Exclusive: Draft of Nigeria oil bill being finalized
Category: Oil Sector
May 24, 2012
A new draft of Nigeria's long delayed oil bill, whose passage is needed to unblock billions of dollars of stalled investment into exploration and production, will be finalized this week, sources close to the matter said on Thursday.
A copy of the 200-page Petroleum Industry Bill (PIB) obtained by Reuters includes plans to partly privatize and list the state oil firm, tax oil company profits at 20 percent for deep offshore and 50 percent for shallow or onshore, and give the oil minister supervisory powers over all institutions in the industry.
Current oil firm profit taxes are not published. A spokesman for Nigeria's leading operator Shell said he did not know what current tax rates were.
Oil majors have worried that the PIB could increase the fiscal burden on them, and it is not clear whether license renewals that have been ongoing will include exemptions from any unfavorable change of terms brought about by the law.
The PIB has been years in the making and the delays have caused uncertainty over the future framework of working in Nigeria, costing the industry billions of dollars of potential investment and the government much-needed revenues.
Without it, most analysts expect oil production in Nigeria to decline substantially over the next few years.
Nigeria exports more than 2 million barrels a day (bpd) of crude oil popular with U.S. buyers because it is light and easy to refine. China and India are also growing takers.
Even when this version gets to parliament, there is no guarantee lawmakers will push it through, as powerful vested interests could block or delay it, as has happened in the past.
President Goodluck Jonathan is explicitly behind this version, and it was drawn up by a task force of senators his administration appointed, but even though his party has a majority in both houses of parliament it could still stall if those interests persuade enough lawmakers to scupper it.
"You might think when you've got a (ruling) PDP majority and a president whose PDP it should be easy to pass the bill. Well, it isn't," said Antony Goldman, head of PM Consulting, adding that past experience suggested it was unlikely the bill would go through unmodified.
Implementation of some of the bill's provisions is likely to be fraught with complexities, especially restructuring the hugely bureaucratic and corrupt state oil firm. The state-run NNPC has for decades been at the heart of a network of patronage that still oils the wheels of Nigerian politics.
The bill says some of its assets must be incorporated within three months of it becoming law and the government then has three years to list an unspecified part of its shares publicly.
But the newly incorporated oil firm will not hold NNPC stakes in unincorporated joint ventures and production sharing contracts, which make up most of Nigeria's oil and gas assets.
Analysts say reform of the state-run NNPC is nonetheless key.
"How do you turn the NNPC which for generations has been political into something technical? It's hugely ambitious but something they have to do if oil is to benefit the many, not just the few," said Goldman.
MORE POWER TO OIL MINISTER
The bill as drafted would also roll Nigeria's various regulatory bodies for upstream and downstream into one, and give Oil Minister Diezani Alison-Madueke power to pick who runs it.
Placing all institutions concerned with oil under her supervision may upset those who hoped the bill would curb her already substantial powers. Previously the downstream regulator was independent of the ministry.
Alison-Madueke signed a 20-year oil license in February with U.S. oil giant Exxon on one of Nigeria's largest oil assets, which produces over 500,000 barrels per day, but the terms were kept private.
This license renewal came despite the minister saying for years that the delay to the PIB was holding contracts like these up. Alison-Madueke said this week that similar renewals with Shell and Chevron would be signed by June.