PIB and the IOC’s final final

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By Abiye Membere
ON April 4, Vanguard reported that the IOCs – or International Oil Companies – have responded aggressively to the latest draft of Nigeria’s Petroleum Industry Bill, PIB. It is no surprise that they’ve been so critical.

The IOCs making the criticisms – including ExxonMobil, Chevron, Total and Shell – under the platform of the Oil Producers Trade Section, OPTS, of the Lagos Chambers of Commerce and Industry, LCCI, is a body that was founded to speak for both international and indigenous companies in the Nigerian petroleum industry. These complaints were, however, dubious. They related solely to the interests of international companies.

If they had not been, then indigenous producers might have been expected to be party to this attack on the PIB. Of course they were not.

 Petroleum Resources Minister, Mrs. Deziani Alison-Madueke (r) showing a copy of the authentic Petroleum Industry Bill to the Niger Delta Minister, Elder Godsday Orubebe and the Minister of State Niger DeltaDevelopment, Hajia Zainab Kuchi while the Sports Minister, Mr. Bolaji Abdullahi watched the weekly meeting of the Federal Executive Council at the State House, Abuja. Photo by Abayomi Adeshida

Petroleum Resources Minister, Mrs. Deziani Alison-Madueke (r) showing a copy of the authentic Petroleum Industry Bill to the Niger Delta Minister, Elder Godsday Orubebe and the Minister of State Niger DeltaDevelopment, Hajia Zainab Kuchi while the Sports Minister, Mr. Bolaji Abdullahi watched the weekly meeting of the Federal Executive Council at the State House, Abuja. Photo by Abayomi Adeshida

They even claimed to be speaking in the interest of the Nigerian people but it is apparent from their submission that their interests are diametrically opposed to that of Nigerians. The people of this country need and deserve to know the facts about the PIB, but at the same time, it has to be understood that Nigerian public interest is not in any way compromised in the Bill – even if IOCs have problems with it, for reasons of their commercial interest.

So, what are the IOCs’ grievances with the PIB? One of the obvious points noted in the Vanguard article is the preference of IOCs to export gas, rather than producing it for the Nigerian market, despite the fact that the PIB comes with incentives, including tax breaks, to encourage gas production for Nigerian consumers. Natural gas is important, and the PIB makes a powerful and justified effort to encourage oil companies to ensure the local market is properly provided with gas for power generation and domestic industries.

However, rather than responding positively by taking advantage of the incentives provided in the PIB, the IOCs seem intent on allowing export-oriented gas projectsto take  precedence over the needs of the Nigerian people. The new arrangements under the PIB mean that if International Oil Companies are determined to continue to operate that way, then that will come at a price, and this fact is the crux of their attack. Nigeria has every right to secure this protection for its people today and for posterity through legislationthat is fair, balanced and transparent. The draft PIB 2012 is poised to do just that.

In a further criticism, the IOCs took objection to the use of regulation for aspects of the fiscal terms. The PIB introduced two new tax regimes – the Nigerian Hydrocarbon Tax, HNT, and the Companies Income Tax, CIT, and the rates for these are contained in the Bill. However, royalty rates are to be detailed in regulations in much the same way as the current Petroleum Profits Tax, PPT. Contrast this, however, with the 1993 Deep Water and Inland Basins Act where both rates are stated in the law, and through whichthe IOCs gained an 80 per cent share of profits, and it becomesclear why the IOCs are dissatisfied with the PIB model.

Predicating their argument on the need to avoid   uncertainty, they would like all rates expressed in the Bill. But there is nothing novel about setting royalty rates in regulation. Indeed, this is the practice in many parts of the world. The system offers regulators the flexibility needed to respond to changing market conditions without locking the nation into a fixed regime.The processes by which these regulations are to be rolled out are defined in the PIB and are not subject to arbitrary change.

Another complaint expressed by the IOCs is the supposedly high Government Take in Nigeria which they compared with  those of a number of countries including Equatorial Guinea, 44%; Ghana, 52%; the UAE, 77%; and Angola, 83%. It is in fact notable that we have not seen an exodus of investors from Angola to Ghana or UAE to Equatorial Guinea and that is because the Government Take is but only one of the metrics for determining the attractiveness of a nation’s fiscal terms.

The International Oil Companies have warned loudly that investment will dry up after the PIB. But it seems very strange for them to be engaging in this kind of scaremongering whilst at the same time making such huge investments. Many might think that their purpose is less to provide a true warning than to stave off competition.

Another key feature of the PIB is the introduction of a modern acreage administration system which would ensure that tracts of acreages that have been lying dormant under the current regime are operated in a vigorous and continuous manner that would shore up the nation’s reserves and production. So, under the PIB, sitting on valuable acreage without actively working them would be a thing of the past.

This new system will not only help Nigerian oil companies, but will also attract new independent players that are ready to take exploration risks to increase production. Predictably, the system would put some IOCs under pressure and open them up to competition from independents thereby reducing their dominance in the Nigerian upstream space. In recent times, much success in major oil and gas discoveries globally has been by independents, not risk-averse IOCs who expand through acquisition and mergers. So we welcome their arrival here.

In a final attack, the IOCs criticised the introduction of productionallowances, which reward companies by output thereby discouraging wasteful behaviour by IOCs. Once again, these rules have turned the tables on the IOCs, improving the terms for the taxpayer and Nigerian citizen. IOCs also complained that the authorities are not paying enough attention to their needs, and haven’t consulted them sufficiently.

It is clearly reasonable and right for Government to listen to the IOCs as indeed to other stakeholders but having to “consult” with a group before changing the laws of the Federal Republic of Nigeria is a different matter. It took the better part of three years for the Government to reach a position with the IOCs for the Deepwater terms in 1993 with Government eventually giving way just to ensure that the project got off the ground… But this time round, we are determined that these kinds of tactics by the IOCs simply will not pay off.

But it does seem that the IOCs have trouble accepting the right of the Nigerian Government to create and change its own laws without external approval. Not only do they complain at lack of “consultation” but they demand that the fiscal arrangements in the Bill should be subject to review by an independent assessor, such as the World Bank. This certainly will not happen.

The very suggestion is quite patronising and offensive. Nigeria needs no third party to review its legislation. It has taken 13 years to get the PIB to this point. Previous attempts have been killed off in the past.

The IOCs know that this kind of “assessment” would add further delay, and delay is what they want. And their view of the US-dominated World Bank as an appropriate “independent” assessor is certainly not one we share.

In spite of the comments of the IOCsabout the PIB, it really does not seem likely they will beleaving Nigeria any time soon. The industry will continue to attract investment and remain profitable. Nigeria must remain steadfast in its commitment to the intent and spirit of the PIB by diligently separating the commercial interests of the IOCs from the larger interest of the country. The PIB represents the real public interest. It should come to pass. And it will.

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