Against arguments by the International Oil Companies (IOCs) that the new fiscal regime was too high and would discourage investment in the Nigerian petroleum industry, experts have lent their voices in support of the Minister of Petroleum Resources, Mrs Diezani Alison-Madueke, that the new tax regime was fair.
Alison-Madueke yesterday, at the 18th Nigeria Economic Summit in Abuja, described the fiscal terms proposed in the Petroleum Industry Bill (PIB) as fair, saying Nigeria still remained one of the most attractive countries in terms of fiscal regime or 'government take'.
The minister said that the total government's share of oil revenues after all taxes and royalties was 73 per cent, up from 61 per cent in current deals with oil majors.
Experts who spoke with LEADERSHIP on the matter maintained that the oil majors did not really have legitimate claims as their presence in Nigeria over the years had been extremely exploitative in nature.
"The existing laws in the industry are too old and not in line with modern realities and the oil majors want to continue operating in line with the archaic laws," said an expert who did not want to be named.
On whether the Bill should be watered down, the expert said, "The PIB is a fantastic document; the majors want to kill it because it would reduce their overall profit."
He explained that Nigeria, being a signatory to a lot of international policies, took caution not to produce a bill that would run foul of those policies, adding that Nigeria's fiscal regime only included laws that were unique to it but were overall in line with international standard.
Also speaking, another expert maintained that the IOCs were only trying to evade some taxes by putting up these arguments. He, however, warned the federal government to be careful because the fundamental structure of the country's oil industry was created by the IOCs, which made the issue a delicate one.
He said: "It is a delicate matter because the structure of the industry has long been in the hands of the oil majors. Maybe the tax regime should be spread out and graduated in order to pacify all parties. Coming up with this fiscal regime as it is may cause some trouble for the Nigeria; don't forget that the industry operates as a cartel."
However, Alison-MAdueke, in her submission, said: "We feel that the fiscal terms are fair but we will continue discussions with our partners, looking for a way in which both sides of the scale can go forward. Also, all cost-based incentives have now been replaced with production based incentives, because government revenues come from production and not from cost."
She said the draft bill, which is still before the National Assembly, introduced a price-based royalty for crude prices beyond $70 per barrel, adding that current deep water terms were negotiated in 1993 when oil prices were just $20 a barrel.
She explained that "Section 16 of the Deep Offshore Act prescribes that changes be made to this particular fiscal regime to restore benefits to the government commensurate with increased oil prices, once oil prices have exceeded $20 per barrel in real terms."
According to her, the Act also prescribes that changes be made 15 years after the commencement of the Deep Offshore Act, just as she explained that the reforms in the draft bill had been divided into two areas - the fiscal and non-fiscal reforms.
According to her, the non-fiscal reforms relate to institutional and policy reorientation, while the fiscal reforms represent the largest overhaul of government petroleum revenue system in the last four decades.
But the managing director of ExxonMobil's local unit, Mark Ward, said worse terms would discourage investment.
"Quite frankly, some of the thresholds that have been laid out are not something I think any businessman in this forum here would invest in," he said. "The risk involved in it versus the return ... it's safer to drop it in the bank.
"It takes an overall competitive fiscal package to be able to continue to grow. If the government gets a bigger piece of a much smaller pie, that's not the right answer."
Mark argued that laws can be changed "but changing contracts by legislative fiat is a very dangerous thing."