A care-free and seeming loose assertion by Sylvia Pankhurst that “wars will never come to an end” appears a most innocuous statement to make to an average reader of global political and economic trends.
Pankhurst writing in 1922, a 27-page pamphlet titled: “The Truth about Oil War”, actually alluded the statement that ‘war will never come to an end’ to an anonymous capitalist.
However radical Pankhurst and several other scholars on crisis in the oil business may appear to the world, the truth still stands that wherever there is oil, there is bound to be conflicts stemming from the astounding monetary gains that the oil business brings to investors.
It is on this premise that the lingering controversy that has trailed the delay in the passage of the Petroleum Industry Bill (PIB) is understandable and must be dealt with without any further delay.
As long as the PIB remains in coma, the logjam that has been witnessed in the oil industry would be sustained and painfully for the greater number of the citizens of this country, they shall be the weeping lot they have been.
For those who have constituted themselves as opposition to this one document which for the first time in the long history of oil business in Nigeria seeks to put Nigeria in the same stead with established oil-producing and exporting countries of the world, they must be aware that it is trite legal principle that law is an agent of social change and the PIB in its various amended versions, aims at bringing about an optimal solution to change in the nation’s oil industry which has been accused severally of sluggishness.
And for other citizens who are ignorant of the essence of the PIB, when it is passed into law, then and only then would the Nigerian petroleum industry have a direction from the upstream operation (exploration, development and production activities), the midstream (gas processing) down to the downstream activities of servicing, refining, distribution, transportation, marketing and retailing.
Essentially, the PIB seeks to bring about major reforms in the industry and by so doing create a conducive environment for petroleum operations, tilt the conduct of exploitation and exploration of petroleum resources in the country in favour of Nigerians, optimise government revenue from the industry, deregulate and liberalise the downstream petroleum sector. In its acceding to the yearning of Nigerians, the Bill seeks to create efficient and effective regulatory agencies, promote the development of Nigerian content in the oil industry, and perhaps most critical at this phase of the country’s development, the PIB will drive at optimising domestic gas supplies for home use, power generation and industrial development, among other benefits.
While the PIB establishes the Federal Government of Nigeria as the owner and manager of all petroleum resources, offshore or onshore, the government manages these resources on behalf of all Nigerians. Thus, irrespective of where oil is found, it belongs to the government of Nigeria.
However, the PIB recognises for special consideration the localities where the resources are extracted and this is taken care of by the revenue sharing laws and certain provisions of the PIB like the Host Community Fund.
For investors, whether local or foreign, the level of risks involved in any venture is of immense importance and there are such identifiable risks in the Nigerian oil industry such as there are in other countries where oil is found in commercial quantity.
Such commercial risks will include cost overruns, delays and shortfall in project revenue caused by uncertain sales and prices. This is juxtaposed against established political risks like possible expropriation of assets, civil unrests, environment laws, tax policies, among several others.
In the case of Nigeria, in recent times, militant unrest and price distortion of petroleum products have been clearly identified as project risks and the immediate response from the International Oil Companies has been the consistent reduction in their participation in the industry as they continue to sell off some of their oil blocks in the country.
In spite of this seeming threat, efforts by the Nigerian government to establish a clear regulatory and fiscal regime, deregulation of the downstream sector and the establishment of a globally-acknowledged amnesty programme have appreciably addressed the issues of militancy in the Niger Delta region, hence projects financing of the petroleum industry in Nigeria are still quite reliable transactions and the responses of banks, local and foreign, to these are an attestation to this attractiveness.
Despite the expressed fear of insecurity of investments and lives as a constraint for the IOCs and other investors in the Nigerian oil industry, the most critical area of opposition by the IOCs has been the fiscal area of the PIB.
This is for obvious reasons as has been maintained by the Group Managing Director of the Nigerian National Petroleum Corporation, Mr. Andrew Yakubu, who has accused the IOCs of not wanting to let go of the incentive past they have enjoyed.
“When we started the deepwater project, we had to give incentives to investors in order to encourage them. Now, the deepwater project is mature, we can’t continue to give such incentives.”
Allaying fears expressed in certain quarters, the GMD of NNPC insists that the PIB would not in any way retard investment in Nigeria’s oil industry rather, the PIB, he assures, will provide a win-win situation for both Nigeria and the IOCs.
Change, obviously, is the most difficult thing for humans to embrace and the fiscal arrangement in the PIB which is an overhaul of what used to be in practice is attracting criticisms and it is the most critical aspect of the Bill.
This opposition insists that it will create a harsh environment that would materially change the economics of existing and new operations particularly in the deepwater sector.
Without any doubt, the tax changes as contained in the PIB will favour increased government take from an average of 73 per cent to a projected 82 per cent and this figures are derived on the projections of a mid-size deepwater oil field with production of around 50 million barrels per annum and oil price benchmarked at US$75bbl.
This opposition to the PIB in terms of the fiscal component is ideally an advantage to oil companies who could reap greater share from higher production and current high oil prices.
In spite of what appears as increased returns to government, the Nigerian fiscal terms are considered lenient when compared to its peers, particularly those countries with the same geological character like Libya which operates 93 per cent government take and UAE Abu Dhabi which operates on an average of 94 per cent.
And with the recent rise in oil prices, the global trend in fiscal terms is for governments to have built-in mechanisms of increased government share in windfall prices through increased royalty/taxes and linkages of royalty/tax rates to prevailing prices to ensure automatic adjustment in share to price increases.
Why IOCs or any operator in the Nigerian oil industry would expect anything less from an industry Bill only exposes how overtly lenient the country has been with its investment climate and this is impacting negatively on its people.
For a document that has travelled around for well over a decade, various changes have been made to the original document. Obviously, part of it has been the restructuring of the regulatory framework for the oil industry into separate regulators for the upstream, midstream and downstream sectors.
Fiscal changes have also been introduced for the upstream, provisions for gas utilisations, refining/downstream sector reforms and most pronounced is the replacement of the joint venture (JV) agreements between NNPC and the producing companies which cover most of Nigeria’s onshore and shallow-water fields with the incorporated joint ventures (IJVs).
What the PIB expects is that the IJVs as legal entities will be capable of raising loans commercially and repay them from generated income. As a result, the IJVs will operate independent of the often contentious government cash call obligations.
Under the PIB, two layers of tax are introduced, namely the Nigerian Hydrocarbons Tax (NHT) and Companies Income Tax (CIT) which are applicable to both JV and PSC operations.
While NHT replaces the Petroleum Profit Tax (PPT) and is set at 50 per cent for JV, 50 per cent for gas and 30 per cent for PSC, the CIT is introduced for all oil companies at the rate of 30 per cent on net profits.
A minimum of 10 per cent withholding tax on dividends and education tax of 2 per cent on revenue existing under the current fiscal regime is retained.
Meanwhile, the streamlined NHT ensures the abolishing of investment tax credits, investment tax allowances and the petroleum investment allowance (PIA) uplift on capital expenditures for existing arrangements and these are replaced with allowances for small oil fields and new gas finds, among other reforms.
As a way of ensuring control and proper regulation of a more encompassing industry functions, the PIB establishes or restructures key agencies in the industry.
They include petroleum technical bureau (PTB) as a special unit under the office of the Minister of Petroleum and charged with the responsibility of rendering professional support to the minister; upstream petroleum inspectorate (UPI) which will regulate technical and commercial activities in the upstream sector and will be responsible for issuing licences and permits because it is not profit-driven, it will not pay income tax.
Others include downstream petroleum regulatory agency (DPRA), the petroleum technology development fund (PTDF), the petroleum equalisation fund (PEF), the national petroleum assets management corporation (NAPEMC) – this will be responsible for managing government investments in the upstream industry and will have subsidiaries to carry out different aspects of these activities.
Another offshoot of the current NNPC will be the National Oil Company (NOC). The NOC will be listed on the Stock Exchange, meaning Nigerians can acquire its shares to as much as 30 per cent.
Another PLC in the offing will be the National Gas Company (NGC), with certain employees, assets and liabilities of the NNPC to be transferred to it.
Perhaps of most interest to most Nigerians is the Petroleum Host Communities Fund (PHCF) and in the PIB terms, for the fund’s sustenance, oil and gas-producing companies are required to contribute an amount (10 per cent of their profits after adjusting for Hydrocarbon Tax and Companies Income Tax) into this Fund.
The funds will be used to develop the economy and infrastructure of the producing communities.
And as a way of ensuring that the rights of these communities are matched by an equal obligation to the common good, the PIB provides that any community that still goes ahead to destroy assets of companies producing in its locality will forfeit its share of PHCF.
Based on the above clarification which is far from being exhaustive given the elaborate contents of the PIB in its more than 200 pages, it cannot be said that the document is designed to benefit a small group of interest against over all national interest.
Rather, its continued delay is only a result of self-centred, short-sighted and irreconcilable political interest of a few against the good of the majority of Nigerians.
Suffice to say that when the PIB is eventually passed into law, which has become urgent given sporadic changes in the global oil industry, it would create more jobs for Nigerians since it will be an illegal act to employ foreigners for certain skills that can be sourced locally, as has become rampant in the current dispensation.
Since the PIB also provides for preference of local materials sourcing against foreign, it will only encourage more jobs for indigenous contractors, especially those from the oil-producing regions.
The precarious situation of gas utilisation in Nigeria is still a sour statement on our economy and resource management system and only a PIB which has taken this into cognisance will bail the nation out of this malaise.
End of subsidy will become a reality with the deregulation of the downstream sector of the industry and in turn, increase in government revenue from oil industry will mean more funds for infrastructure development, among other value-adds.
Given our background as a people and the near mishaps that we have suffered as a people due to the mismanagement in part of the oil resource, and in the spirit of the Nigerian centenary, the 7th National Assembly will only be doing this nation of over 160 million people proud by passing this PIB into law this early in the year.
Anything short of this will only amount to an outright sabotage of a common patrimony.
– Omoniyi, a journalist, writes from Abuja
