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Oil Majors Rally to Scupper Petroleum Industry Bill (PIB)

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A new draft of the long delayed oil bill, whose passage is needed to unblock billions of dollars of stalled investment into the oil sector, will be finalized this week, according to sources.

Afraid that the draft of the Petroleum Industry Bill (PIB) being finalized would increase the financial burden on them, the oil majors have turned to their friends in the House of Representatives and the Senate urging them to reject the bill, which understands, has the blessing of President Goodluck Jonathan.

A copy of the 200-page Petroleum Industry Bill (PIB) obtained exclusively by includes plans to partly privatize and list the Nigerian National Petroleum Corporation (NNPC) and   tax oil company profits at 20% for deep offshore and 50% for shallow or onshore, and give the oil minister, Diezani Alison-Madueke supervisory powers over all institutions in the oil industry.

Even when this version gets to parliament, past experience suggests it was unlikely the bill would go through unmodified. Although President Jonathan is explicitly behind this version, and it was drawn up by a task force of senators his administration appointed, adding to the fact that Jonathan's ruling PDP party has a majority in both houses of parliament, there is no guarantee that lawmakers will push it through, as powerful vested interests could block or delay it, as has happened in the past. The bill will be DOA - Dead On Arrival if the oil majors succeed in bribing and arm-twisting the lawmakers from the oil-producing States to scupper it.

"You might think when you've got a (ruling) PDP majority and a president who is PDP; it should be easy to pass the bill. Well, it isn't," said a source at Nigeria's leading operator Shell, who declined to disclose what current tax rates were. Current oil firm profit taxes are not published. Oil majors have worried that the PIB could increase the fiscal burden on them, and it is not clear whether license renewals that have been ongoing will include exemptions from any unfavorable change of terms brought about by the law.

The PIB has been years in the making and the delays have caused uncertainty over the future framework of working in the Nigerian oil sector, costing the industry billions of dollars of potential investment and the government much-needed revenues. Nigeria exports more than 2 million barrels a day (bpd) of crude oil popular with U.S. buyers because it is light and easy to refine. China and India are also growing takers. Without it, most analysts expect oil production in Nigeria to decline substantially over the next few years.

A reading of the draft bill by indicates that implementation of some of the key provisions is likely to be fraught with complexities, especially restructuring the hugely bureaucratic and corrupt state-run NNPC which, has for decades, been at the heart of a network of patronage that still oils the wheels of Nigerian politics. "How do you turn the NNPC which for generations has been political into something technical? It's hugely ambitious and mere wishful thinking,' noted the source derisively.

The bill says some of NNPC assets must be incorporated within three months of it becoming law and the government then has three years to list an unspecified part of its shares publicly. But the newly incorporated oil firm will not hold NNPC stakes in unincorporated joint ventures and production sharing contracts, which make up most of Nigeria's oil and gas assets.

The bill as drafted would also roll Nigeria's various regulatory bodies for upstream and downstream into one, and give Alison-Madueke the power to pick who runs it. Placing all institutions concerned with oil under her supervision would upset those who hoped the bill would curb her already substantial powers. Previously the downstream regulator was independent of the ministry. Already, the all-powerful Oil Minister stirred a storm when she signed a 20-year oil license in February with US oil giant Exxon on one of Nigeria's largest oil assets, which produces over 500,000 barrels per day, but the terms were kept private. This license renewal came despite the minister saying for years that the delay to the PIB was holding contracts like these up. Alison-Madueke said this week that similar renewals with Shell and Chevron would be signed by June.

The passage of the PIB will be a major test for President Jonathan and his transformational agenda and Nigerians will be watching whether the President and his ruling PDP party will be willing to defend the overall general interest or pander to the whims and caprices of the oil majors.