By Sebastine Obasi
The disagreement over the contentious Petroleum Industry Bill, PIB, between the government and the International Oil Companies, IOCs, reared its head again at the just concluded business forum of the Nigerian Gas Association, NGA.
While Mr. George Osahon, Director, Department of Petroleum Resources, DPR, said that the passage of the PIB will encourage a vibrant gas exploration and production industry.
He added that this will lead to exploration for gas in new frontiers such as the Anambra Basin, Chad Basin and Benue Trough, even as Mr. Mark Ward, Managing Director, ExxonMobil Nigeria, maintained that the PIB will set the industry back.
Osahon, who was represented by Mr. Oliver Okparaojiako, Deputy Director, Gas, DPR, also said that the problem of insufficient gas distribution network will be solved, as the PIB will usher in vibrant gas distribution network, introduction of third party access and implementation of network code.
“It is not that what federal government is asking for is too much; it is because the people (IOCs) want to take too much. There is no way we will not make money from our gas. We are not the only gas nation.
Other nations are producing gas and if you go to the internet, you will see their fiscal terms. It is not that gas is cheap. Nigerians are paying more to get gas. We are begging for gas, while we have abundant gas resources because the people that want a lot of profit are keeping our gas,” he said.
As regards gas transportation, he said that there will be a vibrant gas sector, as the market will attain full liquidity, thus enabling gas to be transported from any source to any market.
“The implementation of these reforms will strongly open up the Nigerian Oil and Gas Sector to new local and international investors for competitive growth and sustainable development in line with international best practices. In particular, when the PIB is passed into law, it will help in the creation of a modern petroleum legal framework, alignment of the Nigerian Gas Sector to international best practice, enhancement of transparency and an open framework, establishing good governance practices and processes, reinforcing linkages between the gas industry and other sectors of the Nigerian economy,” he said.
But the ExxonMobil boss disagreed with the government position. He rather explained that the PIB, if passed as it is, puts the progress so far made in the industry at risk.
“The PIB introduces a set of fiscal terms for gas which make almost 90% of currently planned gas projects non-viable. If these terms are implemented, we predict that Nigeria will produce almost 40% less gas in 2020 instead of the required steep increases in gas production to support Nigeria’s vision 2020.
“The Petroleum Industry Bill currently in front of NASS was expected to address many challenges and put in place a solid framework for the development of the gas sector. However industry is very concerned that the Petroleum Industry Bill puts the progress we have made at risk,” he said.
Wood explained that the PIB introduces some of the harshest fiscal terms for gas in the world, such that royalties increase significantly and the tax rate goes from 30% to 80%. Furthermore, the investment incentives and allowances, which are of vital importance for new projects, are significantly reduced.
He also said that the PIB introduces penalties for failure to meet the Domestic Gas Supply Obligations as set by government, irrespective of the economic viability of the project, the availability of gas pipeline infrastructure, the availability of gas customers such as power plants to take the gas.
According to him, “the bill imposes mandatory suspension of gas export if the domestic supply obligation is not met. This could undermine Nigeria’s reputation as a reliable LNG supplier and would significantly reduce government revenue from existing LNG production. Stopping gas exports would not necessarily increase domestic supply as it is not possible to re-route export gas to the domestic market without building major new pipelines and customers willing and able to take the gas.”
Ward hinted that investors are not charities and will not invest in or continue operating unprofitable businesses. Thus, given the importance of gas development to support growth and diversification of Nigeria’s economy, fiscal terms should support gas development and not hinder them.
He further said that the proposed fiscals terms move Nigeria from a relatively competitive position to one of the harshest fiscal regimes in the world and will prevent Nigeria from achieving its gas production aspirations.
“In addition to good fiscals, it is important that we have market driven pricing, adequate infrastructure, and a viable demand outlook, all of which are essential for a strong and vibrant gas sector in Nigeria. This will create a platform for diversification of the economy and for achieving vision 20-20-20 aspiration. The PIB objectives are clearly aligned with the domestic gas aspirations. The key is to ensure that the bill’s contents set in place the elements to achieve the objectives and aspirations,” he said.
The PIB has pitched the government against the international oil companies, due to disagreements over fiscal terms. The bill which has scaled second reading at the Senate is being subjected to public hearing at the National Assembly.