It has been a long pipeline – and Nigeria’s Petroleum Industry Bill (PIB) is not quite at the end of it yet. Just how long depends on definition. It was back in 2000 that Nigeria’s fledgling democratic government set up the Oil and Gas Reform Implementation Committee (OGIC) with a mandate to overhaul the country’s hydrocarbons legislation, replacing 16 laws with one and a modernising the sector along more market-oriented lines. And it was in 2008 that the late president Umaru Yar’Adua introduced a draft PIB based on OGIC recommendations into parliament.
A LONG & WINDING ROAD: Since that time, delays and alternative drafts have proliferated, with interest-groups clashing, with the PIB’s imminent passage presidentially or ministerially promised again and again – and large investments placed on hold due to the continued uncertainty. A new decisiveness became apparent in January 2012, as president Goodluck Jonathan set up a special task force to ensure the PIB’s passage, in cooperation with a technical committee to oversee the fine print.
Several months later, there was some talk of a June submission to parliament, and that proved not to be so far off. Signed off by the president on July 11, the bill went to parliament a few days later, just before the country’s parliamentarians left for their holiday break. Debate is expected in September. Progress has been slow, but the PIB is getting there.
BREAKING UP: With a draft exceeding 220 pages, it is not an easy bill to sum up. Several themes can be noted, however. First, it breaks up what most would say is an archaic and over-inclusive leviathan, the Nigerian National Petroleum Company (NNPC). Three successor companies are to emerge.
There will be the Nigerian Oil Company (NOC) which, it is hoped, will be competitive and profit-driven and function rather similarly to the national oil companies of countries like Saudi Arabia, Brazil or Malaysia – for instance, competing for acreages with other oil companies rather than being an inevitable partner for them. There will be the Nigerian Gas Company (NGC), which will be de-coupled from NNPC and free to pursue implementation of the Gas Master Plan that has been a centrepiece of Nigerian government policy in recent years.
Finally. there will be the Nigerian Petroleum Asset Management Company (NPAMC), which will take over the management of the joint ventures (JVs) with investors in which NNPC has often been such a deadweight. Under this new system, such JVs will be commercial entities capable of raising funds externally – and working within an NPAMC, which will also be fully commercial. These businesses will also no longer be hostage to the cash-strapped NNPC when making their investment decisions.
PRIVATISATION: Second, it raises the prospect of partial privatisation of both NOC and NGC: within six years of their incorporation, 30% of the former’s equity and at least 40% of the latter’s must be sold to investors on the Nigerian Stock Exchange – with the NGC share potentially going as high as 49%.
Third, the PIB envisages “full deregulation of the downstream product sector” – an area of the industry in which subsidies have been burdensome on the federal government budget and produced some spectacular scams in recent years. Quite how soon and how thoroughly this enormously sensitive step will be taken is, admittedly, not clear.
The rather discredited Petroleum Product Price Regulation Agency disappears, but the new Downstream Petroleum Regulation Agency still has a duty to ensure that deregulation is not abused. And it is up to the Minister of Petroleum to decide when the market is ready for abolition of the Petroleum Equalisation Fund – a body that ensures by the use subsidies that petrol does not cost more in the north of the country than in the south.
Fourth, a new royalty and tax regime based on output rather than terrain and investment is introduced as an incentive to production, while old JV and production sharing contracts are to be renegotiated within a year of the PIB becoming law.
With some of these agreements and contracts dating back to the days when oil cost $20 per barrel, officials have argued that some revision is in order. The expected increase in total tax take from 61% to 72% in deep and ultra-deepwater blocks will likely not please the international oil companies, although minister Diezani Alison Madueke has argued that this compares favourably with, for instance, Norway, Indonesia or Angola.
SUPPORT FOR LOCALS: Fifth, a Petroleum Host Communities Fund (PHCF), to be used for local development, is to be established, with finance coming from 10% of monthly profits. Provided, that is, communities do not disrupt oil production. Pipeline vandalisation and oil theft affect PHCF disbursements, with repairs to be met out of PHCF money rather than, as now, defrayed by the companies themselves.
Sixth, the minister of petroleum is given the right to decide on a deadline beyond which gas flaring will become illegal. This represents something of a retreat from an earlier PIB draft, which specified a specific deadline, namely by the end of 2012.
CRITICISMS LEVELLED: Whether the current version of the PIB is the best possible legislation is unclear – and still less clear is whether Nigeria’s parliamentarians will act as if it is. Over-high tax takes aside, several criticisms have been made. One is that the minister of petroleum – who, in addition to discretionary powers mentioned, sits on a multitude of boards – has been given too much power. Another is that the PIB provides neither the specific incentives nor the specific regulatory authority that the gas sector really needs if it is to be driven forward at the pace the government would like.
The PIB also contains provisions for oil block licences to be limited to 10 years. The bill’s proponents say that this is a good incentive for companies to get a move on, but critics say it is not a sufficient amount of time to explore successfully and enjoy an acceptable period of production. And the PHCF may not be universally popular: many politicians would say that the country’s oil producing regions – above all the Niger Delta – are already getting far too much federal money, and that a lot of it is dissipated by corruption.
And there have been political gripes, too. Having been promised the bill by the end of June, parliamentarians were not very pleased when it arrived just as they were about to go on holiday – especially as there were not nearly enough hard copies to go round. That may confirm an inclination to argue hard when they return in September. Perhaps not too hard, however, or for very long. There is a general perception that some legislation – even if it is not perfect – needs to be on the books soon, so the sector and those who would invest in it can move on.
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