PIB: IOCs make fresh moves to scuttle N30trn investment inflow

By LOUIS IBA

International Oil Companies (IOCs) operating in Nigeria are making fresh moves to scuttle the passage of the Petroleum Industry Bill (PIB) into law, industry sources told Daily Sun at the weekend. “A new lobby group has been raised by the oil companies to see how they can influence the Nigerian National Assembly to cut out, or adjust provisions that increase the Federal Government revenue generation from Joint Ventures (JVs) and Production Sharing Contracts (PSCs) as contained in the new draft copy of the bill before the National Assembly,” said a source within the Petroleum Ministry.

An estimated N30 trillion investment is expected to flow into Nigeria’s economy, courtesy of the PIB, which only recently (after a delay, which spanned more than two years) finally sailed through the Federal Executive Council and on its way to the National Assembly. The government had used the new bill to increase taxes and royalties from JVs and PSCs to levels obtainable in other oil producing countries, as it was believed that existing tax regimes amounted to a shortchanging of the government.

The new law also allows marginal field producers, who are largely indigenous oil firms, to increase their participation in the industry so that in the nearest future they can compete with foreign multinationals. In the last two years, investors, both foreign and indigenous did tread with caution in committing funds to develop new oil and gas exploration and production projects following the non-passage of the law, and in some cases even ongoing projects had to be stalled. The fear came largely due to a cloud of uncertainty which reigned in the industry over possible policy summersaults the may repeal existing laws under which most exploration and production contracts were executed to the detriment of investors.

Sources told Daily Sun that IOCs had repeatedly resorted to blackmail tactics, threatening that the provisions in the bill were inimical to businesses, and rather than grow the sector, it would result in dwindling fortunes for both operators and the larger economy, and they have also insisted in divesting their investments should the government go ahead with the current bill. In recent years, the lack of an enabling law that guide operations in the oil and gas sector has resulted in the loss of billions of dollars in taxes to Nigerian government and this can be largely linked to the unfavourable PSC terms approved in 1993 which is no longer valid given the contemporary business realities.

The PSC is designed in such ways that the first five years the huge capital is invested, the IOCs take a large chunk of revenue estimate of 70 per cent of the profit compared with 30 per cent for the government. The existing trend is seen as flawed and inimical to the economy as royalty is set currently at zero under the 1993 PSC. So, what the PSC designed for us is that the juicy part is what the IOCs enjoy. It is when the oil well is getting old that the government begins to receive higher profit of 60:40 ratio. The government had sealed that term because it had not fully comprehended what the PSC’s meant and it just wanted to encourage investors to explore offshore with good incentives.

The PSCs were signed when price of crude oil was pegged at $20 per barrel. In this case, it implies that, if the oil price goes above $20, government should take more from the wind fall. But since the PSC started in 1993, oil price has always been above $20 per barrel, but government was yet to invoke the clause. The contract also said the contract will be due for review after 15 years which expired in 2008. It was not done because the oil companies threatened to relocate and government out of fear allowed it to linger.

Having identified revenue loopholes being utilised by IOCs, the government had moved to block the leakage with new provisions in the bill that upped revenue per barrel from 86 to 87 per cent for PSCs blocks as well as the 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.