By Adewale Sanyaolu
THE recent disclosure by the Petroleum Technology Association of Nigeria (PETAN) that $10 billion (N1.7 trillion) worth of investment is stalled as a result of the non-passage of the Petroleum Industry Bill (PIB) by the National Assembly is mind boggling.
PETAN is an association of Nigerian indigenous technical oil field service companies in the upstream and downstream sectors of the oil industry.
The bill upon coming on stream is expected to deal with concerns about transparent management of the oil and gas sector.
The Nigerian National Petroleum Corporation (NNPC) recently noted that, “research shows that 80 per cent out of every one US dollar invested in the oil industry goes offshore underscoring why PIB is talking about local content. Under a PIB regime, no oil company can import cooks and stewards from their country to work in Nigeria as expatriates.”
Regrettably, the PIB, which has been on the drawing board since 2000 is yet to see the light of day with successive governments failing to pass the bill into law.
The 7th National Assembly in the twilight of its tenure hurriedly passed the bill into law, but that was voided when the current National Assembly came on board last year.
More disturbing is the fact that countries such as Angola, Egypt and Morocco that started the process of the PIB after Nigeria have made more progress and eventually passed the bill into law.
Little wonder such countries are now breaking new frontiers and discoveries to the detriment of Nigeria. It is equally on record that more International Oil Companies (IOCs) are moving their operations to Ghana and Angola where the cost of production is cheaper as a result of the clear fiscal policies in those countries.
Only recently, the Minister of State for Petroleum Resources, Mr. Ibe Kachikwu, disclosed that Nigeria lost $125 billion between 2009 and 2014 as a result of the delay in passing the bill.
But the hope of rekindling a speedy passage of the PIB, suffered yet another setback recently when the current National Assembly announced the suspension of further deliberations on it.
This news left a sour taste in the mouths of would-be investors who have been on the flanks for over 16 years awaiting the passing of the bill before making the much needed investments into the sector.
The development has further dealt a debilitating blow on the activities of indigenous operators in the oil service industry, who largely depend on fresh and existing investments to survive are now largely comatose.
Economic loss
Chairman of PETAN, Mr. Bank Anthony Okoroafor, while recounting Nigeria’s losses to the non-passage of the PIB, designed to promote greater accountability, local content and investments in the petroleum sector, lamented that the country missed a huge opportunity by not passing the bill when oil price was high in the international market. Today, oil prices have reached a record low, thereby drastically reducing revenue accruals from the oil sector.
He argued that had the National Assembly passed the PIB when oil price was above $100 per barrel, a lot of companies would have sealed more than $10 billion investment deals in Nigeria. The delay in the passage of the bill, he said, portrays Nigeria as a nation with a confused system that has no discernible direction.
‘‘The tardiness in our handling of the bill is a drawback to the oil sector. It is a disincentive to the investments that could have come into the sector if the implementation of its provisions had commenced,’’ he said.
Vice President, Prof. Yemi Osinbajo, had last year assured Nigerians that the Federal Government would re-submit the bill to parliament before the end of the first quarter of this year as part of its efforts to restructure the oil and gas sector. That move by the executive has now been set aside with the suspension of further deliberations on the bill by the National Assembly.
In addition to the $10 billion loss in fresh deals, statistics show that Nigeria is already losing over $15 billion annually to the non-passage of the proposed law. More disturbing is the recent statistics released by the Central Bank of Nigeria (CBN) that Nigeria earned N314.04 billion from Petroleum Profit Tax (PPT) and royalties in three months, between January and March 2016.
The CBN, in its Economic Report for the First Quarter of 2016, revealed that the amount earned from PPT/royalties represented a decline of 19.2 per cent or N74.62 billion from N388.66 billion recorded in the fourth quarter of 2015.
Over the past 16 years, successive governments have invested very little on exploration activities, which have also hampered the discovery of new fields, leading to the depletion of the country’s crude oil reserves, even as the IOCs continued to shun new projects
A bill bogged down by politics
Rather than consider the benefits inherent in the passage of the bill for government and the entire citizenry, it is rather being stalled by the raging North/ South dichotomy.
However, one of the contentious provisions of the bill, which has stalled the debate on it is the provision for the remission of 10 per cent profit of oil producing companies to the oil producing communities through the Petroleum Host Communities Fund (PHCF).
Besides, the PIB provides that a petroleum prospecting licence and mining lease may only be granted to a firm incorporated in Nigeria under the Companies and Allied Matters Act (CAMA).
On the argument that the proposed bill will make the Nigerian Production Sharing Contract (PSC) the harshest in the world despite the so-called high risk environment, NNPC explained that such statement was 360 degrees different from verifiable empirical evidence.
“Currently, Nigeria has one of the lowest government take in the world for PSC, with 42 per cent whereas the international average worldwide is 75 per cent. In Angola, it is 78 per cent, in Norway it is 76 per cent; even Ghana, which has not even started is proposing about 80 per cent.
“What is even being proposed under the PIB is 70 per cent, which is still less than what Angola is getting today. So how can that be harsh? For 10 years, we allowed them to operate the Liquefied Natural Gas (LNG) in Bonny without paying a kobo as tax to the government because of a tax holiday all to encourage investment. Now, Nigeria wants to maximise its gas potentials to the fullest,” NNPC had said.
A case of chasing shadows
The recent declaration by the Senate Committee on Gas Resources and Petroleum Upstream that it would begin investigation into the operations of NNPC joint venture cash calls from 2011 to 2015, has sparked off fresh debates among stakeholders on why a probe may not be necessary at this moment, considering the fact that such probes in the past have not yielded the expected results.
The stakeholders are worried that the continued non-passage of the PIB is taking a turn for the worse, stating that the National Assembly should not dissipate its energy and resources on another probe that may not yield the expected results, but, rather focus on ensuring that the PIB is passed as soon as possible.
They reasoned that the delay in the passage has halted further investment while there has been no increase in the volume of the country’s crude oil reserves as a result of the inability of operators to make new discoveries of oil and fields. The investigation into the cash call operations by NNPC is sequel to the failure of the Corporation to meet its joint venture cash call obligations put at over $7 billion.
The Vice Chairman and Chief Executive Officer of Emerald Energy Resources, Mr. Jude Amaefule, said divestment by IOCs, non-passage of the PIB and lack of investment in deep water petroleum exploration are threatening its reserves.
While government has continuously allayed fears and cited such divestments as an opportunity for the indigenous oil firms to thrive, the cost of finance coupled with lack of direction as represented by the non-passage of PIB and difficult operating environment are the real reasons IOCs are divesting from the country.
Amaefule said the situation in the country is very dire as costs of doing business is higher than most oil producing countries in Africa, hence, IOCs are moving their businesses elsewhere.
He said, “the cost of borrowing to do oil exploration in Nigeria is very prohibitive. If the cost of borrowing to do oil exploration in Gabon is about 2 per cent, the cost of borrowing the same amount will hit about 6 or 7 per cent if the same operation were to take place in Nigeria. Again, what comes out of the mouths of politicians also fuels the cost of borrowing.”
While calling for the fragmentation of the PIB into units for easy implementation, Amaefule submitted that non-passage of PIB has put Nigeria in a “no man’s land” as uncertainty surrounds the sector, which discourages long-term investments.
Going forward
Director of Emerald Energy Institute (EEI), University of Port Harcourt, Prof. Wumi Iledare, argued that government must offer lucrative incentives to major oil companies to halt their divestments from Nigeria even in the midst of low oil price.
“There is no doubt that government has a shortfall in revenue because the price of oil is low and production is also low. The irony now is that this is the right time for government to give incentives to the oil majors. If government is concerned by the need to provide for the future and sees that investment into the future is jeopardised because government is not growing its oil reserve, government must take a pragmatic strategy to grow the reserve.
“One of the easiest ways to grow reserve is to create incentives for the oil majors. Incentives were given to oil majors in the Gulf of Mexico by the United States to halt the exodus of the oil majors in 1992. If the government of the United States did not surrender royalty to attract major oil companies back then, what would have happened to the US in the late 1990s when the shallow offshore and onshore were depleted?