The House of Representatives ad hoc committee on the Petroleum Industry Bill (PIB) will visit some oil producing countries to get first hand information on their versions of the oil and gas sector laws, Daily Trust heard in Abuja yesterday.
Speaker Aminu Waziri Tambuwal had on Thursday November 15, 2012, set up a 23-man committee headed by House Chief Whip, Rep. Ishaka Mohammed Bawa (PDP, Taraba), to process the long-awaited and controversial legislation.
The panel, according to sources in the National Assembly, has since commenced work on the legislation and is "already receiving inputs" from different stakeholders in the oil and gas sector.
The sources told Daily Trust that the lawmakers have resolved to "do justice to the bill" by taking a look at how similar legislations are working in other jurisdictions.
"It is the belief of the House that we can only come out with a PIB that will take care of the contending interests of the different stakeholders if we have the knowledge of how it is working in other parts of the world," the source said.
Consequently, the source said the parliament has resolved to visit about six oil and gas producing countries both within and outside the Organisation of Oil Producing Countries (OPEC) which include Venezuela, United Kingdom, Saudi Arabia, United States of America, Islamic Republic of Iran and Canada.
In an interview with Daily Trust last November, Rep. Bawa had said that they would subject the bill to public scrutiny, promising that they 'won't compromise'.
Meanwhile, the Major International Oil Companies (IOCs) backed by Western powers under the leadership of the United States of America, Canada and the Netherlands have expressed stiff opposition to the PIB, Daily Trust can reveal.
In a presentation made to the House of Representatives ad-hoc committee on PIB, late last year, the US Ambassador to Nigeria, Mr. Terence McCulley, his Canadian counterpart, Ambassador Chris Cooter and that of the Netherlands, Bert J. Ronhaar, under the auspices of a group, "Ambassadors Meeting" said the PIB as sent to the National Assembly by President Goodluck Jonathan was not investment friendly.
The position paper jointly submitted to the committee last November by the three diplomats said that the provision for the establishment of the New Host Community Fund which will mandate oil companies to remit 10 percent of their profits to oil producing communities is "detrimental to project viability" and should not be established. The provision, they further said will amount to over-lap of the Niger Delta Development Commission levy.
"The PIB as currently drafted leads to an unattractive economic environment and does not support federal government's aspirations," they said, adding further that it will put 470,000 potential jobs at risk in the country by the year 2020 if passed in its current form.
They also contended that there will be 40 percent decline in the oil and gas industry production through 2020; zero deep water projects' viability; and will further reduce about $100 billion industry investments, stressing that the PIB mandate is 'ambitious, leading to additional complexity, uncertainty and time consuming because there will be lack of clarity in implementation including lack of transition plan and an apparent disregard for previous investments and existing contracts.
In the same vein, IOCs said they are opposed to the new contracts' provision in the draft legislation because under the Joint Venture (JVCs) and the Production Sharing Contracts (PSCs), government receives share of profits in addition to taxes and royalties but invests nothing.
Under fiscal terms, they maintained that royalties, taxes and allowances are interrelated and cannot be looked at in isolation. Costs are neither part of the IOC nor government's takes, the PIB does not include royalties. Therefore, since oil and gas production from existing fields is declining and new investments are required, the current PIB will make many projects non-viable.
The new PIB will increase fiscal regimes under the Joint Venture Gas tax from 30 to 80 percent; PSC oil from 50 to 55 percent; JV oil tax from 85 to 80 percent and; royalties to be set by regulation and subject to change such as the PSC royalties from 0 to 20 percent at $80 per barrel and 200kbd, they observed,
To buttress their arguments, the Western powers insisted that the Nigerian, "Joint Venture oil fiscal terms are already amongst the harshest and highest in the world, in addition to high risks and cost due to security and bunkering."
They, therefore, cited the example of countries like the Equatorial Guinea 44, Ghana 52, US Concession (GoM) 55, Russia 65, Norway 80, Angola 83, Oman 85, Libya 97, United Kingdom 68, Trinidad 73, Venezuela 82, United Arab Emirates 77, while Nigeria pre-PIB is 86 but after PIB is passed it will hit 91.
Under non-fiscal terms, the ambassadors maintained that the current PIB lacks transparency and is laden with discretionary powers.
They stressed that the PIB will not ensure improved environmental and security conditions because majority of spills is caused by sabotage and illegal bunkering.
Under commercial institutions, they said the new structure in the PIB will not achieves institutional objectives due to lack of independence of commercial institutions while separation of the Nigerian Oil Company and the Nigerian Gas Company 'creates more challenges and overlaps' with no separation between regulatory and commercial function.
In contract approval process, they also opposed the new provisions in the PIB because "new regulatory institutions do not address lengthy, complicated 250+steps and costly contract approval process." Whereas in other oil producing countries like Australia it takes about 7 months to approve project, Kazakhstan 5, Indonesia 8, Venezuela 7, Saudi Arabia 3, Angola 6, in Nigeria it takes about 24 to 36 months, they said.
The new regulatory framework, according to them, will not achieve stated objective set in the PIB because when it is passed into law, it will create a plethora of agencies such as the Petroleum Technical Bureau, Petroleum Technology Development Fund, Petroleum Equalisation Fund, Petroleum Host Community Fund, Upstream Petroleum Inspectorate with Special Investigative Unit, Downstream Petroleum Regulatory Agency also with its own Special Investigative Unit all under the supervision of the Minister of Petroleum Resources. "While government has a right to change laws, it should consider levels of past investments and terms upon which investments were made," they argued.
However, a top government official who does not want to be mentioned because he was not authorised to speak on the matter, told Daily Trust that the major issue of contention for the ICOS were clauses in the bill which will increase government's revenue generation from Join Venture (JVs) and Production Sharing Contracts (PSCs).
This, according to the source, is a follow up to new conditions attached to both JVs and PSCs that enable government to raise its share to rates at par with what obtains in other oil producing countries as well as introduce royalties that will allow marginal field producers to grow and compete in line with the Nigerian Content Act signed into law by the President in April 22, 2010.
"With the absence of an enabling law that sets out guidelines for operations in the oil and gas sector, the Nigerian government has continued to lose billions of dollars in tax due and an unfavourable PSC terms approved in 1993 which is no longer valid for current economic and business realities," the source said.
He said: "But that was at that time because we do not understand the PSCs; we wanted to give people incentives to go into the oil sector." He added that the PSCs were signed when price of crude oil was pegged at $20 per barrel. In this case, it implies, if the oil price goes above $20, government should take more from the wind fall.
Having identified revenue loopholes being utilised by IOCs, the experts of the Federal Government have drawn up provisions in the bill that will raise her revenue per barrel from 86 to 87 per cent for PSCs blocks and introduction of flexible royalty arrangement that will enable the government to earn higher revenue as the prices of crude oil rises above $100 per barrel in JV fields.
The IOCs are desperate to ensure the amendment of the PIB to sustain the current revenue leakages despite the five years tax waivers for investors in gas projects dedicated for domestic gas supply for power generation.
The source added that the IOCs, led by Shell, are divesting not because of the fiscal terms in the PIB but because the PSC fields are more profitable to operate than the JV fields. For instance, at the current production level of 2.4 million barrels per day (mbpd) of crude oil, the PSC fields are generating $7.8 billion annually from daily production of 900,000bpd compared with the contribution of $32 billion by the JV fields for 1.5mbpd. Under the current, 1993 PSC terms, he noted that the federal government is also receiving about 15 per cent representing 180,000bpd from the production of 900,000bpd while the IOCs take 720,000bpd.
"This cannot continue," he stressed.