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Questions, hostility trail petroleum industry bill

IF the activities of the Oil and Gas Industry Committee (OGIC) superintending the reforms attracted measured criticisms, the public hearing for passage of the bill before the national assembly appears to have opened the floodgate – attracting outright hostility and leaving more questions than answers.

Dr Lukman
Dr Lukman

Investigations have also revealed that the multinational oil companies operating in the country may have decided to starve Nigeria of any future investments in the development of the acreage they control for the next five years.

Meanwhile, the Niger Delta state governments continue to express their concerns about the implications of passage of the bill to the presidency, while urging the representatives in the national assembly to ensure it is not passed in its present form. Most stakeholders who made submissions, including the multinational oil companies, organised labour, host communities in the Niger Delta, major marketers of petroleum products, among others had major concerns against passage of the bill in its current form.

Sweet Crude gathered that the original intention of the OGIC was to create an even playing field for all participants in the oil and gas sector; encourage new investors and competition into the sector, enable the National Oil Company to operate rather than regulate the sector, plug the loopholes in the collection of Government revenues and operational efficiency through stronger regulatory bodies, encourage the participation of Nigerians and Nigerian goods and services in the sector.

However, the document before the national assembly seeks to do the opposite by creating a more monstrous national oil company that does not operate in the sector but owns Government assets, can organise its own acreage bidding, appoint other companies to operate for it, sit on the boards and managements, dispose of Government crude oil and gas and declare artificial profits, while Government revenue is severely hampered.

For example, section 151 of the bill states that: ‘NOC takes over all current Government JV and PSC upstream assets in which NNPC is representing the Government and thus inherits Government oil. If this is allowed then there is very little ‘useful’ acreage left for the minister to award. It stops the privatisation of its downstream assets in which it has demonstrated that it cannot operate. The wisdom of injecting private sector capacity into these ailing facilities is lost.

Similarly, section 265(3)&(10) states that the NOC appoints majority of the members of the Boards and Managements of the IJVs but it does not say how it would gradually obtain the transfer of technology necessary to take on the real operations of the IJV as already enshrined in the JOAs. Indications are that the NOC may only be interested in sitting on the boards and management while still asking the operator to operate for it. Clearly, there is a conflict between section 150(5) and section 261(2).

In section 264, the NOC takes on the responsibility of disposing of Government crude oil produced by the IJV, which it has not worked for and to pay taxes to the FIRS as the IOCs does; a process which only short changes the Government and which the reform originally intended to address.

Under such a dispensation, the Govt will not have any crude oil of its own to sell at world market price (at least now Government gets about 60 per cent of the crude oil produced). Government would have to rely on the taxes and dividends paid in cash by the NOC (calculated at the Official Selling Price) to fund its budget and programmes! It was gathered that the initially agreed position at the OGIC was that NNPC would integrate with the IOCs primarily in operations and understudy it as in Petronas and gradually begin to perform the operations to the satisfaction of the parties in the IJV as in the JOAs. Under this arrangement, government will receive more or less the same volume of crude as it presently receives by collecting its royalty, tax and profit in oil.

Government may even elect to ask the NOC to sell it on its behalf and pay the NOC a handling fee – allowing commerciality to thrive. The original intent of the OGIC bill was to get NAPAMA (or Directorate as now referred) to focus on technology transfer. Section 266 of the bill captured this much, stating that NAPAMA should focus on the gradual transfer and sharing of technology between the IJV and the operator, who still holds the license to the asset.

However, the phrase ‘technology transfer’ from the International Oil Companies (NOCs) to Nigerians was not mentioned in the entire document and technology transfer and funding are the two key deliverables of the IOC, which the reform is intended to encourage and maximize. Unfortunately, the document did not give focus to these. In section 267, subsection (2), alternative funding is implied and this runs counter to the original intention of the reforms which is aimed at getting projects financed in the open financial market utilising the borrowing power of the IOCs. The financial power of the IOCs is required to support the IJV as it grows in its own borrowing power. Sections 269(3), 271, 272, 435(1), 39(2f), 28, 264(1) and 445 all seek to vest powers of the minister of petroleum and roles of the federal government with the NOC in what appears to be a clear departure from the original intent and purpose of the reform Treatment of investors:

The original intention of the reform was not to punish private oil and gas investors through the imposition of new taxes but rather to encourage them to do what they know to do best – technology and funding and for the National Oil Company to maximise its benefit, first by working and learning from them, integrating its staff into their operation and gradually taking over the operations as envisioned in the Joint Operating Agreements.  Essentially, chapter 3 which stipulates reviewing upwards the entire royalty and tax rates tantamount to fishing in troubled waters. Operators who spoke with Sweet crude disclosed that Nigerian oil tax rates are already quite high.

Operators also noted that section 437 which related royalties to production discourages higher producers. “The tested method is to distinguish between marginal producers, indigenous producers, new entrants and major producers, which has been tested and is working. Not a problem in the sector at this time of security concerns and low prices. Hiking royalties in the deep offshore to 25 per cent is ill advised,” one of the operators volunteered.

Sweet crude checks also revealed that section 432(3), 443 which deals with Nigerian Hydrocarbon Tax is new and proposed to be charged on gross income, which includes costs. That is, operators pay tax on their costs. Again, this tax is not deductible, so the company pays income tax on a levy!

Checks also revealed that section 446 and 501 which deals with deductible costs for tax purposes is an issue that has a long history and agreement had been reached over the years and re-opening this now is not helpful. The expectation is that Government would collect what has been previously agreed efficiently and correctly.

An operator who spoke on the basis of anonymity pointed out that starting up a fresh discussion on this issue would unnecessarily hamper the passage of the bill and if approved by the National Assembly, may lead to many companies leaving the country.

Sweet crude checks also revealed that the provisions of section 446(K,L,M,N,O,P,Q,R) and 500(2) will stifle new comers and ultimately kill the industry if passed like that into law. Regulatory Institutions: The original intent of the reform was to build strong regulatory agencies. Rather, under the current proposition the agencies are multiplied with overlapping roles.

The National Petroleum Directorate (NPD) that was intended to serve as the secretariat of the Minister; assisting the Minister in formulating policies and representation in local and international fora is now saddled with acreage administration overlapping the role of the Inspectorate. This means that Government which has limited technical resources will now have to spread out its technical manpower across the Inspectorate, NPD Authority and Agency to duplicate the same work and possibly confuse the operators, while the holes in data and revenue collection of the state remains.

Under section 37, subsection (3), the DPR migrates to become the Inspectorate, which is only an upstream regulator. However, this leaves the downstream and midstream departments of the DPR stranded. Ideally, the upstream department of the DPR should migrate to Inspectorate together with NAPIMS, while the downstream and midstream departments move to the Authority and Agency respectively.

Sweet crude  also checks revealed conflicting roles and functions in the inspectorate arms  contained  in the proposed dispensation and this is largely underscored in sections 39(i), 31, 57, 95, 133, 269, 271 273(4) & (8), 274 (4), 276, 277, 278, 279, 280 and 294. Chapters 7, 8, 9 & 10 as well as sections 78 & 116, 305 & 410 further underscore the conflicting roles and functions the agencies to be created following the passage of the bill into law may have.

Multinationals plot to stop investment: A ranking official of one of the multinational oil and gas exploration and production companies who did not want his name in print told Sweet crude that the multinationals always have options to fall back on, adding that the current line of thinking amongst them is to starve the country of further investment for the next five years in the event the bill is passed in its current form.

“Without investments, production can only dwindle further, revenue will shrink, the economy will be weakened even further and they will negotiate re-investment with a totally emasculated Nigerian leadership. Government must see and treat the multinationals as development partners and not adversaries,” the official urged.

He decried efforts by government and OGIC officials to compare Nigeria to Venezuela, noting that this was very wrong because the circumstances and realities of both countries’ petroleum industry ‘are poles apart’. Niger Delta state governments concerned:

State governments in the Niger Delta remain resolutely opposed to the passage of the bill and have instructed their representatives in the national assembly to stop its passage into law. Rivers State in particular, arguably the largely oil producing state going by the number of oil wells, reserve portfolio and derivation received on oil production, had sent a member of the state executive council to canvass its reservations over the planned incorporation of the NOC and the kind of powers to be conferred on it over the entire acreage in the country.

Representatives from other states also submitted memoranda questioning particular sections of the bill, especially as it affects community rights.   To underscore the depth of its reservations about the bill, the Warri branch of the Nigerian Bar Association (NBA) has dragged the federal government to court, arguing that the bill was flawed, in favour of the north.


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