Nigeria: The Powerful Forces Against PIB

By IndepthAfrica
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Jan 10th, 2013
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Following the passage of the 2013 Appropriation Bill last December, a public commentator, Mr. Igboka Uwadiegwu, wrote: “Nigeria’s national budget is 5 trillion Naira? Nigeria is not a poor country then, Nigeria is a miserable country. Five trillion Naira would be something like 33 billion USD or some 25 billion Euros. And this is the national budget of

a 52 year old nation of some 160 million people! Now, factor in the endemic corruption and you’ll have a nation screwed forever…Taiwan, precisely earned 25 billion USD in 2011 from the sales of only Notebook Computers. South Korea in 2010 joined the clubs of nations earning more than 300 billion USD per year exporting value added finished high tech products. And these are little nations in terms of population and geographical space. On our side, we are drunk and drowning in a freely produced natural product, oil. And this oil is extracted by foreigners. Pathetic!”

The embedded message in Uwadiegwu’s summation is that we are unproductive if our national budget (for both recurrent and capital expenditure) is about $33 billion, out of which oil earnings account for roughly 80 percent. Even at that, we have not factored in the loan component that takes a significant percentage of the 2013 budget. But while this is an issue we must deal with another day, it is evident that we do not as yet benefit much from our oil assets. That essentially informed the idea of the Petroleum Industry Bill (PIB) which, in the words of Professor Pat Utomi, “threatens to shake the very foundations of the oil and gas industry in Nigeria”. The problem, however, is that after 12 years spanning three different administrations, there are powerful forces now bent on scuttling the passage of the bill which has in itself undergone serious metamorphosis. I can identify three of such forces and before I draw my conclusions, I want to examine some of the fears driving each of these forces.
The first of these three forces is the cartel of Multinational oil companies operating in Nigeria which from the outset never liked the idea of change in the sector. In my book on the Yar’Adua years, there is a chapter on the management of our oil and gas sector. On PIB and the oil companies, I wrote inter alia: “the current operators in Nigeria especially never hid their opposition to the PIB, because it introduces a number of changes to the existing fiscal system governing oil and gas operation in the country. Some of the key changes include the fact that all companies engaged in upstream petroleum operation would be required to pay Company Income Tax. The bill’s other creation is the Nigerian Hydrocarbon Tax (NHT), which is a simplified version of Petroleum Profit Tax. When implemented, these would provide for a higher government take for deep offshore fields and marginally higher government take for onshore and shallow waters. The PIB also introduces a modern acreage management system with strict relinquishment guidelines that would provide a platform for new investors, both local and foreign, to enlist and contribute to the growth of the industry. Companies currently operating in Nigeria would be required to give back certain acreages from existing oil prospecting licenses and oil mining leases, except with regard to acreages with production activities, or acreages that will be developed in the near future. The intention was to prevent companies from sitting on acreages that would have otherwise been available to new investors. Yet the oil companies, long accustomed to certain ways of doing business in Nigeria, would rather that the status quo remain…”

While the oil companies have been careful not to openly rock the boat on PIB, their case was made for them rather forcefully about five weeks ago by the ambassadors of some western countries in Nigeria. In their confidential position paper titled “Industry perspective on PIB” jointly presented to the federal government late last November, they contended that 470,000 potential jobs are at risk in Nigeria if PIB is passed in its current form, because it would engender a 40 percent oil and gas production decline. They argue further that the PIB mandate is “ambitious, leading to additional complexity, uncertainty and time consuming implementation.”

The oil companies also frown at the idea of replacing all existing oil and gas legislation; redesigning the oil and gas governance structure (including the establishment of seven new institutions); commercialising and restructuring the NOC; revising the fiscal regime for onshore, shallow water and deepwater production and changing the provisions regarding award, renewal, revocation and relinquishment of licences and leases. These, they argue, leave room for “extreme complexity, lack of clarity and enormous investment uncertainty”. Having come with all manner of fiscal scenarios on revenue, royalty, costs, pre-tax profit, allowances and net profit under the PIB, the oil companies concluded that it would “make many projects non-viable.” Because the oil companies love Nigeria so much, their paper also captures the implications of the PIB on the power projects. They “worry” that gas to power development is still in its infancy and that investment in infrastructure across the entire value chain is needed to develop both power and other industrial sectors like fertilizer, cement etc.

With a comparative worldwide graph on government take in the sector, the oil companies argue that Nigeria’s “JV Oil fiscal terms are already the harshest in the world, in addition to high risks and costs due to security and bunkering”. But this comparative graph is curious given that a similar scenario for deep water fiscal terms for projects under development in eight countries presents a different picture. Whereas Nigeria currently enjoys 56 percent, on the same level with Equatorial Guinea (whose oil and gas assets are practically controlled by the family of President Teodoro Obiang Nguema Mbasogo), post-PIB would elevate Nigeria’s take to 77 percent which is only slightly above Malaysia at 75 and Norway at 71. Yet rather patronizingly, the oil companies would remind us: “Nigeria and the sector have too much at stake. 80 percent of Government budget comes from oil and gas. It is an imperative that we all get this right.”

But it is under non-fiscal concerns that we may pay some attention to the oil companies. According to them “lack of transparency, discretionary powers and fairness are key concerns”. They also harp on the “considerable uncertainty around key provisions like very broad pre-emptive rights, discretionary ability to grant acreage…” To them also, the environmental provisions, like many other things they don’t agree with, “do not meet global standards.”

The multinational oil companies listed several other areas of concerns but before we deal with their fears, let us examine the arguments of the second group, the Northern Senators Forum whose first misgiving is on the fiscal provision. According to them, “leaving the question of royalties to the regulatory discretion of the Minister of Petroleum is not only dangerous for the nation, but also an open invitation for phenomenal corruption in the future.”

While not opposed to the idea of divesting equity in the new National Oil Companies and the National Gas Company, the Northern Senators argue that for their people not to be short-changed, there should be a guarantee for equity and national spread on whatever divestment plans there are for the oil and gas assets at the capital market. Another area of concern to them is that of gas supply to the North, since effectively only one (Geregu) of the 16 thermal power stations is located in the region given the challenge with the Ajaokuta-Kano gas pipelines.

But perhaps their main bone of contention is the Host Community Fund about which they stated: “On top of the 13 percent statutory derivation from the Federation Account, the mandatory Federal budgetary allocation to the Ministry of Niger Delta, the Niger Delta Development Commission (NDDC) levy of 3 percent of oil operations and the massive federal funds being spent on the Niger Delta Amnesty programme, the new PIB is adding 10 percent of the profit of all Oil and Gas companies to the Niger Delta states and communities. Currently, without this new addition, four states (Akwa Ibom, Bayelsa, Delta and Rivers) earn more than the 19 Northern states combined. One wonders what kind of federation we would end up with if this situation is escalated by the new PIB.”

For me, there are some salient issues worthy of consideration in the appraisal of the PIB by the Northern senators. Their concern, and reason for anger, is that“a key legislation that would impact on inflow of revenue into the Federation Account could be drafted and forwarded to the National Assembly without the input of, or due consultations with, the federating states.”

Against the background of the latest World Economic Forum (in collaboration with Accenture) global Energy Architecture Performance Index (EAPI) ranking which places Nigeria on number 89 among 105 countries, it is imperative that we work towards the passage of the PIB. Despite her controversial stewardship (for want of a better adjective) as Petroleum Minister, Mrs Diezani Alison-Madueke will be making positive history if she can deliver a Petroleum Industry Act that will be a game changer in this critical sector. But to do that, she must contend with a third, and perhaps the most powerful, force which I will highlight next week.
Feeding Nigerians with Handsets

Early last week, the Permanent Secretary, Federal Ministry of Agriculture, Mrs Ibukun Odusote, announced that the federal government plans to spend between N40 billion and N60 billion to procure 10 million telephone handsets from China and United States for free distribution to rural farmers nationwide. This is part of the e-wallet project. According to Odusote, the funds for the procurement of the 10 million telephone handsets were already available.
Following public reaction to the announcement, Minister of Agriculture and Rural Development, Dr. Akinwumi Adesina, denied that N60 billion had been earmarked for handsets. In arguing that his permanent secretary “was totally ‘mis’quoted out of context” (whatever that means), Adesina would add that “the distribution of the phones will be supported through an MoU signed between the Ministry of Finance, Ministry of Communications Technology and the Ministry of Agriculture and Rural Development, with the Ministry of Women Affairs. Out of the 10 million phones, 5 million will go to women.
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The minister’s statement carefully avoided disclosing how much the free phones would cost. It only harped on the presumed benefits of the project, leaving room for the belief that he has something to hide in the area of funding. Coming at a time of genuine fears about food shortage in the country, following the heavy flooding of last year, giving free handsets to rural farmers cannot be described as a sound policy for dealing with the challenge at hand. No matter the sophistries from the ministry, most Nigerians believe that the idea behind this handset for rural farmers was motivated, not by a desire for agricultural improvement but rather by one thing and one thing alone: contracts!

Email, olusegun.adeniyi@thisdaylive.com

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