NOTWITHSTANDING the controversy trailing it, the Petroleum Industry Bill (PIB) has been identified as a law that seeks to enhance exploration, exploitation and production of petroleum resources for the benefit of the Nigerians.
From the PIB document obtained by The Guardian from the Ministry of Petroleum Resources, the Federal Government stated that the bill would create a conducive business environment for petroleum operations and establish a progressive fiscal framework that will encourage further investment in the sector while optimising accruable revenues to the government.
According to the document, the PIB will also ensure the deregulation and liberalisation of the downstream petroleum sector; create an efficient and effective regulatory entity; promote transparency, simplicity and openness; promote the development of Nigerian content in the petroleum industry; protect health, safety and environment; and optimise domestic gas supplies, in particular for power generation.
It stated that the bill hopes to pursue a vigorous domestic gas market and infrastructure development, adding: "It will establish a full-fledged limited liability company with private sector participation. It will develop the gas market and meet the challenges of power and other gas based industries. It will incorporate the existing Nigeria Gas Company. The 2012 PIB actually lowers government take to 70 per cent, which is lower than the 76 per cent government take on current Angolan fiscal terms".
The document further disclosed that marginal increase on per cent of government take in the Joint Venture operations from 87 per cent to 88 per cent is at $80/bbl crude oil price. At low crude oil price between $40 to $50/bbl, government take is marginally reduced to about 86 per cent.
It added that a generous production allowance, lower royalty rates and tax holidays are incentives designed to attract investments in the gas sector. Government takes on gas projects marginally increased from 63 per cent to 71 per cent. Gas projects are still profitable and attractive under these gas terms.
It noted that government take on Deepwater Production Sharing Contract (PSC) range from 60 to 75 per cent with average of 72 per cent compared to 64 per cent of 1993 PSC terms. Government take is very completive and lowest among peer countries, such as Angola and Norway.
It added: "The PIB seeks to reshape the regulation of the petroleum industry in Nigeria. In doing so it seeks to establish an institutional framework to oversee and govern the industry.
"National Oil Company (NOC) will be established as a public company within three months of the PIB being passed through the National Assembly into law. From the date of its incorporation, the NOC would have transferred to it, all assets and liabilities held by the Nigerian National Petroleum Corporation's (NNPC) on behalf of the government, excluding the NNPC interests in existing unincorporated joint ventures."
It noted that the oil producing communities would benefit greatly from the PIB through the Host Community Fund, which mandates every upstream petroleum producing company to remit on a monthly basis ten per cent of its net profit.
The document stated that 10 per cent of profit derived from upstream petroleum operations in onshore areas and in the offshore and shallow water areas, all of such remittance shall be made directly into the host community fund and profit derived from upstream petroleum operations in deepwater areas, all of the remittance directly in to the fund for the benefit of the petroleum producing littoral states.
It added that at the end of each fiscal year, each upstream petroleum company shall reconcile its remittance pursuant with its actual filed tax return to the service and settle any such difference.
It added: "The contributions made by each upstream petroleum company, will constitute an immediate credit to its total fiscal rent obligations as defined in the PIB. Where an act of vandalism, sabotage or other civil unrest occurs that causes damage to any petroleum facilities within a host community, the cost of repair of such facility shall be paid from the fund entitlement unless it is established that no member of the community is responsible."
It hinted that the PIB would compel the Federal Government to the extent practicable, honour international environmental obligations and shall promote energy efficiency, the provision of reliable energy, and a taxation policy that encourages fuel efficiency by producers and consumers.
"The Federal Government is expected to introduce and enforce integrated health, safety and environmental quality management systems with specific quality, effluent and emission targets for oil and gas related pollutants, without regard for fuel type such as gas, liquid or solid, in order to ensure compliance with international standards.
"The government shall, in co-operation with the state and local governments and communities, encourage and ensure the peace and development of the petroleum producing areas of the federation through the implementation of specific projects aimed at ameliorating the negative impacts of petroleum activities. It shall at all times promote the involvement of indigenous companies and manpower and the use of locally produced goods and services in all areas of the petroleum industry in accordance with existing laws and policies", it added.
Our concerns, by investors
DESPITE the much touted benefits of the Petroleum Industry Bill (PIB), oil producers in the country, under the auspices Oil Producers Trade Section (OPTS), of Lagos Chamber of Commerce and Industry, (LCCI), have raised fears that the fiscal terms in the planned law could deter investments,
The group said that the costs of doing business were already the highest in the world, in terms of multiple taxes, including hydrocarbon tax, company income tax, higher rents and royalties, and levies such as the Niger Delta Development Commission (NDDC) levy, host community fund, and education and a host of others.
Accordingly, they argued that the fiscal terms as contained in the bill were not favourable as it heightens uncertainty and endangers returns on investments.
They expressed worries over the increase in the gas tax from 30 per cent to 80 per cent, increase in royalty payment on gas from seven per cent to 12.5 per cent.
The LCCI group believed that the PIB gas fiscals would make Nigerian gas sector extremely uncompetitive.
Citing example with Brazil, Algeria, Malaysia, Norway and other oil producing countries, the 91 per cent government's share of Net Present Value (NPV) on gas production, will be the highest under the post-PIB.
They stated: "Presently, Brazilian government takes 51 per cent; Algeria, 65 per cent; Malaysia, 81 per cent and Norway, 75 per cent. These countries are not operating under the types of challenges confronting the country's oil and gas sector.
"Also, comparing the global deepwater regimes, Angola investors currently pay zero per cent to the government, Brunei, eight per cent; Indonesia, 10 per cent, Malaysia, 10 per cent, Equatorial Guinea, 12 to 16 per cent, while Nigeria currently pays eight per cent and would be increased to 26 per cent when the PIB is passed into law.
They said that the uncertainties surrounding the new PIB might change investors' views on investing in Nigeria, depending on how the PIB is implemented.
The group, during a recent courtesy visit to The Guardian newspapers in Lagos, maintained that the OPTS was not against the PIB, as this was absolutely necessary for the oil and gas sector, but that all stakeholders must be taken into consideration in the implementation of such reforms.
The LCCI group wants government to engage independent consultant to review the PIB and come out with its findings in order not to jeopardise the huge investments by International Oil Companies (IOCs) and indigenous operators in the sector.
The OPTS, whose membership include Royal Dutch Shell, Total, Chevron, ExxonMobil, and Agip, said deepwater oil production had the potential to generate $66 billion by 2025.
This investment, they said, was already being threatened with the terms in the new PIB.
They said that $10 billion gas development projects are at risk, adding that Nigeria required between $50 and $60 billion to achieve 40 Giga watts by 2020, while about 16GW are currently available.
They said that lack of infrastructure across the value chain, such as gas-transportation, power transmission and distribution, were major constraint, which the government needs to put into consideration before passing the PIB.
The current gas pricing, they added, does not cover the cost of development in the sector. "Gas cannot be stored, infrastructure chain needs to be in place and customers need to be able to utilise the gas immediately. Power prices are still too low to make projects economically viable in order to raise the required funds to build the infrastructure chain."
The group therefore, called for a system that would incentivize investment in gas field and transportation infrastructure.
They said that gas provisions in the PIB put an already challenged Nigeria's gas potential further at risk.
It stated: "Domestic Gas Supply Obligations (DGSOs) in the PIB are merely set on the basis of a company's gas reserves and production, without consideration to the availability of gas pipeline infrastructure or the ability of customers such as power plants to take gas volume.
"There is no adjustment to the DGSOs in case prices do not guarantee reasonable rates or return to allow upstream gas projects to be developed. Stopping gas exports could undermine Nigeria's reputation as a reliable LNG supplier, result in loss of government revenue and would not increase domestic supply as it is not possible to re-route export gas to the domestic market without building major new pipelines".
They said that the government was gaining more from deepwater investments, as it receives a larger share of the proceeds under post PIB, which would be increased when the bill is passed into law.
OPTS stated: "Deepwater projects are characterised by large upfront capital investment and significant technology challenges. Nigerian deepwater projects are covered under production sharing contracts and the Federal Government receives 65-70 per cent of net revenues from deepwater even though the PSCs require IOCs to make all upfront investments.
"Government's take for PSCs in Nigeria post-PIB will be among the highest in the world. These terms make all planned deepwater projects non-viable and risk Nigeria's deepwater growth potential. With PIB resulting in no new investment, deepwater production will quickly decline."
They noted that for the achievement of four million barrels per day crude oil production and 40 billion barrels in reserves by 2020, are not feasible under the new fiscal terms being proposed by the Federal Government in the PIB.
According to them, it will take daily production of 200,000bpd from the deepwater fields before year 2020 for the country to achieve the targeted four million barrels per day.
It said that slow pace of investments in the oil and gas sector due to the uncertainty of the PIB were negatively affecting the planned production increases.
It noted that the investors were facing constraints under current fiscal terms, adding that this may result in decline in new oil fields investments.
They argued that the PIB terms will not enable the investments needed to sustain Joint Venture (JV), oil production, due to bunkering and insecurity, adding that the new bill will make JV fiscals extremely uncompetitive.
They further stressed that without new investments, production would decline by 40 per cent, while production with new investments will rise by 44 per cent.
On investments in deepwater, the oil majors said it could attract $66 billion worth of investments up to 2025, and add 900,000bpd, which they argued, will impact on the economy in terms of Gross Domestic Product (GDP), growth and job creation.
They also expressed worries over uncertainty surrounding renewal of current leases, non-protection of investments, no deepwater gas terms and the absence of royalty from the PIB.
According to them, some disputes are settled unilaterally by agencies, thereby preventing access to judicial or independent arbitration.
The OPTS stated: "Globally competitive climate will help realise the potential of oil and gas for the benefit of the Nigerians.
World class investment climate stimulates investment through emphasising taxes over royalties, incentivizes deepwater exploration to mitigate enormous capital, technological and exploratory risk, maximize reservoir, maximizes impact on broader economy through multiplier effect on employment supply chains and derives taxation and royalty on a fair basis rather than measured wellhead."
