Wednesday, February 9, 2011

Petroleum Industry Bill: Dialogues without end? Great article! Well written!

Ademola Adedoyin

By the day, the PIB has continued to generate heat and passion. Only recently, through Wikileak, it came to be known that some international oil companies, hands in glove with some Presidency officials and legislators have been doing everything to ensure that the bill does not see the light of the day. To keep the debate alive and to rouse the Assemblymen to perform their patriotic duty of enacting this important law, we hereby reproduce an earlier column on PIB.

Last Wednesday, President Goodluck Jonathan raised the bar in the seemingly unending discourse on the Petroleum Industry Bill in far away Turkey when he promised that the bill will become law before the end of the tenure of the present parliament in May.

It is just as well that the Nigerian National Petroleum Corporation, NNPC, is planning to call out stakeholders in the oil industry for another round of jaw-jawing over the contentious and highly inflammable Petroleum Industry Bill. Rather than allowing watchers of the industry to go away with the feeling that the long awaited bill has ran into deep troubled waters, it is better to sustain the impression that something is cooking and that, very shortly, the bill will be served oven fresh as the body of laws that will guide operations in the crucial sector.

In terms of length of times, energy, and controversies generated, Petroleum Industry Bill, when and if eventually enacted, must earn a place in Nigeria’s law making history as a platinum winner. In incubation for over ten years now, the omnibus bill, which seeks to harmonize all the existing laws in the industry, is proposed to guide operations in the down, mid and upstreams subsectors of the industry. Although many watchers submit that the bill is principally informed by the justifiable need for the government to earn more revenue from the oil and gas sector, experts are also in agreement that the existing laws have become outdated, not in conformity with global best practices and generally lacking in transparency.

The Bill, a faction (there are many functions in circulation of which has over 500 provisions, seeks to give “sovereign control of petroleum resources” to Nigeria through ensuring maximum government’s take without compromising return on investment.
How does the bill aim to achieve this delicate balance of increasing government take and control without compromising investment? This knotty issue, today, remains the albatross around the neck of PIB and the clog that halted its wheel in the journey to becoming a law. To increase government revenue in the oil and gas sector, the bill seeks to create a much more transparent administrative system where all stakeholders could have access to information and indicate interests on a given venture/projects in the sector.

More crucially, it tries to amend some aspects of the Petroleum Profit Tax Administration PPTA, which treats information relating to the chargeable profits of companies as confidential and secret. The bill when and if it eventually becomes a law, will place emphasis on rents and royalties and less on taxes thereby simplifying collection of Petroleum Revenue.

On the whole, the Bill seeks to review the fiscal terms that exist between the Federal government and the six joint venture operators in the deep water, offshore and onshore operations.

Ten years and third reading in both chambers of the National Assembly later, the Bill remains moribund as mega interests collide rendering what ordinarily should be a routine enactment a tug of legislative, executive and oily war.

On this bill, the International Oil Companies, IOCs, that produce about 95 per cent of the nation’s crude oil, are not mincing words about their resolve to have their way or have the country face the consequence of insisting on having it her own way.

The IOCs complaint is that the fiscal terms being prepared through the bill will reduce their take to a point where their investment will cease being attractive. Their submission is that PIB, in its present form, is investor unfriendly, uneconomic and a stumbling block against the government’s targets of achieving 4 million barrels a day by the end of this year.

On this score, the IOCs have sympathizers even in the club of core Nigerian industry operators. One of these is the former Group Managing Director of NNPC, Funsho Kupolokun who argues that the fiscal terms prepared under the PIB were inimical to the government in the long run, and disincentive for further investment.

There are those who, however, insist that the government deserves to earn more from its oil and gas resources through contemporary fiscal terms as obtained in other oil producing countries. To observers, the IOCs have for long, shortchanged the country and the country deserves a better deal. They cited the loss of about $18 billion between 1999 to year 2007 to the IOCs through government negligence in proposing relevant amendments to the Deep Offshore and Inland Basin Production Contracts Act of 1999 to the parliament.

A clause in this Act stipulates that any time the price of crude oil exceeds $20 per barrels, the country is entitled to additional revenue from oil acreages governed under the Production Sharing Contracts, PSC, arrangement.
Although crude oil sold at more than $20 per barrel from 2004 to 2008, a period during which about $35 billion accrued from four of the five deep water fields that PSC covered, not only that the government was negligent in earning about $18 billion from the windfall, the IOCs concerned did not deem it fit, in the spirit of good corporate governance and global best practices, to point government’s attention to this costly oversight.
A respected leading indigenous upstream operator told this writer Monday afternoon that “the government should not allow itself to be intimidated by the IOCs. Given what accrues to government and nationals of other oil producing countries in OPEC, it is obvious that these companies have been having an endless party in Nigeria. Putting an enactment in place to ensure that the government earns more legitimate earnings cannot be a recipe for divestment. Investors will always be interested in producing oil and gas. The only thing government needs to do is to get its acts right politically and security wise. Nigeria deserves more earnings from oil and gas. The years of indecision and fear of IOCs over this PIB must end.”

Indeed more analysts are in agreement on the need to encourage Nigerian Independent Petroleum Producers, NIPP, who, in the main, develop and produce small fields. These experts are worried that today, Nigerian Independent Petroleum Producers add less than 5 per cent to total daily crude oil production. PIB aims to encourage these local producers to develop small fields with significant low Tax incentives having a bottom level of 5 percent royalty scale, based on daily production. The local content provision has also been incorporated into the bill to further deepen Nigerians’ participation in the sector. All these provisions are aimed at ensuring that the IOCs are not able to blackmail the government and arm twist it into doing their bidding.

There are however those who contend that the matter is not that simple. More observers today are concerned that even though Nigeria has vast oil and gas reserves to attract investors, local and foreign, Nigeria’s unstable polity, security issues and corruption remain critical factors in investors’ calculation when it comes to Nigeria. To add unfavourable fiscal incentives to these factors could turn out not to be in the interest of the government, in the long run, these observes argue further.

They contend that given the opening of operations and more fields coming on stream in Angola, Ghana and more discoveries in Arabian countries, Nigeria may be shooting itself in the foot if it chooses to ignore the fear and concerns of the IOCs. This fact becomes more glaring when it is realized that the investors in these other countries have a more business – friendly environment to work than what obtains here.

And with Nigerian Independent Petroleum Producers at the moment doing less than 5 percent, no amount of incentives to them can immediately turn the situation around in such a significant manner as to diminish the influence of the IOCs in the years to come.
Given these stark realities before the federal government who, justifiably needs to earn better and more from the nation’s oil and gas and the IOCs, with its critical role in oil and gas exploration and production, all stakeholders need to come to a round table, trash out issues and bring these endless dialogues to a close. In the interest of all concerned, the time for PIB enactment is now.

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