…want retention of businesses, rights for existing Joint Venture licenses, leases and production sharing contracts
By Levinus Nwabughiogu-Abuja
Oil Producing Trade Section (OPTS), comprising 30 indigenous and international members operating about 90% of the total oil and gas production in Nigeria yesterday saihd the Petroleum Industry Bill, PIB would stifle their businesses and the growth of the Petroleum sector.
The Chairman of OPTS, Mike Sangster who spoke on behalf of the group at the beginning of the two day public hearing on the PIB organized by the ad-hoc Commitee of the House of Representatives said that some aspects of the bill were inimical to future investments.
Titled “A Bill for an act to provide legal, governance, regulatory and fiscal framework for the Nigerian petroleum industry, the development of host community and for related matters”, the proposed piece of legislation is chiefly seeking to scrap the Petroleum Equalisation Fund (PEF) and Petroleum Products Pricing Regulatory Agency (PPPRA) and replace them with a new agency to be called Nigerian Midstream and Downstream Regulatory Authority (NMDRA) which shall be responsible for the technical and commercial regulation of midstream and upstream petroleum operations in the industry.
It is also seeking to establis the Nigerian Upstream Regulatory Commission to be responsible for the technical and commercial regulation of upstream petroleum operations, while also seeking the commercialisation of the Nigerian National Petroleum Corporation (NNPC) to become Nigerian National Petroleum Company to be incorporated under the Companies and Allied Matters Act by the Minister of petroleum.
Making his presentation at the hearing yesterday, Sangster feared that Deepwater developments would not provide a favourable environment for future investments and for the launching of new projects.
He said that the PIB should grant Deepwater oil projects a full royalty relief during the first five years of production or a graduated royalty scheme as detailed in their submission to encourage investors.
He recommended that the PIB should take care of Hydrocarbon Tax.
He also feared that the bill was yet to address the key challenges facing gas development in Nigeria, such as inadequate midstream infrastructure, regulated gas pricing, huge and long outstanding debts, etc., thereby potentially jeopardising the realisation of government’s aspirations for the domestic gas sector.
He said: “OPTS recognises the government’s right to change laws. However, to maintain Nigeria’s reputation amongst investors, it is important for the PIB to explicitly preserve base businesses and rights for existing Joint Venture licenses and leases and Production Sharing Contracts, which form the basis for future growth.
“Operators should be allowed to retain the entirety of their lease areas and new terms should apply only to new contracts, licenses and leases…an imposed segregation along upstream and midstream for existing assets could jeopardise the integrity of past investments for assets that were technically and commercially designed to operate on an integrated basis”
“Where assets are required to be segregated, a provision for the specific exemption of associated taxes should be considered such as; Capital Transfer Tax, Capital Gains Tax.
“PIB should consider harmonising the taxes into a single tax system and allow for consolidated filing and tax reporting and also seek to harmonise tax practices and ensure capital allowances and allowable deductions are consistent with existing tax legislations, Companies Income Tax Act (CITA)”.
Also speaking, the Deputy Managing Director of Deepwater Assets, Total Upstream Companies, Victor Bandele also stated that the bill should recognize and preserve the existing businesses.
“For existing assets, the PIB should recognize and robustly preserve the sanctity of past investments deals: honouring the past is essential to build investor trust to enable Nigeria opportunities to compete for future investments.
“Deductions and allowances are excessively limited for Hydrocarbon Tax. Taken as a whole, the PIB terms aggressively restrict the deductability of costs compared to the current PPT regime. This change reverses any benefit from the lower tax rates and impacts project viability (IRR). The deductibitity principles in the Bill differ from those in CITA, including disallowing costs incurred outside of Nigeria even when approved by NCDMB or NNPC”, he said.
Similarly, the oil producing states also picked holes with some provisions of the bill, seeking robust amendments to reflect the wishes of the host communities.
Represented by its Commissioner for Energy and Natural Resources, Peter Medee, the Rivers State Government recommended the inclusion of persons from oil producing states to be appointed into the boards and executive positions of the agencies created by the PIB with the headquarters of the proposed Commission sited in the state.
Bayelsa State also shared a similar position.
In a presentation, the Commissioner for Mineral Resources, Ebiere Jones argued that the 2.5% fund to be received by host communities where oil was explored on the basis of oil companies actual operating expenditure of the preceding year was grossly inadequate.
He recommended 10% increase.
“It is recommended that the Bill should provide for the development of local content among the host communities and to encourage Host Community equity participation in the blocs. This opportunity for participation would no doubt create a veritable sense of ownership resulting in 3 more secure and profitable operating environment.
The Bill should also design a better administrative frame work for the Host Community Development Trust Fund to function and it should get the host communities fully involved in the running of the Trust Fund and not relegate them as mere spectators”, he added.
In the same vein, the Nigerian Labour Congress (NLC), through its president, Ayuba Waba also discovered some grounds for concern in the bill.
“Section 53. This section that creates Nigerian National Petroleum Company Limited assumes that it should exist simultaneously with NNPC as a corporation. This presages an inherent tendency for confusion between the two entities. Hence, it is necessary to clarify the two entities. In sum, the operating arm or the holding company could benefit from the avoidance of the confusion of nomenclature.
“Section 53 (1) provides that the Minister shall within 6 months from the commencement of this Act, cause to be incorporated under the Companies and Allied Matters Act, a limited liability company, which shall be called Nigerian National Petroleum Company Limited (NNPC Limited).
“Labour disagrees with this provision. There is ample grounds for worry in this provision. Indeed, incorporation under CAMA of NNPC Ltd has potential implications for adverse business manoeuvres, including winding up of the incorporated company by a petition. Therefore, creditors, hostile take over bids and even minority shareholders could scheme the extant rules to the disadvantage of the Nigerian people.
“We suggest that NNPC LTD should be incorporated in a more robust manner that would enable it to operate with minimum hindrance, free of potentially hostile encumbrances and be profitably managed. This robustness in the establishment of NNPC LTD should at least, ensure that no individual, a select few or hostile corporate bodies can disrupt its operations through petitions and take over manoeuvres”, he said.