PIB: Oil firms list objections

By Yusuf Alli, Managing Editor, Northern Operation  

 

President Goodluck Jonathan

• Lobby lawmakers over ‘draconian clause’ • Fault ceding of powers to Minister by Jonathan

Multinational oil companies operating in the country are kicking over many vital clauses of the much acclaimed  Petroleum Industry Bill (PIB) sent to the National Assembly three weeks ago by President Goodluck Jonathan.
 Eight areas of the bill are particularly irritating to the oil firms and have asked the Presidency to re-examine the issues raised failing which they may scale   exploration activities over the next few years.
Top on the list of their apprehensions are: increase in taxes, royalty and the ceding of powers hitherto exercised by the President to the Minister of Petroleum Resources.
Simultaneously, they have launched into lobbying Senators and members of the House of Representatives to address the contentious issues once debate on the bill commences.
Sources close to the oil companies described the clauses as not investor-friendly.
One of the sources said: “The IOCs are uncomfortable with the PIB and if care is not taken by the National Assembly it might lead to divestment in the nation’s oil and gas sector by oil majors.
“They prefer the old PIB to the new one which they rate as ‘choking and unfriendly to investment.’ That is why they have raised a crack team to lobby Senators and members of the House of Representatives.
“For instance, the powers given to Minister of Petroleum Resources are too enormous. The powers hitherto vested in the President are now to be exercised by any Minister in charge of Petroleum Resources.
“These powers can breed corruption because any Petroleum Minister can do and undo without reference to the President. If an arrogant, wild, or corrupt person becomes Minister of Petroleum Resources, he can bring down the oil industry.”
Another source in one of the oil majors said: “From the way the PIB is designed, Nigeria’s oil industry is no longer lucrative to the IOCs because they may end up making only about 3% profit every year.
“The deductions as contained in the PIB are many. For example, oil companies pay 3% of their capital expenditure budget to Niger Delta Development Company (NDDC). In this new PIB, they have to pay another 10% into a Petroleum Host Community Fund; and 85 % as Petroleum Profit Tax. So, they will have about 2-3% to cope with.”
The source alleged that the PIB has carefully given 40 per cent derivation to the oil producing areas in the Niger Delta, adding “Currently, the oil producing states in the Niger Delta get 13% derivation and NDDC receives 3% but with the proposed 10 % for host community, the Niger Delta will be receiving about 26%. And if you add regular allocations to oil producing states from the Federation Account, the Niger Delta will be taking almost 40%.”
An oil executive said of the proposed high taxes and royalty: “The main objective of the government with the PIB is to maximize revenue from oil and gas. But the government does not know how to go about it whether to increase taxes or boost production.
“The government said the taxes are too small, they need to increase them through the PIB. But they have not taken cognizance of the fact that the taxes are high at present in the oil and gas sector.
“The implication of high taxes in the bill is that in the short term, the Federal Government will earn more revenue within the first five years of operating the bill. After five years, if there is no new investment, production will drop, there will be a drastic fall in revenue and unemployment in the industry will increase.
“It takes a minimum of five years for an oil field to produce. Some of the oil companies with new oil fields will manage to ensure the next five years to recoup their investments before calling it quit.”
 Asked to be specific, the source added that the IOCs are not happy with arbitrary increase in royalty on oil and gas in the PIB.
“Even before the PIB was finalized, the IOCs made their feelings known but the government ignored these observations.
“For example, the government wants to increase the utilization of natural gas for power supply and petrochemical. The IOCs are not opposed to effective utilization of natural gas but the government has increased the royalty on gas from 5-7% to 12% under the PIB.
“With the increase in royalty, how does the government encourage investors to come in? The direct implication is that most of the gas projects will not be viable. Some of these projects, like Oke LNG (Chevron/Shell); Brass LNG (ENI, Total, NNPC), will be dead on arrival. Any other future projects will be dead on arrival because nobody will touch them again.

SOURCE: 5 August 2012.