Nigeria: Petroleum Industry Bill (PIB) Needs Adaptive Reconciliation

The much debated and contentious Petroleum Industry Bill 2012 (PIB) is a quantum leap in the remaking of Nigeria’s oil and gas industry, if and when it becomes the law of the land.  Some Nigerians deemed the bill controversial because many of them have not read the bill but rather depend on the opposition of the bill to propagate their incoherence and distortions.  One thing for sure, the government of Nigeria must be applauded for initiating the task to reform and make some crucial changes in the most important sector of Nigerian economy.  The bill is not perfect; nevertheless it will re-launch the deteriorated sector into a solidify reformed and streamlined entity.

The PIB must be balanced and made attractive to investors by incentivizing it without jeopardizing and compromising the spirit and integrity of the bill.

The PIB must be adjusted, refined and consolidated to become the perfect bill for a constructive reform is needed in the oil and gas industry.   Some adjustments and adaptations are necessary to satisfy and clarify some impending edges of the bill.

Since the discovery of oil in Nigeria by Shell- British Petroleum in 1950, Nigeria has made billions of dollars, yet the country accrued one of the worst indexes of misery. Over 70 percent of Nigeria lives in abject poverty, struggling to provide their families with three square meals.  The electricity and modern infrastructures are pipe dream. The wealth of the nation has been siphoned to foreign and off shores accounts.  The worst of all, the environmental degradation brought by oil exploration and the subsequent health problems have approached an explosive dimension, an unmitigated disaster.  The oil curse and imminent Dutch disease have done untold harm to Nigeria’s manufacturing and agricultural sectors. Therefore without  a doubt, a reform is needed, but is PIB capable of ushering in the requisite reform?

The PIB is intended to rescind and replace the below current laws in the book:

*Petroleum Products Pricing Regulatory Agency (Establishment) Act 2003;

*Petroleum Equalization Fund (Management Board, etc.) Act CAP 11 Laws of the Federation of Nigeria, 2004

*Petroleum (Special) Trust Fund Act, CAP 14 Laws of the Federation of Nigeria, 2004; and

*Petroleum Technology Development Fund Act CAP P15 Laws of the Federation of Nigeria, 2004;

*Petroleum Act CAP 10, Laws of the Federation of Nigeria, 2004;(‘Petroleum Act’)

*Motor Spirits (Returns) Act, CAP M20 Laws of the Federation of Nigeria, 2004

*Associated Gas Re-injection Act CAP A25 Laws of the Federation of Nigeria, 2004

*Deep Offshore and Inland Basin Production Sharing Act, CAP D3 Laws of the Federation of Nigeria,   2004; except for sections 16 subsection (1) and (2)

Petroleum Profits Tax Act, CAP P13 Laws of the Federation of Nigeria, 2004.

The contemporary laws are not consistent with country’s ambition; therefore we rightly welcome the PIB.  But wait a second!  Let’s put this PIB in perspective. How is going to benefit average Nigerian and what are the structures put together to make sure that accumulated revenues and taxes are channel to building the necessary infrastructures for economic development.   The key point for PIB is to reform the petroleum industry and raise quantifiable fund to develop the country.

PIB is an ambitious project in the sense that it will tax more and accumulate more revenues from the   industry partakers and participants  including –  “Royal Dutch Shell, Chevron Corp., Exxon Mobil Corp., Total SA,  Eni SpA, who produce around 90% of Nigeria’s oil through several joint ventures with the Nigerian National Petroleum Corp.”

The pros and cons of such a massive taxation must be fully examine in order  to make sure that it will not be obstacle for further investment in oil and gas sector of the economy. The bill stipulated that the taxation for upstream drilling is to be pegged at 50 percent and for downstream drilling at 25 percent.

Extracting and exerting such a huge levy on the oil companies may sound tantalizing and satisfying but the possible downside must be considered and evaluated.  Since most of the financing of the high intensive projects in the sector are done by these big oil companies, it is necessary to tread carefully. As Mark Ward, the managing director of ExxonMobil’s Nigerian unit argued that such a massive taxation makes Nigeria’s oil and gas industry unattractive to invest.  Ward said at an Energy conference, “the terms proposed increase royalties, increase taxes, and lower allowances or incentives all at the same time,” will make Nigeria “one of the world’s harshest fiscal regimes.”

Ward’s criticism cannot be wave off easily, without a detailed examination, but that does not entails that his argument is 100% correct.  The level of the participation of local financing is quite minuscule and high taxes probably will not incentivize those international oil companies operating in Nigeria to further investment in the country.

Nigeria failed woefully to utilize the accumulated revenue from the oil industry to develop the industry. There by relying on foreign capital from the big oil companies to play the critical role in the extraction, drilling and development of the industry.  The best thing for Nigeria to do with the PIB is to progressively levy the companies from somewhat lower percent in the course of 5-10 years until it approach the targeted percentage.  The good window is that the gradual increases of the taxation has a lower and lessen impact on the companies, inducing the receiving of the burden in good faith. This will also send the message that punitive action is not intention of the petroleum bill, that we are all together in the struggle to develop the industry.

Other aspects of the PIB were encouraging including the total deregulation of the downstream drilling.  My idealistic wish is that there comes a day that Nigerian government will totally withdraw and disengage from the participation in the oil and gas industry.  The only supposedly function is to tax the industry while NNPC will be privatized and shares floated and bought over by local investors.  But until we get there, Nigerian government must concentrate and direct her resources in developing the industry with verifiable and strong local content.

Bitumen or Asphalt inclusion as a petroleum product is not a stretch as opposition members of PIB chose to ferment.  Although the bituminous shales were not part of the contemporary Petroleum Act but in the quest to broaden revenue collection, the government  is entitle to making the inclusion, provided that it will not hamper the attraction of  investments in the industry.

The section of the PIB that empowered the minister of petroleum and the president to issue drilling licenses may be further elaborated with conditional ties and modus operandi to ensure that biases, mediocrity and nepotism will be checked with transparency.