will be similar to the current joint operating agreements.

“The strengthening of powers of NNPC through the creation of NNPC is part of an overall process to expand state control. The government memorandum includes a provision that the privatisation of NNPC to any degree is pre-approved.

“The Proposed terms of the deep water Production Sharing Contracts (PSCs) make these contracts uncompetitive for further developments. The proposed terms provide for an overall government take that is less than in Angola under most conditions.

“The proposed terms make Liquefied Natural Gas (LNG) exports uneconomic. Assuming similar conditions, the proposed fiscal terms for exported gas are similar to Trinidad and Tobago, Egypt and Indonesia.

“The benchmarking provisions for project costs will result in much of the costs incurred by investors being denied for Nigerian Hydrocarbon tax purposes. As proposed, there is no intention to deny any costs that represent fair market value other than the costs specifically mentioned in the Government Memorandum.

“Domestic gas prices should be market based. The Government memorandum provides for a market based system of domestic gas pricing from 2014.

“It is not economic to invest in gas pipelines and processing plants to connect the gas resources to the power plants. The provisions in the Government memorandum provides for one of the highest regulated rate of return in the world on gas pipeline and gas processing investments.

“The creation of a special midstream regulatory entity is a duplication of efforts and is not done anywhere in the world. The midstream regulatory entity as proposed is identical in structure and powers to entities existing in countries that are both important gas producers and consumers such as USA, Canada and Algeria

“The implementation of the new midstream regulatory system will require large scale internal reorganisation on the part of existing International Oil Companies (IOCs) in order to be both producers and transporters of gas in Nigeria. This will be time consuming and expensive. The only requirement in the Government Memorandum is for existing IOCs to create subsidiaries dedicated to transportation.

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