By Adedayo Ojo
The Nigerian oil and gas industry is undergoing what will arguably be its most transformative season. The revised and harmonised version of the Petroleum Industry Bill (PIB) has been forwarded to the national assembly; there has been a change in the leadership of the Nigerian National Petroleum (NNPC); the Special Committee on Subsidy Payment Verification and Reconciliation has submitted an interim report and EFCC has arraigned a few individuals and corporates. These are significant issues for the oil sector, nay the economy.
The world waits with great expectations, hope and anxiety that these events will play out positively and provide the much needed drive for economic and social transformation.
The New PIB
Promulgation of the Petroleum Industry Bill (PIB) into law will change the face and character of the petroleum industry in Nigeria. The ambitious bill seeks to overhaul the regulatory and legal framework, the licensing procedure, as well as all other related industry processes.
In the four years during which the initial version of the bill gathered dust at the national assembly, there was no significant investment in the oil and gas industry, especially in the upstream sector. Operators wanted to have clarity on what the new legislation will portend; and in the absence of needed clarity, no one could commit to investment.
Following the setting up of a special task force by the Federal Government to fast-track the process of passing the bill to law, the bill was revised. The revised version recently received approval of the federal executive council (FEC). Shortly after, Mrs. Allison-Madueke, Minister of Petroleum Resources told the media that President Goodluck Jonathan had forwarded the draft bill to the national assembly. Take it or leave, this woman has guts. Love or hate her, she is focussed, determined and committed to changing the business of oil & gas exploration and production in Nigeria.
Given that the PIB was conceived to serve the interest of all stakeholders in the industry, the level of criticism that has emerged in the wake of the submission is worrisome.
Many industry operators, including indigenous and international oil companies (IOCs), have criticized the bill over the proposed fiscal terms. Under the proposed PIB, they argue, the JV terms will see Nigeria take about 96 per cent of the revenue. In addition, Nigeria’s deepwater terms as proposed in the PIB puts the royalty rate at over 25 percent. This is obviously more than is obtained in Angola, Ghana, Indonesia and Malaysia where the rates are at 10 per cent and below. Tax rate remains at 50 percent for oil and between 30 – 80 percent for gas.
Operators consider these terms unfavourable. It may, therefore, be imprudent to expect investments into the industry under such terms. Without new investments, there will be no new finds to grow reserves and subsequently, production will drop. According to reports, out of 33 oil licenses awarded about a decade ago, only six are currently producing. This is a typical case of what can happen in a regime of uncertain investment climate.
The general concern is that the intention of the proposed bill is laudable. It is imperative, then, that all stakeholders, especially government and the IOCs, should engage and meet each other mid way. It will be in the interest of Nigeria that none of the stakeholders play hardball at this stage. All stakeholders – government, operating oil companies, communities, etc should be willing to make sacrifices on contentious issues.
A lot is expected from the members of the seventh national assembly. It is their call. They have an opportunity write their names in gold by making sure that the PIB is given expedited attention and that their work is done in the national interest. Of enormous importance is the need to ensure that the right fiscal terms are incorporated in the bill. It is sacrosanct that sanctity of contracts be respected in recognition of existing contracts. Interim measures should be designed to manage transition from existing laws to the new one. Such interim measures cannot be done with a legislative fiat. Gone are those days!
The oil and gas industry is central to the growth of the Nigerian economy. Success in the power sector requires a gas industry favourable to both investors and government. All should be focused and allow nothing to delay or derail this bill. There are no perfect laws anywhere. So is the PIB.
New NNPC Management
Andrew Yakubu was recently named the new group managing director of the NNPC. Yakubu’s team is seen as experienced, unassuming and bright. Nigerians would rightfully expect a radical change from the way business has been conducted in the national oil company. The achievement of the new team will either enthrone the required transformation and transparency or erode investors’ confidence in the sector. This is, at least, the expectation of all stakeholders. Even the President said this much while announcement the appointment of Yakubu and his team.
The new NNPC leadership must work closely with the petroleum minister, current operators of Joint Ventures (JV’s) and Production Sharing Contracts (PSC’s), the national assembly and other stakeholders to ensure that the PIB is passed into law expeditiously.
Revamp of the old refineries and the construction of new ones is another task on the plate of the new leadership at NNPC. Should government build new refineries? Absolutely, no! But the new PIB must encourage investment by the private sector in refineries. Nigeria imports more than 85 percent of her needs as a result of low refining capacity. If successful turnaround maintenance (TAM) is achieved and new refineries are built, this will lead to a reduction in expenditure on imports as well as on subsidy on petroleum products. The subsidy cost to the country is estimated at about N1.7 trillion in 2011 fiscal year.
Nigerians expect the new NNPC management team need to focus on gas. Critical gas projects should be funded as a matter of priority. This will ensure availability of gas to power plants and discourage continued gas flare.
Nigerians are eager to see what becomes of the probe on payment of subsidy on petroleum products. The bribery scandal that trailed the House of Representatives committee handling the probe and the revelation that part of the report may have been compromised to exonerate guilty marketers put a huge question mark on the final report. The principle of coming to equity with clean hands makes it difficult for the committee members and their report to gain the trust of many Nigerians.
Perhaps the ray of hope in the subsidy probe exercise lies in the interim report of the Special Committee on Subsidy Payment Verification and Reconciliation chaired by Aigboje Aig-Imoukhuede, managing director of Access Bank Nigeria Plc.
Nigerians would expect the system to begin to work with transparency. Given that the NNPC seems to have also been tainted in these matters, this will be a good take off point that will enable the new leadership to begin to drive the corporation along the path of transparency.
Adedayo Ojo is Lead Consultant/CEO of Caritas Communications Limited, a specialist reputation strategy and corporate communication consultancy based in Lagos.
Caritas is the West Africa affiliate of Regester Larkin, a pioneer reputation strategy/management consultancy with offices in London, Washington and United Arab Emirates