Criticisms trail Petroleum Industry Bill

The Petroleum Industry Bill (PIB), has continued to attract various criticisms as it passes from one stage to another at the National Assembly. UDEME AKPAN, who captures recent developments, reports that the criticisms will assist to produce a more effective law for the industry.

When President Goodluck Jonathan sent the new Petroleum Industry Bill (PIB), to the National Assembly, he probably did not envisage much criticisms at least for a reason. First, the PIB was repackaged by a committee of experts under close monitoring of relevant stakeholders, especially the Ministry of Petroleum Resources and Nigerian National Petroleum Corporation.

Second, the Minister of Petroleum Resources, Mrs. Diezani Alison-Madueke described it as a viable document offering, incentives for crude oil production. While making a presentation in London on “Investment Opportunities in Nigeria’s Downstream Oil and Gas Value Chain,” she called on investors from all parts of the world to explore the various opportunities through the instrumentality of the PIB.

Alison-Madueke who disclosed reason for the proposed review of fiscal terms in the Production Sharing Contracts (PSCs) for deep water fields in the draft PIB, explained that the increase in government take in the Deep Offshore blocks from the current level of 61 percent to a new figure of 73 per cent was necessitated by prevailing realities in the global oil and gas industry.

As she puts it: “We have a fiscal regime by royalty and tax which is now predicated on production as opposed to terrain and investment as was previously done. Royalty by production as we have outlined in the bill will capture the output of company as opposed to its location; it will create a fair balance between small and big operators operating in the same terrain, it will give operators the opportunity to make fair returns during field decline, and it proposes lower rates on condensate from large fields as well as ultra deep water fields.”

However, the PIB has attracted many criticisms in recent times. For instance, the Country Chair and Managing Director of Shell Petroleum Development Company, Mr. Mutiu Sunmonu noted that the tax provisions in the PIB is ‘uncompetitive’, stressing that they are capable of stifling investment and making offshore oil and gas projects unviable.

Sunmonu who believed that a good bill should, “take local business challenges into consideration as well as the impact on existing investments,” remarked that: “What we have seen of the draft PIB to date does not indicate a bill that fits these criteria. And this is the opinion not only of the major players in Nigeria’s oil and gas industry, but, as I mentioned earlier, industry analysts as well. What we have seen and what we know of the current draft PIB requires significant improvement to secure Nigeria’s competitiveness, and attract the required level of investment to enable exploration to increase Nigeria’s reserves and then foster development of the projects to monetise them.”

Sunmonu argued that an unbalanced bill of that nature could hinder investment in the industry. He stated, “The PIB will likely render all deepwater projects and all dry gas projects – whether for domestic or export markets – non-viable, added that many opportunities will be lost. The Country Chair who noted that the opportunity to monetise some of the world’s best gas reserves will be lost also stated that the opportunity to kick start the power sector – “the key to economic growth – using easily accessible gas will also be lost.”

The Shell’s boss remarked that the PIB needs to address long term industry issues, including joint venture funding, particularly as funding requirements have constrained production growth in the industry. Sunmonu stressed that the nation needs a strong national oil company, capable of partnering with others to enhance its competitiveness.

He remarked that: “While the economy in general is on the path of diversification it should not be denied that the oil and gas sector remains the driver of this process providing not only the funds to enable the diversification but also the gas that could and should be used to regenerate the power sector to provide reliable electricity which is the backbone of industrial growth.”

Sunmonu who encouraged increased partnering with the government stated that oil and gas companies have to be clear on what they need for continued investment in the nation. He challenged investors to emerge with specific issues they need rather than condemn the Bill in its entirety.

He is not the only voice of the multinationals. The Chairman of Oil Producers Trade Section (OPTS) of Lagos Chamber of Commerce and Industry, Mr. Mark Ward, who spoke at the a recent conference in Lagos also observed that the fiscal terms in the PIB are not favourable to their operations.

Ward stated that operators are presently working in line with government’s aspirations, targeted at achieving $104 billion (N15.6 trillion) for oil production between 2012 and 2015, another $30 billion (N4.5 trillion) for gas development in the next five years, including the establishment of construction of Afam and Okpai independent power plants.

He remarked that operators are also working to accomplish a significant growth in crude oil capacity through investment of about $29 billion (N4.3 trillion) on the Production Sharing Contracts and $39 billion (N5.8 trillion) on the Joint Venture Projects over the next five years. The Chairman observed that an unbalanced PIB would likely encouraged commercial oil and gas production without significant investments in the next 10 years.

Expectedly, the indigenous operators have not been mute. For instance, the Chairman of the Indigenous Oil Producers, Abdul Razaq Fadahunsi, noted that the provisions of the bill would likely impact negatively on indigenous operations. Fadahunsi who observed that the PIB was partly planned to boost indigenous participation noted that: “the document negated that laudable motive, because there was no clause in the bill that sets aside any acreage category for indigenous participants.”

Other stakeholders have made their positions known. For instance, participant at a recent e-conference of Spaces for Change in Lagos noted that the PIB is weak in the area of transparency and accountability. Consequently, the body documented that: “The new bill authorises the newly created regulatory agencies to receive gifts, including money or other property upon such terms and conditions as may be specified by the person or organisation making the gifts provided such gifts are not inconsistent with the objectives and functions of the Act.”

It also documented that there is no distinction between a gift and bribe in the PIB. Specifically, it stated that: “Because of the difficulty of drawing a line between a gift and a bribe, a blanket ban on receiving gift by any of the agencies is not only appropriate, but will go a long way in inspiring confidence in the proposed reforms. Independent studies and probes, such as the KPMG report, the Faruok Lawan, Aig Imokhuede fuel subsidy probes, all the NEITI reports have shown, transparency and accountability are the core issues with the current set-up. Failing to tackle the current transparency concerns will leave a big question mark on the proposed legislation.”

More than that, it faulted the proposed Fund because there is presently no distinction between it and the Niger Delta Development Commission (NDDC). According to the report, “The bill does not indicate how this differs from NDDC, except in terms of source of funds. By also making provisions for communities to be punished by withholding their entitlements under the fund in case of disruptions, it negates the very constitutional basis of criminal justice by dishing out collective punishment.”

Spaces for Change further noted that the environmental laws as documented in the PIB are weak and not capable of making much impact in the industry. For instance, they maintained that: “Asking operators in consultation with the Ministry of Environment to come up with an environmental plan does not deal with questions of the gaps between the policies and practices which has been the problem.”

In the area of gas flaring, the body maintained that: “The provisions relating to gas flares gives by one hand and takes from the other. After banning gas flaring from end of this year, it creates room for exceptions to be granted by the minister. That is not effectively different from what is happening under the current regime. It turns gas flaring into discretionary permit-granting. Environmental justice advocates believe that the gas ban should be absolute. They also insist that operating companies should not only be made to get insurance covers to cover cases of environmental disasters arising from their operations and this should be a condition precedent to the operation of any license. “

More than that, the report noted that the new PIB vests enormous powers on the Minister of Petroleum Resources, especially by placing all the newly created agencies and regulatory institutions under the control and supervision of the minister. It documented that: “Section 5 of the bill provides that the Minister of Petroleum Resources shall be responsible for the coordination of the activities of the petroleum industry and shall exercise general supervision over all operations and all institutions in the industry.”

Despite the differences and issues raised, some people and even institutions insist the PIB constitutes a bold step ever taken to produce a comprehensive legislation for the industry. They also feel that the various issues would be resolved in the coming weeks. For instance, the Chairman of Nigerian Extractive Industries Transparency Initiative (NEITI), Mr. Ledum Mitee remarked that: “It is my hope and wish that together, we would be able to come out with concrete suggestions that would enrich the PIB with a view to fashioning it into a comprehensive and reliable legislation that can complement the NEITI Act both in principles and practices which would in turn lead to improved revenues for government, halt oil theft, and check degradation of the environment in the host communities through stringent and enforceable legal provisions.”

Meanwhile, the lawmakers seem to be making progress. The Chairman of the Senate Committee on Petroleum, Senator Magnus Abe confirmed that: “The BIP has just passed through first reading at the National Assembly. The second reading will soon start because we are all committed to expediting work on it.”

From all indications, the PIB still has a long way to go. Existing rule at the National Assembly demands that the bill should go through some processes, including third reading, public hearing and committee sessions with stakeholders making various inputs. This means that it may not be possible to pass it into law this year as previously proposed. But conscious efforts should be made towards ensuring that the important bill becomes a law next year so that the expected benefits may not elude the nation.


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