By Emeka
Chiakwelu
The much debated and contentious Petroleum Industry Bill 2012
(PIB) is a quantum leap in the remaking of Nigeria’s oil and gas industry, if
and when it becomes the law of the land. Some Nigerians deemed the bill
controversial because many of them have not read the bill but rather depend on
the opposition of the bill to propagate their incoherence and distortions.
One thing for sure, the government of Nigeria must be applauded for
initiating the task to reform and make some crucial changes in the most important
sector of Nigerian economy. The bill is not perfect; nevertheless it will
re-launch the deteriorated sector into a solidify reformed and streamlined
entity.
The PIB must be balanced and made attractive to investors by
incentivizing it without jeopardizing and compromising the spirit and integrity
of the bill.
The PIB must be adjusted, refined and consolidated to become the
perfect bill for a constructive reform is needed in the oil and gas
industry. Some adjustments and adaptations are necessary to satisfy
and clarify some impending edges of the bill.
Since the discovery of oil in Nigeria by Shell- British Petroleum
in 1950, Nigeria has made billions of dollars, yet the country accrued one of
the worst indexes of misery. Over 70 percent of Nigeria lives in abject
poverty, struggling to provide their families with three square meals.
The electricity and modern infrastructures are pipe dream. The wealth of
the nation has been siphoned to foreign and off shores accounts. The
worst of all, the environmental degradation brought by oil exploration and the
subsequent health problems have approached an explosive dimension, an
unmitigated disaster. The oil curse and imminent Dutch disease have done
untold harm to Nigeria’s manufacturing and agricultural sectors. Therefore
without a doubt, a reform is needed, but is PIB capable of ushering in
the requisite reform?
The PIB is intended to rescind and replace the below current laws
in the book:
*Petroleum Products Pricing Regulatory Agency (Establishment) Act
2003;
*Petroleum Equalization Fund (Management Board, etc.) Act CAP 11
Laws of the Federation of Nigeria, 2004
*Petroleum (Special) Trust Fund Act, CAP 14 Laws of the Federation
of Nigeria, 2004; and
*Petroleum Technology Development Fund Act CAP P15 Laws of the
Federation of Nigeria, 2004;
*Petroleum Act CAP 10, Laws of the Federation of Nigeria,
2004;('Petroleum Act')
*Motor Spirits (Returns) Act, CAP M20 Laws of the Federation of
Nigeria, 2004
*Associated Gas Re-injection Act CAP A25 Laws of the Federation of
Nigeria, 2004
*Deep Offshore and Inland Basin Production Sharing Act, CAP D3
Laws of the Federation of Nigeria, 2004; except for sections 16
subsection (1) and (2)
Petroleum Profits Tax Act, CAP P13 Laws of the Federation of
Nigeria, 2004.
The contemporary laws are not consistent with country’s ambition;
therefore we rightly welcome the PIB. But wait a second! Let’s put
this PIB in perspective. How is going to benefit average Nigerian and what are
the structures put together to make sure that accumulated revenues and taxes
are channel to building the necessary infrastructures for economic
development. The key point for PIB is to reform the petroleum
industry and raise quantifiable fund to develop the country.
PIB is an ambitious project in the sense that it will tax more and
accumulate more revenues from the industry partakers and
participants including – “Royal Dutch Shell, Chevron Corp., Exxon
Mobil Corp., Total SA, Eni SpA, who produce around 90% of Nigeria’s oil
through several joint ventures with the Nigerian National Petroleum Corp.”
The pros and cons of such a massive taxation must be fully examine
in order to make sure that it will not be obstacle for further investment
in oil and gas sector of the economy. The bill stipulated that the taxation for
upstream drilling is to be pegged at 50 percent and for downstream drilling at
25 percent.
Extracting and exerting such a huge levy on the oil companies may
sound tantalizing and satisfying but the possible downside must be considered
and evaluated. Since most of the financing of the high intensive projects
in the sector are done by these big oil companies, it is necessary to tread carefully. As Mark Ward,
the managing director of ExxonMobil’s Nigerian unit argued that such a massive
taxation makes Nigeria’s oil and gas industry unattractive to invest.
Ward said at an Energy conference, “the terms proposed increase
royalties, increase taxes, and lower allowances or incentives all at the same
time,” will make Nigeria “one of the world’s harshest fiscal regimes.”
Ward’s criticism cannot be wave off easily, without a detailed
examination, but that does not entails that his argument is 100% correct.
The level of the participation of local financing is quite minuscule and high
taxes probably will not incentivize those international oil companies operating
in Nigeria to further investment in the country.
Nigeria failed woefully to utilize the accumulated revenue from
the oil industry to develop the industry. There by relying on foreign capital
from the big oil companies to play the critical role in the extraction,
drilling and development of the industry. The best thing for Nigeria to
do with the PIB is to progressively levy the companies from somewhat lower
percent in the course of 5-10 years until it approach the targeted
percentage. The good window is that the gradual increases of the taxation
has a lower and lessen impact on the companies, inducing the receiving of the
burden in good faith. This will also send the message that punitive action is
not intention of the petroleum bill, that we are all together in the struggle
to develop the industry.
Other aspects of the PIB were encouraging including the total
deregulation of the downstream drilling. My idealistic wish is that there
comes a day that Nigerian government will totally withdraw and disengage from
the participation in the oil and gas industry. The only supposedly
function is to tax the industry while NNPC will be privatized and shares floated
and bought over by local investors. But until we get there, Nigerian
government must concentrate and direct her resources in developing the industry
with verifiable and strong local content.
Bitumen or Asphalt inclusion as a petroleum product is not a
stretch as opposition members of PIB chose to ferment. Although the
bituminous shales were not part of the contemporary Petroleum Act but in the
quest to broaden revenue collection, the government is entitle to making the
inclusion, provided that it will not hamper the attraction of investments in
the industry.
The section of the PIB that empowered the minister of petroleum
and the president to issue drilling licenses may be further elaborated with
conditional ties and modus operandi to ensure that biases, mediocrity and
nepotism will be checked with transparency.
(Chiakwelu isPrincipal Policy Strategist at AFRIPOL)
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