PIB: PAYING HIGH PRICE OF DELAYED PASSAGE

Senate President Mark
When will the Petroleum Industry Bill (PIB) be passed into law?

This is one question begging for answer in the oil and gas industry, most notably from existing and prospective investors whose businesses - or the quest to sink additional funds into the industry - had been greatly hampered, no, thanks to the shifting deadline for the passage of the bill into law.

Daily Sun learnt that the delay has been caused by events whose roots are more political than technical as the most contentious issues earlier noticed in the proposed bill had long been resolved before the end of 2010.

'The technical, issues that had held back the bill from becoming law have been settled and all parties had agreed that things were fine. But suddenly, other fresh issues sprang up from nowhere; for now, the source of delay can best be attributed to another round of politics between the Presidency and the National Assembly,' a source told Daily Sun.

'The President is wiling to sign the bill into law, given the short span left for his administration and he has been repeating it wherever he goes - in his campaigns and outside the country, but there are other lobbyists, investors, the international oil companies, even the NNPC, these establishments are still not comfortable with some provisions in the bill and they are persuading the National Assembly to hold on a bit, they are still lobbying, and the Presidency is also lobbying and dialouging with the National Assembly,' our source added.

But as the two arms of government continue to foot-drag on the bill, the nation continues to suffer. And this fact was underscored by Mrs. Diezani Alison-Madueke, Petroleum Resources Minister, when she said that government was losing potential revenue from the delay in bringing on stream the proposed law. 'The piece of legislation when passed into law is the key that will undoubtedly open this industry into a new era,' Alison-Madueke said of the PIB at a speech to stakeholders in Abuja recently. Alison-Madueke at that event, however, acknowledged the harm done to the industry and country by the delay.

'Government is not unmindful that a lot of investment decisions are currently on hold while government is losing potential revenue that could have accrued to it due to the proposed changes in the deepwater fiscal terms and current high oil prices resulting in windfall profits,' said the minister.

At present, the bill is at the committee stage at the Senate and has recorded little progress in the House of Representatives.

But other sources said even the President was not too eager to see the bill become law, at least, not until he wins the elections slated for next month, given that the deregulation of the downstream sector is a key provision in the law. 'Do you think Jonathan is so foolish to approve a law that deregulates the industry and allows prices of petroleum products to go up with the possibility of scarcity in an election period?,' a source told Daily Sun.

Recently, two NGOs, Africa Centre for Leadership, Strategic and Development and Africa Network for Environment and Economic Justice (ANEEJ), issued a joint communiqué decrying the inability to pass the PIB into law for the benefit of the citizens. Part of the communiqué read, 'Nigeria is a sovereign nation and the PIB presents an important opportunity for the Nigerian state to exert its sovereignty in the management of its oil and gas sector, hence, the imperative of its prompt passage.

'The PIB presents a significant window of opportunity to further deepen reforms that can redress decades of secretive and ineffective management of the oil and gas sector, which has led to the impoverishment of the Nigerian people. There is the need therefore for civil society organisations to strengthen their co-ordination and scale up advocacy actions towards ensuring the immediate passage of the PIB in a form that is people-friendly.

'The National Assembly should, as a matter of urgency, pass the PIB before the end of the current legislative session,' the two NGOs demanded. Indeed, when the first draft copy of the proposed bill was first presented to the public on July 16, 2009, the PIB - given all constraints - was expected to be passed into law by March 2010, but that deadline had been shifted more than thrice, from August 2010 to December 2010 and more recently to a more ambiguous deadline of 'before the end of this administration and the legislative year' which , if interpreted accordingly, means before May 29, 2011, when President Goodluck Jonathan is expected to have completed his tenure. Whether that deadline would indeed, be met is what no one can actually say.

Not when it was reported that some international oil companies who are against the bill had bankrolled a trip where some lawmakers were taken to Ghana and lobbies to water-down fiscal provisions in the bill inimical to their businesses. It is a position enunciated by the global whistle-blower, Wikileaks, when it reported that some foreign interests were against the PIB, describing it as 'too nationalistic' and against the growth of their businesses. But what is the PIB all about? In simple language, the PIB is a reform legislation which aims to discard previous laws (which date back to the late 1950s and are considered obsolete) with new legal, regulatory framework and institutions which reflect the changing dynamics of the contemporary oil and gas industry.

Some analysts had hinged the imperatives of these changes or reforms to the problem in the industry which they traced to the fact that the Nigerian state intervened profoundly without building the required capacity in policy-making, regulation and commercial activities in such a highly complex industry.

Ineffective and inefficient state control of all the major processes of the industry had stunted its growth and development. A good example is the fact that while state-owned companies all over the world are transforming into international oil companies bidding for and wining projects outside their country, the Nigerian National Petroleum Company (NNPC) is still grappling with resolving internal crisis, that at most, appear so ridiculous, like the efficient operations of its refineries to provide uninterrupted fuel supply for citizens.

However, for the ordinary Nigerian, the most glaring evidence that all is not well with the existing legal and regulatory framework is best depicted in the perennial crisis in the supply of petroleum products like petrol and kerosene, and with soaring prices of cooking gas, the latest addition to the list, the problems appear too heavy for existing laws to carry.

The four state-owned refineries, pipelines and depots have remained in a poor state with the resultant effect being the epileptic and very disappointing capacity utilisation of this national assets, thus creating a ridiculous irony where Nigeria, one of the top 10 crude oil producers has turned into a net importer of petroleum products to sustain its domestic market. And at the root of this crisis is not just the poor management of these national assets, but the presence of laws that are inimical to private sector investments in the downstream crude oil refining business, which would have gone a long way in providing alternative refineries and allied infrastructure following the dearth of state-owned ones.

The PIB had therefore, sought to maximize the net economic benefit to the nation from oil and gas resources and to enhance the social and economic development of the people while meeting the nation's needs for fuel at a competitive cost. In the downstream sub-sector, the PIB had proposed the full deregulation of the industry to encourage third party investments in new refineries. Such investors would be able to recoup their investments because under the deregulated regime, market forces will determine prices of products as the refineries established would have become cost centres.

And the NNPC will become a full-fledged commercial entity with a vision to become an international oil company with strategic autonomy. The NNPC will align with national economic growth aspirations and operate in the entire oil, gas and power value chain competing with other local and international investors while paying government appropriate royalties and taxes like any other oil companies operating in the country.

Similarly, to boost the development of the gas industry, the bill also proposed low royalties and hydrocarbon taxes as well as the creation of new gas processing plants and gas pipelines supported through tax holidays under the Corporate Income Tax.

The PIB also proposed that direct dividends be paid to oil producing communities to address the Niger Delta crisis and make the communities key stakeholders with incentives to protect oil and gas facilities located in their areas. In fact, an estimated $600million is earmarked under the bill to be paid annually to the communities hosting oil and gas facilities or directly impacted by their operations.

But the manner in which the key actors in the process of enacting and passing this piece of legislation into law have shielded the public from knowing what form the final contents of the bill has created an air of uncertainty in the industry, worsening investors' confidence, the majority who from the outset, had rejected the very idea of overhauling existing laws in Nigeria, especially as it governed the payment of royalties and taxes to government from crude oil exploration and offshore drilling.

While investors may have been very loud in bemoaning their plight that it appears they are losing so much from the impasse created by the inability to get the bill out of the National Assembly for the president to sign into law, the greatest loser in this game is obviously Nigeria - her economy and citizens. And this is best explained by the fact that oil and gas account for more than 20 per cent of Nigeria's GDP and more than 90 per cent of the Federal Government revenue, and 95 per cent of foreign exchange earnings and is also the backbone of Nigeria's national development plan. In fact, the success of 'Vision 20:20:20', which seeks to make the economy among the top 20 in the global market, is hinged on a virile petroleum industry.

Dr. Emmanuel Egbogah, Presidential Adviser on Petroleum Matters, attested so much to the importance of the oil and gas industry when he said the 'efficient management of the industry will have a significant impact not only on the wellbeing and future prospects of the economy, but also on the security and stability of global energy supply and the growth of global economy.' The sector is therefore, so critical that whatever stalls any form of investment, no matter how minimal, spells doom for the economy and its people.

At present, there are reports of some job losses owing to the refusal of investors to seal deals that would have signaled the commencement of some projects. In a country where availability of valid data is rare, even ascertaining the figures of such job losses could prove a Herculean task. But the financial loss would certainly run into billions of naira. One upstream operator describes the existing operating climate as one treaded with caution by investors.

'Everyone is trying to be very cautious; you don't bite more than you can chew and you don't swallow what you cannot vomit,' he said in reference to the caution in which investors deploy in taking risks in the country. 'As an investor, you are not sure if by tomorrow when the bill is passed into law, the new provisions in the law alter your projections concerning how and when you will recoup your investments.

'In business, you have to go in with clear rules; the ones you set for your internal operations and then, there must be some level of certainty or guarantee for the investments in the operating country.

'In Nigeria, until the PIB becomes law that certainty is clearly absent. What most investors are doing is to continue with existing investments, though amid fears, but I doubt if there is any one that is into new investments and the truth, if it should be told, is that no sane creditor will gladly fund an operator for new projects under the prevailing climate in Nigeria,' said the source, a spokesperson in one of the multinational oil firms, who preferred not to be mentioned.

The then Petroleum Minister, Dr. Rilwan Lukman, while defending the bill, said it would promote transparency as there were provisions in it that removed the confidentiality clauses in existing laws. 'Good governance is promoted through the removal of much of the confidentiality as well as creating transparency. The bill removes confidentiality in a scale not seen in the world before. Every Nigerian including all stakeholders will have the right to know what is happening in the industry,' Lukman said.

But if signs emanating from the process of making the bill a law are to be taken seriously, transparency is indeed too far from being enshrined in the industry.

Signs that the Organization of Islamic Countries (OICs) was heading for the rocks emerged when immediately the idea was muted, international oil companies cautioned that Nigeria risked losing a $134billion (about N20 trillion) investment earmarked for the country's oil and gas industry if it goes ahead to implement the proposed (PIB). The Organization of Islamic Countries (OICs) had severely criticized the PIB as they viewed the revocation of certain provisions bordering on their production sharing contract (PSC) deals in the deepwater oil and gas fields as anti-investments.

Supo Shadiya, a director with Chevron, speaking at a workshop organized by the Nigerian Extractive Industries Transparency Initiative (NEITI) in Lagos, described the proposed bill as rendering projects 'economically unviable'.

In a paper 'PIB: An Industry Perspective', Shadiya disclosed total planned investments by IOCs targeted at opening up new frontiers for crude oil and gas exploitation in deepwater fields in the next six years, saying the bill could mar the investments. 'The industry plans to spend over $20billion in the next five years in the gas sector and to invest about $37 and $77 billion respectively in production sharing contracts and joint venture projects in the next six years,' Shadiya said. Shadiya, who also disclosed that about $5billion has so far been sunk into the gas industry which had resulted in a 50 per cent growth rate in the last five years, lamented that such further investments could be stalled by the PIB.

'The PIB will result in no new production from Nigeria's deepwater,' he said, noting that 'under the PIB, the government's take in the deepwater becomes one of the highest in the world.'

According to him, the government's gas and power aspirations can never be met under the PIB as large numbers of new gas projects have been made uneconomical by the bill, just as it had failed to resolve infrastructure issues and the absence of payment security and regulated gas prices.

'The PIB increases investors' uncertainty due to lack of fiscal stability for committed investments and sanctity of contracts and its onerous licences and leases provisions significantly impact exploration and project viability,' Shadiya said.

'Almost all the production sharing contracts have been rendered economically unviable, and it does not allow for full commercialized national oil companies and does not resolve joint venture funding issues,' he added. Shadiya said it would be dangerous to allow the industry slip as it is a provider of significant employment of Nigerians, and sponsors of various scholarships for tertiary and vocational institutions in the country. 'PIB will reduce monies spend in Nigeria and it will impact local capacity development and job creation,' Shadiya stated.

The 1993 frontiers PSCs were developed with the IOCs taking significant technical and 100 per cent of financial risks under a term that allowed them recover their investments under a specific time.

For now, the industry remains at a standstill with investors wary of committing funds into new projects till when the PIB becomes law. That is detrimental to an economy still grappling with poverty and unemployment. One senator, who spoke to Daily Sun, said the new bill would certainly reflect the wishes of the Nigerian government and would also meet the aspirations of investors.

'The tax regimes will not be the highest in the world, and it will not be the lowest in the world; it will be friendly to investors and also represent the wishes of the Nigerian government and people,' said the Senator, a member of the committee that reviewed the PIB, who preferred does not want to be named. And from Alison-Madueke came these words of hope, 'We will continue to engage the National Assembly to ensure the passage of the Bill as soon as possible.

The adoption of the PIB would ensure that Nigeria becomes part of the global league of countries with the most modern and forward-looking petroleum laws and this will create a new business environment across the entire oil and gas chain.' Given all the inherent benefits of the bill to the nation, the greater challenge lies with those who should pass this most important bill into law; they should approach their job with all sense of patriotism.