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THE PROPOSED PETROLEUM INDUSTRY BILL (PIB): Some matters arising

By Adia Adeleye
WITHOUT having the opportunity of reading the full details of the proposed Bill, my comments would be limited to the address of the Minister of Petroleum Resources, Dr. Rilwanu Lukman – an experienced oil technocrat.  Having served in oil affairs in different administrations, one might be tempted to believe that the oil ‘oracle’ knows what he is talking about on the proposed Bill, which has now become very controversial.  From the Minister’s masterly address, inference could be easily drawn on the mindset of the Federal Government.

According to Dr. Lukman, the proposed Bill should be seen as a welcome rarity, the type of which would place Nigeria first in putting oil affairs in the correct and natural perspectives.  The PIB, according to the minister, ‘establishes the legal and regulatory framework, institutions and regulatory authorities for the Nigerian petroleum Industry’.

It also stipulates guidelines for operations in the upstream, midstream and downstream sectors and for purposes connected with same”.

Perhaps in a joyous but overconfident mood, the minister bellowed, ‘Nigeria will move in one step from one of the most opaque petroleum nations in Africa, to one of most open and transparent in the world’.  It is not difficult to decode what is in the mind of the government in respect of the mystery surrounding the oil industry.

According to the minister, ‘the texts of all licences, leases and contracts and any of the changes to such documents will no longer be confidential.  Payments to the government of Nigeria will be public information’.  Good Talk. The minister reminded his audience that,’ from now on, petroleum prospecting licences and petroleum mining licences can only be granted by the Minister through a truly competitive bid process.

Such process will be open and accessible to all qualified companies’.  The average Nigerian would have thought that was the normal practice, except at the time when President Obasanjo doubled as the Oil Minister.  There is no doubt that transparency is one of the virtues of a good government.

Apart from the point of transparency, the Bill deals also with the problem of environment.  ‘Any approved project must meet all environment standards including an approved environmental management plan’. The introductory phase above appears as a soothing balm for the real intention of the framers of the Bill – the need for more money.

It is clear that the purpose of the Bill is mainly to increase government revenue with minimal or no extra expenditure.  According to Dr. Lukman, ‘the PIB represents the largest overhaul of the government.  Petroleum revenue system in the last four decades through four control objectives.

·    To simplify the collection of government revenue
·    To cream off windfall profits in case of high oil prices
·    To collect more revenues from large profitable field in the deep offshore waters and
·    To create Nigerian employment and business opportunities by encouraging investment in small and gas fields.  (But why only in small oil and gas fields)?

As admirable as these objectives are, it appears as if the government is treading on a dangerous path of collision with established oil operators in the country in the sphere of tinkering with their fiscal operations and their propensity for profitable investments. Consider the higher royalties on deep water operations, the new Nigerian Hydrocarbon Tax (not deductible for the Corporate Income Tax purposes) and other reduced allowances allowable for tax purposes.

It looks as if the Federal Government is anxious for increased revenue without taking into serious consideration the possible reaction of foreign operators who are more adept in tax evasion when pushed to the wall.  Also the Minister seems not to be thinking about the attitude of senior Nigerian officials who could help the minister on the projects.

Since the purge of Muritala – Obasanjo era, some clever Nigerians in strategic positions have leant quickly how to take care of their future.  The government, perhaps in its wisdom or otherwise, has underrated the fury of the host communities who sincerely believe that higher revenue from oil is a free licence for wasteful expenditure by the government to develop other areas.

The proposed PIB as it appears, sees OIL affairs as between the Federal Government and the foreign companies, leaving very little or no chance to the oil producing arrears and other Nigerians to own Nigerian oil.  For instance the Oil Minister says, ‘the bill will change the role of NNPC….  The bill gives NNPC (presently funded by Federal Government) the opportunities to create a viable and self-financing oil company.’  But how? Who funds the new company and what would be the structure?

The most insensitive and perhaps insulting part of the bill is that, ‘NNPC is currently 100% owned by the government of Nigeria.

The new National Oil Company will still be owned 100% by the government of Nigeria’.  It is most embarrassing for government to stick to this absurd position at the moment.  Why should government own 100% in National Oil Company when there is a general clamour for reconstruction of the capital base of the agency handling Nigerian oil affairs, i.e. National Oil Company.  If Nigerian Federal Government could not let go totally (but retaining the power on taxation and environmental issue) it should reconstruct the ownership base of National Oil Company to accommodate oil producing areas and other interested parties.

A more sinister aspect is the provision that , ‘ in order to assist the National Oil Company in the finance of new projects, the bill creates a new joint ventures structure, called incorporated join ventures.  The National Oil and the foreign companies will now joint into a single company of which they will be shareholders.  The number of shares will reflect the current interest in the joint ventures.’  This is modern economic slavery in an attempt to circumscribe the payment of its own share of costly cash for new development.

The Nigerian government should allow private Nigerian investors to collaborate with foreign companies in the development of Nigerian oil industry.

The recapitalization of Nigerian banks has shown that enough capital could be raised within this country and from Nigerians abroad for any profitable venture.  Government should have no direct role in any business.  The foreigners would be happy to work with Nigerian private investors since their own companies belong to their private shareholders and not their governments.

The last inst straw that may break the camel’s back is the misnomer called, ‘The Deregulation of Downstream Sector’.  The government is worried about unverified annual subsidy which allegedly rose to about #630 billion in 2008.  Deregulation appears the best solution if it is done in an orderly fashion.

Abrupt deregulation without appreciating the factors that led to the introduction of uniform price regime would invite chaos and confusion.

The hands-off from the problems it has created is a direct invitation to confusion and hardship in an atmosphere of collapsed infrastructures and insufficient refinery capacity.  Oil companies should be allowed the take over refineries and storage depots, while government concentrates on improvement of infrastructures like roads rail and water transportation necessary for effective distribution of oil products.

It looks as if the present administration is taking too much on itself by confronting foreign interests and Nigerian sensibilities in order to have funds from oil to cope with its operations, States and local governments which rely on Abuja for survival.

Dr. Rilwanu Lukman and the government should be reminded of the experience of Persia (now Iran) under Dr. Mossadeq in the 1950s on confrontation with oil giants.


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Comments expressed here do not reflect the opinions of vanguard newspapers or any employee thereof.