By Felix Ayanruoh

I’m starting to have this sinking feeling that meaningful opportunities are slipping away from the Petroleum Industry Bill’s (PIB) debate – particularly its fiscal regime. Stakeholders are threading the 2009 PIB path of self-destruct. Although, the global debate regarding oil and gas fiscal regime is not new and will continue for ages, one wonders the motive behind the International Oil Companies, IOCs’ recent chutzpah of debagging the PIB on the pages of Newspapers instead of a constructive discourse.

Some background: Although you’d never know it from all the diatribes, with the IOCs predicting a dooms day if the PIB is passed, the PIB is based on the Report of the Oil and Gas Reform Implementation Committee (OGIC) set up by the Federal Government in year 2000, to carry out a comprehensive reform of the oil industry. The PIB is a reform legislation geared towards a robust legislation that establishes lucid rules, procedures and institutions for the administration of the petroleum industry in Nigeria.

Some of the objectives of the PIB include the following:

? Establish transparency and Accountability

? Create a robust economic environment to attract investments

? Establish flexible and competitive fiscal framework

? Promote exploration and exploitation of Petroleum Resources

? Increase gas supply for domestic utilization and industrialization

? Create efficient and effective regulatory institutions

Furthermore, the PIB’s fiscal regime will increase government’s take and yet encourage investment in the petroleum industry – it allows for production based incentive system. The bill proposes the volume-based royalty – sliding scale between five percent and 22 percent depending on production volumes and location.

The OICs in their recent media blitz have alleged that the fiscal regime proposed under the new law risk cutting oil and gas output from 63 percent to about 25 percent – about 2.4 million barrels a day. Also, that this will translate to about $185 billion loss in revenue for all stakeholders as new projects will be stalled.

They went on to state that this will create one of the harshest production sharing contract, PSC regime globally – governments economic rent (royalties, taxes and National Oil Company, NOC profit oil) will be at 96 percent. The IOCs’ predictions and figures in my opinion are stochastic and should be taken as is. Do the IOCs think this tactic will stop the PIB’s passage?

It is wrong for the government and its proponents to keep on hinging on the fact that previous fiscal regimes were grave wrong meted on the country by the IOCs, as if the 2012 PIB is a reparation legislation meant to atone for past wrong or injury done. Stakeholders should not be oblivious to the fact that oil and gas exploration and development is a business and should be taken as such.

It is readily apparent from heuristic analysis by expert in the field that a fiscal regime should neither deter investment which would otherwise have been made, nor should it encourage investments which would otherwise not have been made. That is, the interest of both parties – as in this case the government and the IOCs should be mutual.

It is obvious that the objective of both host government and the IOCs is maximizing the present value of revenues generated by petroleum activities. Every government in drafting a fiscal regime for its petroleum industry must ensure that the host state, as a custodian to oil and gas resources on behalf of its citizens, maximizes revenue, including tax receipts generated by the exploration and development operations. This objective entails designing a fiscal system where exploration and development rights are acquired by companies who place the highest value on them.

On the other hand, the OICs’ objective is to build equity and maximize wealth by producing oil and gas at the lowest possible cost and the highest possible margin. The IOCs have a fiduciary duty to manage and protect their shareholders interest in its investment, including where they believe it will yield the best returns.

However, comparing fiscal regimes on the level of “state take” is an over-simplification of the issues, particularly when the calculation is of the percentage of the gross project revenues that accrue to the state as this ignores even the effect of differences in costs of development and production among others economic factors. It should be noted however, that fiscal system also includes all aspects of the contractual relationship between the host government and an IOC.

Petroleum contracts or agreements require negotiation by the parties involved. It is important to state that at every contract stage which often involves the battle of the forms (exchange of contracts) end with parties adopting a contract beneficial to all parties involved – including one’s entered into in Nigeria. The OICs should also in the legislative formulation of the PIB put on its contractual negotiation armor in the drafting process of this bill.

Put it all together, and it’s discouraging picture as portrayed by some, the PIB is a fair legislation that will at the end be beneficial to all stakeholders. The question then is what should the IOCs be doing?  Assist in enacting a strong petroleum law where all parties’ interest will be met. It is ubiquitous that we have a weak governance structure which seems to be dragging the industry down – including oil theft. The OICs should collaborate with the government in fighting these problems instead of compounding it as business CAN NEVER BE AS USUAL.