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  • Furore over Petroleum Industry Bill

    Furore over Petroleum Industry Bill

    It was a carry-over from the 6th Legislative Assembly. Mid-way into the present dispensation, the Petroleum Industry Bill (PIB) – the magic pill against all that cuts the key sector – may again fail to scale the legislative hurdle, reports LEKE SALAUDEEN

     

    IT is no longer news that corruption, poor institutions, weak regulations and lack of transparency are the bane of the downstream sector of the petroleum industry.

    But there is a new twist in the efforts to sanitise the all-important-sector – the mainstay of the nation’s economy. Another setback awaits the Petroleum Industry Bill (PIB), which was initiated during the administration of former President Olusegun Obasanjo.

    After so much deliberation, the Bill could not scale the legislative hurdle before the Obansanjo administration wound up. The non-passage of the Bill into law has in no small way hindered the much-needed Foreign Direct Foreign Investment (FDI) to stimulate the economy.

    The inability of the 6th Legislature to pass the previous versions of the PIB was traced to vested interests of key players in the oil industry, especially the multinational oil firms.

    Following the nationwide outcry that greeted the partial removal of fuel subsidy early last year, the Federal Government raised a special task force to harmonise the various versions of the PIB which was forwarded to the National Assembly on July 18, 2012.

    As the nation awaits the outcome of the presidential team, a clash is imminent over the PIB in the National Assembly, where members are sharply divided on the clause providing for the allocation of 10 per cent of oil revenue to producing communities.

    Already, Senators from the North are crying foul that the Bill was designed to further enrich the oil producing states and the Niger Delta region, lacing their opposition with Section 116-118 of the Bill, which provides additional 10 per cent revenue for producing communities.

    Section 116 of the Bill provides for the creation of a fund to be known as the Petroleum Host Community Fund (PHCF).

    The Fund is to be used to develop the economic and social infrastructure of communities in oil-bearing states.

    The contentious provision reads: “Companies engaged in upstream petroleum operations will be required to remit 10 per cent of their estimated ‘net profit’ to the Fund on a monthly basis. At the end of each fiscal year, companies are expected to reconcile their monthly remittances with the actual PHCF contributions payable, based on the ‘net profit’ computed in their actual tax returns and settle any under -remittance to the Fund.”

    The Northern elite’s opposition to this provision is hinged on the existing revenue allocation formula, which they argued was skewed in favour of the oil producing states. According to them, creating another special fund for the oil-rich regions would be an over-kill with the 13 per cent derivation still being reserved exclusively for the oil producing states.

    Besides, they said the Niger Delta Development Commission (NNDC) has access to an annual allocation of N500 billion from the Federal Government; the N400 billion budgetary allocation to the Niger Delta Ministry and the Amnesty Programme for demilitarised Niger Delta youths. The Federal Government has spent $3 billion and the development of the area by the oil fuirms through their social corporate responsibilities.

    The ‘preferential treatments’, according to the elite, are all in a effort to cushion the effects of oil exploration activities.

    The PHCF if established, would in addition to the development of the host communities, has a provision in its Section 118(5) for the deduction of the cost of repairing damaged petroleum facilities through vandalism, sabotage or other civil unrest, unless it is confirmed that the no member of the community was responsible for the damage.

    This provision is expected to encourage host communities to protect petroleum facilities in their domain.

     

    The fear of the North

     

    Senator Danladi Sankara of the People’s Democratic Partic (PDP) from Jigawa State has vowed that the Bill will not scale through.

    To him, the Bill must be stopped because it was designed to satisfy sectional interest.

    Sankara said: “It is clear the way it was crafted that only one section of the country is being favoured to benefit. While no one is saying the oil producing states/communities should not benefit, such benefits should not be to the detriment of other sections. We will not allow it. This country belongs to us all.”

    Rights activist Shehu Sani pitched his tent with Sankara’s position. He said granting another 10 per cent to the already existing revenue generation to the zone will be unfair.

    He argued that what a state in the Niger Delta gets from the Federal Allocation in a year is more than what is allocated to five states in the North.

    His word: “Enriching one part of the country is tantamount to shifting the problem to the other part. This is not good for a country where there are security challenges.

    “I don’t know how you are going to have peace where allocation of resources are so skewed in favour of one region to the detriment of other geo-political zones.

    “The position of the Northern senators is in the best interest of the nation because what they stand for is equity and justice. The problem in the North is security challenges attributed to social and economic factors.

    “Government should be wary of any policy or action that would further aggravate the problem of insecurity in the country.

    “Our perception of PIB in the North is that the Bill is aimed at gradual disempowerment and impoverishment of other parts of the country. Those in position of authority should know that injustice in one part of the country will affect others.

     

    Southern leaders are

    bourgeoisie

     

    “Curiously, all the special grants paid to the Niger Delta states have not reflected in infrastructural development and the living standards of common people in the region.

    “The Southsouth states have collected N1.7 trillion as special allocation in the past 13 years. The political elite in the Niger Delta are Nigeria’s version of the bourgeoisie that are institutionally manipulating their people.

    “They portray their people as marginalised whereas they are trying to insulate themselves from the reality of their region.

    “Niger Delta elite are the problems of their people. Even if the nation concedes 100 per cent of oil revenue to the Niger Delta states, it won’t solve the problems of peasant fishermen and farmers because of the greed on the part of the elite.

    “The new 10 per cent grant being proposed in PIB will not favour the people of the Niger Delta, but the elite, who are part of the problem facing the people are the state governors, traditional rulers, militants and oil business people.”

    To the Northern political class, Sani advised them to start thinking of Nigeria after oil because one day the oil wells in the Niger Delta will get dry.

    “The North should be thinking of how to exploit the abundance mineral deposit in its domain for the economic development of the region and the people,” he counselled.

    Senator Bukar Abba-Ibrahim of the All Nigeria People’s Party (ANPP) from Yobe State, widened the gulf created by the PIB.

    Apparently advancing what could be described as the official position of the North on the PIB, he said one of the reasons why the North is opposed to the PIB is because of its failure to make provision for the exploitation of other minerals in other parts of the country.

    Abba-Ibrahim said: “We have over 800 million tonnes of limestone in Gulane, Fune and Guljimba Local Governments of Yobe, but as a state government, you cannot go and exploit, it has to be done by the Federal Government.

    Abba-Ibrahim, a former governor of Yobe, decried the poverty in the North arising from dearth of industries and the high unemployment rate in the region generally. He was particular about the marginalisation of the Northeast zone which has resulted in its backwardness.

     

    The North got it wrong

     

    But a member of the upper legislative chamber from the Southsouth picked holes in the argument of his Northern colleagues on the PIB which he said was intended to sanitise the industry and address corruption.

    The senator, Aloysius Etok of the PDP from Akwa Ibom, told The Nation that the 10 per cent of the PHCF provision in the Bill is meant to compensate the people whose lands have been degraded and whose wells and rivers have been polluted as a result of oil exploration.

    Etok said: “The Senators need to visit the oil producing communities to appreciate what the people living in those communities are going through.

    “The farmers have been deprived of their lands for farming, they don’t have drinkable water as a result of pollution and the fishermen are out of business because the oil spills have contaminated the river.

    “The Northern senators cannot describe what is right as unfair. PIB is out to ensure justice, to compensate those who have sacrificed their conveniences for the benefit of the nation, to give back to the people where the nation’s wealth comes from.

    “It is time the people of Niger Delta are adequately compensated. Our colleagues from the north should not allow sentiments to becloud their sense of judgement while pondering on the merit of the PIB. It’s time to answer the cry of these people who have suffered over the years in the interest of the nation.

     

    No opposition to Nomadic Eductaion, desertification programme

     

    “We should stop looking at issues from the ethnic and regional point of view. Rather, we should look at the exigencies of the situation that prompted the evolution of policies or measures to address a particular issue.

    “For instance, the Federal Government has introduced special education for the nomads in the North to bridge the educational gap between the North and the South. No patriotic Nigerian will oppose such a programme.

    “Even the desertification programme in the North that gulps billions of naira every year is essential to guide against the encroachment of the Northern territory by desert. If we had allow sentiments to reign, we in the Niger Delta would have demanded special school for fishermen afterwards ninety per cent of the funds used by the Federal govern to execute special programmes in the north come from Niger Delta.

    “After PIB, there should be Solid Mineral Industry Bill to cater for other minerals found in other parts of the country.

    “Areas where such minerals are found would also benefit from the principle of derivation in revenue sharing. It is unfortunate that some states are illegally mining minerals in their domain without remitting the proceeds to the common purse.”

     

    Opposition to PIB

    unnecessary

     

    The lawmaker said it was wrong for anybody to oppose the provisions of the PIB since they are meant to take care of the communities that had suffered over 70 years of environmental degradation associated with oil exploration and exploitation.

    Etok called on his colleagues from the North to reciprocate the gesture of the Southern senators, who supported the HYPADEC Bill to take care of the communities affected by electricity production.

    He said: “What is fair and equitable cannot be wrong. Nobody should be afraid of doing the right thing because doing the right thing can never be wrong.

    “It is unfair for anybody to say that to give 10 per cent to oil producing communities to help ameliorate their plight is unfair.

    “Therefore, fellow Senators from the North should rise above primordial issues and support the PIB for the sake of being fair and just, to every Nigerian irrespective of tribe, ethnicity or religion.

    “By so doing, we Senators will be promoting our conscience in meeting what the international community is advocating for the Niger Delta region.”

    Senator Nkechi Nwogu from Abia said the provision of 10 per cent revenue is not too much for the goose that lay the golden egg.

    Her words: “The environmental degradation suffered by oil communities is peculiar to them. If we don’t take care of the communities and we start having problems, it will affect the economy.”

    She warned that unless the host communities were taken care of, the country could start having problems that could hamper national development.

    A specialist in tax administration, Mr. Taiwo Oyedele, noted that the PIB has brought introduces some positive developments including moves to address host communities’ concerns, promotion of local content, removal of minimum tax, removal of restriction on capital allowances claimable and provision of tax deduction for abandoned project.

    Oyedele describes the 10 per cent of net profit to be contributed by each upstream petroleum company as laudable, noting that the contribution made to the Fund will be available as credit against fiscal rent obligations.

    The contentious issues, according to Oyedele, include dispute resolution and potential conflicts with the existing provisions of Chartered Institute of Taxation (CITA), which contradits other laws such as the NNDC Act and insufficient distinction regarding the roles of other agencies not mentioned in the Bill.

    He urged the lawmakers to consider all aspects of the PIB, including transfer pricing, regulatory compliance, possible structuring, tax efficiency, project economics, financial reporting, and contracts/covenants.

    The proposed changes may not be revolutionary, but the PIB, if passed in its current form, will mean that fiscal issues are no longer business as usual, he added.

     

  • An industry in search of a present and a future

    An industry in search of a present and a future

    Some weeks back, the Nigerian government started inking the final roadmap for the development of one of the country’s most ignored but excessively acknowledged industry to leapfrog the economy: the local software and applications industry. Through the country’s IT guardian, the National Information Technology Development Agency (NITDA), government is seeking to put in place a National Software Policy “that can stand the test of time and adequately position software made in Nigeria in the forefront of global ICT market” as emphasized by the Director General of NITDA Prof. Cleopas O. Angaye, who is also a software developer with many patents and a professor of Computer.

    Nigeria is looking to the Indian example to justify its need for a forward looking official thrust at encouraging explosive growth in the local software industry where more than a 100 companies jostle for existence and opportunities to grow beyond ‘verandah companies.’ Some of the biggest earners in the budding industry include Computer Warehouse Group (ExpertEdge Limited), SystemSpecs, Programos Software Group, CSA, Precise Financial Systems (PFS) Limited, Signal Alliance Group and Infosoft among several others in the top earning league in excess of $80 million (about N120 million).

    But that is as far as the local companies could go in an industry heavily dominated by foreign software companies particularly of Indian origin who mop up the billion dollars in terms of monetary gains and brand acceptance. Market has remained a perilous ground for the local companies in the absence of clear-cut government support and a mix of factors that tend to erode sustainability and brand acceptability including unwillingness of corporate Nigeria to pay huge sum for locally made bespoke software.

    India offers a classic example of how a country could rework its economic fortune in the new world order. The authors of Nigeria’s new national software policy are clearly looking at the strong points. Last year, India made some $20 billion (about three trillion naira and in excess of Nigeria’s entire national budget) from software export to consolidate on its position as one of the biggest earner in global software and applications market. In the last half a decade, the $20 billion figure has become an annual gain-point that Indian software companies and the Indian government have sought to consolidate and expand on as part of the India’s economic growth indices.

    From 2007, the Indian software with auxiliary industry alone employed more than two million people and contributed about 4.8 per cent of India Gross Domestic Product (GDP). In the last 10 years, India software export impact on nearly 95 countries to prove reach and acceptability. In contrast, and according to the National Office for Technology Acquisition and Promotion (NOTAP), Nigeria losses about $1 billion (about N150 billion) annually to software importation majorly to India where Indian software applications virtually run the banking sector. With a potential market potential of $6 billion (about N900 billion), many experts think the Nigerian software industry lies in limbo because government has failed to see economic potential beyond the oil industry.

    Perhaps, the new drive under NITDA at providing a national software policy offers the most convincing attempt in official circle to support a most ignored sector for well over a decade, where practitioners have ceaselessly called for clearly defined support for the indigenous software industry. In the last 10 years, government has approached oiling the local industry with woozy statements and hazy actions including the establishment of a national software park, National Software Development Initiative, National Software Development Taskforce and the national IT policy, and un-patterned public-sector patronage often leaving the local practitioners confused and vulnerable to manipulation by public establishments. For instance, a leading software company which got a World Bank aided deal to run locally made software application that would manage the country’s civil service got the deal terminated in its second phase by a government ministry in favour of a foreign company for reasons the World Bank considered objectionable. The local company would rather sulk than fight its case because there is no official policy thrust it could rely on to push its case on merit.

    In the hardware sub-sector, practitioners such as Zinox Computers and Omatek Computers Plc have been able to push for a clear-cut policy that encourages the patronage of local computer companies first before their foreign counterparts. But the Nigerian local software companies have never been able to muster sufficient public consciousness to pressure government to adopt policy that will affect its growth in spite of the existence of an umbrella body: the Institute of Software Practitioners of Nigeria (ISPON). While companies like Zinox, Omatek and even smaller players such as Beta Systems and Balogtek have been able to be primal gainers in government’s multibillion naira spending on computer hardware in the last eight years, the software market has gone to the Indians and other foreign companies.

    In their 2004 survey report titled: A Profile of Nigeria’s Software Industry, Abimbola Soriyan and Richard Heeks observed that “Nigeria’s software industry is an industry that has been disappointingly neglected to date in work on software in developing countries, despite Nigeria’s size and both economic and political importance. The survey found there are more than 100 firms active in the industry, principally clustered around the South-West of the country and virtually all private-owned. Most firms are small enterprises (11-50 staff) and most professional staff have at least a first degree. Customers are drawn almost exclusively from the private sector and from the domestic market: software exports are few and far between.

    “The majority of work focuses on providing services – such as installation, customisation and training – related to imported packages, and there are signs of decline in development of locally-written software. Strategic analysis of the industry according to Heeks’ quadrant model shows that Nigeria needs to bolster such local development work. For this to happen, firms must target market segments with some degree of protection from imports. They must also strengthen their software development practices, something that will be partly dependent on improvements in the provision of software education by local universities.”

    Much of that observation has not changed almost eight years later as policymakers make to chart a new course for the industry. Angaye is convinced that with the new thrust, positive change is in the offing. His words: “I strongly believe that we shall come out with a credible National Software Policy that can stand the test of time and adequately position software Nigeria in the forefront of global ICT market.” But his optimism is depended on government’s change of attitude as one stakeholder puts it: “Government, who controls bulk of the economic activity in this country, has to be ready to spend the right amount of time, energy and money into software development.”

    So, where does the future lie with government support? Quality production of software, graded and tested by a body certified to do so which invariably offers market confidence to the products and ultimately encourages patronage for the local brands.” Development of these strategic positions can only be properly achieved if software project processes and methods are of sufficient quality. Without that quality, there will be shortcomings in locally-produced software, which will turn customers off, and push the industry further towards foreign products to continue the vicious circle. On the other hand, if acceptable quality can be built, then locally-produced software will be more effective than imports in meeting customer requirements.

  • Local Content Bill and the insurance industry

    Local Content Bill and the insurance industry

    Growing the Nigerian economy can never be through a one-off government policy, but by developing a bouquet of policies whose implementation is intricately interwoven to achieve desired economic prosperity. The manifestations of the economic growth therefrom will be in the form of increased production of goods and services, higher industrial capacity utilization, direct and indirect employment generation, improved commercial and trading activities and ultimately, improved standard of living of the citizens and higher revenue to government from company and personal income taxes. And so the cycle of economic prosperity continues.
     It is in that context that the government of President Goodluck Ebele Jonathan deserves commendation for signing into law in 2010 the Local Content Bill. The implementation of the law has begun to have impact on the economy in terms of human capacity development in all spheres of social and economic endeavor, especially oil and gas, generation of more employment opportunities and greater retention of capital within the economy that would have been spent as consultancy fees and salary for expatriates. Of particular interest is the current development in the insurance industry where underwriters and insurance brokers have shown greater capacity to insure and, to a reasonable extent, reinsure the high net-worth properties of government and its agencies and parastatals.
     Zeroing in on the oil and gas sector, Nigeria’s economy has been the greatest beneficiary with the insurance and reinsurance of the properties and equipment of the Nigerian National Petroleum Corporation (NNPC) joint venture valued in millions of dollars. Years past, it used to be Lloyd of London that handled the account and repatriated all its gains, leaving the Nigerian economy high and dry. That is now history because the Local Content Law has effectively put paid to that. Perhaps in anticipation of a time like this, insurance underwriters and insurance brokers have shown keener interests in the oil and gas sector of the national economy and have gone all out to acquire enormous experience and expertise in oil and gas insurance. A considerable number now have the technical capacity to participate in providing effective cover for dollarized assets.
     The account of the NNPC joint venture is the focus here. Quite unfortunately, some insurers and brokers see the account as an opportunity to earn a share of the national cake so they desperately seek to be one of the brokers to insure NNPC’s multi-million dollars assets. They fail, deliberately or ignorantly to appreciate that the NNPC is a business entity being managed in the best national interest by a crop of competent and skilled Nigerians. These skilled NNPC staff ensure due diligence in awarding contracts and in the appointment of consultants as is compelling on all governments, agencies and parastatals in the country. Transparency has been the hallmark of their operations and that has translated into improved economic prosperity for the country.
     The due diligence which effectively shot out some brokers in the insurance of NNPC assets did not meet well with them. National interest, they felt, should be sacrificed for their selfish interest. Instead of doing a self-appraisal to determine why they failed to secure the NNPC account and brace for a better presentation the next year, they are stridently trying to discredit the NNPC management which acted in the best interest of the country. They alleged that the NNPC had violated the Local Content Law by reducing the number of brokers handling its account instead of increasing the number so as to spread the risk. They just refused to realise that effective insurance is not about the number but the capacity and competence of those employed.
     The kernel of the Local Content Law is the promotion of the involvement of indigenous companies and manpower and the use of locally produced goods and services in all areas of the petroleum industry. The implication is that if the NNPC finds only one company qualified and competent it can appoint only that company without any sentiments or prejudice. In so doing, NNPC would not have violated the local content law so long as the company is indigenously owned. The law does not compel NNPC to appoint any number of insurance brokers to insure its assets, only just that the broker must be an indigenous entity.
     These aggrieved brokers needed to be reminded that providing cover for the assets of NNPC is not job for the boys. Rather, it is a serious business for competent insurance brokers who show character and capacity to provide effective cover for the assets of NNPC joint venture. It gladdens the heart that they have not been able to fault the process of selecting the preferred brokers. The NNPC duly advertised in some national newspapers for interested brokers to express interest in the insurance of their properties and the advert specified all the requirements for qualification. If the requirements were inadequate, the brokers should have, in national interest, made the point rather than wait till after they were not deemed qualified to insure NNPC properties.
    The NNPC has consultants working for it in all spheres of life – health, education, communications, food and hygiene, engineering etc based on their capacity to deliver quality service and where any of them shows inability or complacency, its services are dispensed with without any row on the pages of the newspaper. So why will some insurance brokers resort to discrediting the NNPC for employing due diligence in picking fewer brokers to insure its properties?
     The action of these few brokers indicates that they are desperate. They probably were passengers in the last dispensation when a consortium of 34 insurance brokers handled the account, thus earned money without offering corresponding services. That is a most dishonourable way of earning a living. For sure, if they did offer quality service, the NNPC would have gladly reconsidered them first. Gone are the days when brokers who had no credible base and expertise could wish for and get reasonable accounts like that of the NNPC without justifying why they deserve to be retained as NNPC insurer. Rather than looking for ways to improve the quality of their services and how to better package their bid in future, they are dissipating energy by impinging on the credibility of NNPC under the cover of an association. They forget that the cover for NNPC assets is not an association issue but that of the competence, credibility, capacity and expertise of the company expressing interest in the insurance of the assets.
     The truth is that good corporate governance in Nigeria is taking a stronger foothold over and above the desire of a few to maintain the status quo. Both the Local Content Law and the Petroleum Industry Law require people of courage and character to get Nigeria flying to attain Vision 20:2020. The nation has the capacity. The insurance industry can play a significant role in the attainment of this goal. Central to the role of the insurance industry in achieving this are the insurance brokers. Without a strong insurance broking sector the insurance industry cannot go far and by implication the economy will be in danger.
    Therefore, brokers must be more up and doing in helping to drive the national economy positively through competent service delivery. Offering low quality service which may discredit the broking sector of the insurance industry is undesirable. Quacks and charlatans who masquerade as brokers but get plum accounts through their godfathers are a threat to the credibility of the insurance industry. Employing unethical practices or winning accounts through godfatherism must end.
    •Joy wrote in from the Delta State University, Abraka