Oil And Gas Sector Reforms. Controversy Rages On

This controversy just won’t end! The Nigeria Oil and Gas Conference held in Abuja provided the stage for another round of spirited arguments on the Petroleum Industry Bill, PIB. The bill provides a comprehensive legislative framework for the Federal Government’s reform programme for the oil and gas industry and updates the laws by which the industry is run.

While government regards the PIB as an instrument to reposition the Nigerian industry and bring it up to international the international oil companies view with disfavour aspects of the bill particularly the fiscal regimes. They believe if the bill is passed without what they consider as necessary amendments it would render their operations in Nigeria uneconomic.

Andrew Fawthrop, Managing Director, Chevron Nigeria Limited and Shell’s Executive Vice President  for sub-Saharan Africa, Ann Pickard were pointsmen for the IOCs, while Acting President Goodluck Jonathan, Petroleum Minister, Rilwan Lukman and his deputy, Odein Ajumogobia spoke on government’s position. NNPC’s Group General Manager Public Affairs, Levi Ajuonuma, also issued a statement outlining the corporation’s position on PIB.
Fawthrop said the PIB in its present form, will drastically slow down deepwater growth. “Dialogue is needed to ensure that government’s aspirations are achieved by the PIB and not inadvertently derailed”, he said.

Toeing the same line, Pickard said the content of the bill if passed into law would take years to correct. She observed that under the present version of the bill government would have the legal right to renegotiate contracts, impose higher costs on oil companies and retake acreage that firms have yet to explore.

Said Pickards: “If passed in the form currently proposed, its mistakes will take years to correct and its harsh terms for deepwater projects may drive as much as US$50 billion in investment elsewhere”. According to her the priorities of government have been completely lost in a “cumbersome document that lacks insight into the very basics of our industry”.

She urged that the bill shouldaddress issues of multiple taxes, royalties and other concerns of the IOCs and other stakeholders before it is passed into law. She warned that Nigeria might be eclipsed by rival sub-Saharan African producers if it does not address the challenges confronting its oil and gas sector. She said offshore output from Angola would be double Nigeria’s by 2020. Angola has already surpassed Nigeria as Africa’s leading producer. “Nigeria’s position in global oil and gas markets cannot be taken for granted”, she noted.

Continuing Pickard said the stagnation of Nigeria’s oil industry could be blamed on a failure to recognize that “we all benefit from taking a fair share of a growing industry rather than an excessive share of a declining one”. She noted that Nigeria’s oil and gas production has not only failed to grow but fallen every year since 2005. Its share of global production is shrinking. “It has fallen just over 30 percent since 2005. Investment in the industry has stalled. Final Investment Decisions are not being taken in deepwater and unlike Australia, no new Liquefied Natural Gas, LNG project has been approved”, she noted.

Lukman was positive about the bill, saying, it would herald a new era of accountability and transparency. He said the bill when it is passed into law, would facilitate an overhaul of fiscal regimes, enhance support for host communities, the implementation of local content and the establishment of regulatory agencies with clear cut responsibilities.

The minister emphasized that the content of the PIB reflected the aspirations of most of the industry’s stakeholders. “Memoranda were subjected to through deliberations with the key stakeholders in the industry and indeed about 56 changes were made to respond favourably to the comments of IOCs through their trade organization  OPTS. Thirty-six changes were also made to respond to the concerns expressed by the Federal Inland Revenue Service and 66 other changes in response to other stakeholders.

Minister of State for Petroleum Resources, Odein Ajumogobia said oil supply in Nigeria stands the risk of retrogression. This made it imperative for government to pursue the oil industry reform programme.

NNPC spokesman Levi Ajuonuma dismissed suggestions that PIB would have an adverse impact on the industry. In a statement which responded to argument proffered at the conference by IOCs against PIB, Ajuonuma waved off the contention that the proposed bill would make Nigeria’s production Sharing Contracts, PSC, which stands at 42 percent when the average worldwide is 75 percent, the harshness in the world. In Angola it is 78 percent, in Norway it is 76 percent. Even Ghana which has not even started is proposing 80 percent.

So how can that be harsh? For 10 years we allowed them to operate the Liquefied Natural Gas, LNG, plant in Bonny without paying a kobo as tax to the government because of a tax holiday which was meant to encourage investment.
According to Ajuonuma, research findings indicate that 80 percent out of every one dollar invested in the industry goes offshore said he: “Under PIB no oil company can import cooks and stewards from their country to work in Nigeria as expatriates”.

He dismissed as untrue an assertion by Pickard that Shell missed an opportunity to suggest inputs to the bill, “Many nations such as Britain, Venezuela, Algeria, Russia and Angola have changed their fiscal systems to respond to operational and economic realities without recourse to foreign interest or IOCs. Yet it is an open secret that both houses of the National Assembly conducted a robust public hearing to accommodate the ventilation of opinions and comments from all stakeholders”.

Urging the National Assembly to speed up the passage of the PIB,  Ajuonuma said what Shell wants government to do is to keep subsidizing the production of gas which IOCs end up exporting to their home countries to guarantee their national energy security. “As I speak, Nigeria is still subsidizing gas for export because the cost of producing gas is recovered from oil revenue. “There is no country in the world that does not get value for its natural resources. But we are getting negative value from gas in Nigeria”, he added.
He pointed out that such abnormalities are what the PIB is seeking to correct.

Acting President Jonathan who declared the conference opened said when the restructuring of the NNPC is completed it will become a company that will acquire the capacity to operate within and beyond Nigeria’s national boundaries. He said as a business concern the new national oil company which would emerge would be required to pay royalties and taxes to government, just like any other oil company. “The challenge of restructuring NNPC may appear daunting but it is clear that the set goals are achievable”, he added.

Jonathan reminded oil companies that as corporate citizens they have a responsibility to be good neighbours. “We cannot live in darkness when we have a better option of a life under uninterrupted power supply. We must have electricity in Nigeria and oil and gas companies must partner with us in delivering this to the Nigerian people within the shortest possible time”, he said.

Continuing Jonathan said, a major objective of the petroleum industry reform programme is to ensure that the benefits of petroleum are enjoyed by all Nigerians  rich and poor. “A situation where the majority of Nigerians are denied the benefits of power supply which the petroleum industry can guarantee through the availability of gas for example is unacceptable, he added.

Aside the argument advanced by the IOCs that the thrust of the PIB would make investment uneconomic, indigenous producers are asking for new fiscal terms that can support their operations and make expansion possible. The vigorous discussion of the content of the bill has not been unexpected given the comprehensive nature of the reforms embodied in it.

Industry watchers familiar with the implementation of reforms in other producing regions, say IOCs tend to resist reforms and defend the status quo.
Whatever the arguments, the federal government is bent on reforming the economy. Analysts hope government would carry out the reforms with the required level of commitment.

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