ALTHOUGH the 2012 Petroleum Industry Bill (PIB), is said to contain excellent upstream provisions related to transparency and non-confidentiality, which according to an expert is a very good step forward for Nigeria, there are still some negative clauses in the bill.
One of such negative provisions, is the discretionary powers prescribed for the president to grant licenses and leases without competitive process or any other process.
According to Dr. Pedro Van Meurs, an international oil and gas Fiscal Policy expert, “This provision leaves the door wide open to political favoritism and corruption in a manner that has been practiced in Nigeria in the past”.
Dr. Pedro Van Meurs in his paper presentation on the Commercial and Fiscal Assessment of the 2012 PIB, organised by Ernst & Young in Lagos, said other areas of concern in the bill include restrictions on reconnaissance surveys; inadequate financial guarantees for work commitments; no return of acreage and the power of the incumbent Minister to set rentals and royalties by regulation.
He stressed that, the call for complete removal of confidentiality on all contracts, all information and documents is an extremely good clause, adding that it would be the most modern clause in Africa if passed by the National Assembly.
He therefore, recommended the removal of the President’s power to grant licenses and leases; and the establishment of credible financial guarantees for work to be committed; a reasonable return of current acreage and the establishment of rentals and royalties in the PIB.
“The PIB 2012 has adequate downstream provisions related to tariff methodology and network codes, license conditions for pipelines, pipeline networks, gas suppliers and gas distributors, as well as oil product consumer protection mechanisms.
“In general, Part V enshrines the desirable goal of creating a fully competitive gas market for Nigeria. However, with open access to transportation severely limited for the smaller companies, this may be difficult to achieve,” he said, adding that the PIB 2012 also includes strong provisions to limit gas flaring.
Consequently, he explained that there are several areas of concern such as the exclusion of mechanisms for major project approval.
“Open access provisions are severely limited; no tariff or open access provisions for gas processing plants and in fact franchise areas are set up; no definition of any policy on refining and domestic supply obligations is severely weakened and no initial gas pricing framework is defined,” Pedro asserted.
Sequel to the above areas of concern, Dr. Pedro recommended that there should be a procedure for major project approval and a strong open access provisions for all oil and gas pipelines and for gas processing plants.
He added that there should be a defined policy for refining and refiners should receive fair market value for all products to be produced while they should not pay more than fair market value for crude oil.
Pedro said this section (Taxation) deals only with taxation and not with the total fiscal package, ‘noting that Nigeria needs to increase investment in oil and gas production.
“This can only be done on the basis of a comprehensive total fiscal package that would encourage companies to make the necessary investments. The PIB 2012 is seriously deficient in not providing such a framework.
“The PIB 2012 does not deal with rentals, royalties and production sharing. Therefore, it is not possible to obtain a complete view of the new fiscal conditions.
“Royalties should be determined upon production at the measurement point. This is international practice. It will also make stealing of oil more difficult, since production volumes are known.
“The fair market value concept for the value of oil and gas should be established. In particular the PIB leaves the door wide open for transfer pricing on exported LNG. Of concern is that the Deep Offshore and Inland Basin Production Sharing Act is being repealed.
“This means that also the royalties are eliminated. The PIB does not deal with production sharing. Yet, this is an area that needs improvement if new production is to be stimulated,” he said.
In order to be competitive and encourage production from new leases, Pedro recommended that Nigeria should aim for an overall government income take for oil of 60 per cent for the small and high cost fields to 75 per cent for the large and low cost fields under current price conditions adding that “government income take” does not include the government take as a result of NNPC participation.
In order to achieve the recommended levels of government income take for production from new leases, he noted that a comprehensive new package is required that involves all fiscal components.
The PIB 2012 as presented contains many good provisions, Dr. Pedro however said a large number of amendments will be required to achieve a viable petroleum industry for the benefit of all Nigerians.