Nigerian Petroleum Industry Perambulation (PIP)

Published on 19th November 2010

An oil rig in Nigeria                     
Nigeria’s Senate President David Mark declared a few days ago that the National Assembly will not succumb to pressure from oil companies to pass a watered down version of the Petroleum Industry Bill (PIB). This sounds very positive and patriotic. But how true is this threat?  Everything about the PIB has been, as one scholar observes, controversial and murky.

The PIB potentially promises to deliver far reaching reforms to the Nigerian petroleum industry. The reforms include: transforming the Nigerian National Petroleum Corporation from a cost centre to a profit centre competing with Petrobras of Brazil and Petronas of Malaysia; deregulating  the downstream sector; boosting funding to arrest decline in production; introducing globally competitive fiscal systems; increasing revenue streams through gas production; improving the overall transparency regime in the sector, etc.. But how can it go?

Since the draft bill was submitted to the National Assembly in 2008 by the late President, its consideration by Parliament has been shrouded in utmost secrecy, giving rise to all forms of speculation, rumours and uncertainty. The fact that more than three different versions of the same bill have been circulating raises anxiety about which version will finally become an Act. Even the Inter Agency Team which drafted the bill did a u-turn at some point by submitting a memorandum suggesting areas of amendment to what was their own bill. Both chambers of the National Assembly held poorly coordinated public hearing sessions which attempted to collect memos from stakeholders. A few weeks ago, unconfirmed sources within the National Assembly indicated that a particular version gave multinationals in the oil industry significant concessions including juicy fiscal terms on gas and off shore investments.

Retaining obsolete confidentiality clauses

PIB’s promise to improve transparency in the sector is based on its compliance with the principles of the Nigerian Extractive Industries Transparency Initiative (NEITI). It prescribes that the reforms in the sector must comply with the NEITI Act 2007. Many observers are unaware that Section 14(a) of NEITI Act states that disclosure of audit information will only happen if such information is not prejudicial to the proprietary interest and contractual obligations of the audited entity. Through this clause, the NEITI Act retains the issue of confidentiality and so it is worrisome to make PIB compliant on such an Act.

Interestingly however, section 173(1) of the PIB states that “Confidentiality clauses or other clauses contained within any licenses, leases, agreements or contracts for upstream petroleum operations that are for the purpose of preventing access to information in respect of any payments….shall be null and void” Many observers believe that this clause in the initial draft might have been tampered with too. This implies that the so called reforms to be ushered in by PIB when passed will likely accommodate a practice that has already been abandoned in the oil and gas industry worldwide.

Improved metering omitted

Of all the PIB prescriptions, the fundamental issue of crude oil metering is conspicuously missing. Very few suggestions on improved metering are contained in the Bill. The NEITI audit (1999-2004) recommended a change in the metering infrastructure to include measurements at the flow station to ascertain the number of barrels of oil Nigeria is currently producing and to compute royalties based on that figure as contained in many MOUs entered with the Joint Venture Partners. However, crude oil metering is currently done only at the export terminals which provide export figures only. In many oil producing countries, precision metering begins at flow stations; Not in Nigeria. The inter ministerial task team put together to implement the recommendations of the NEITI audit confirmed that it is both technically and financially feasible to install precision meters at the flow stations in Nigeria. Norwegian government at a point was willing to offer technical support, but such recommendations and support have been continuously rebuffed by the oil multinationals till date.

 The silence of the PIB on metering means that the questions stakeholders are asking about the numbers of barrels of oil we produce per day will yet remain unanswered.

Resolving Niger Delta Issues?

Resolving the Niger Delta crisis is the biggest nightmare in the Nigerian petroleum industry. One of the most interesting aspects of the Petroleum Industry Bill was the introduction of equity payments to oil bearing communities. This fairly popular memo was introduced by the office of the Presidential adviser on Petroleum matters. It recommended a 10 percent equity ownership of the Joint venture by oil producing communities.  This sounds like a very great idea only if drafters could offer additional clarity and implementation suggestions.  The idea took off as 10 percent of Joint Venture equity. It later became 10 percent of profit and now finally 600 million dollars annually as host community dividends. Could this be another community windfall or the usual handout that will end up in the pockets of self appointed community leaders? What about the Niger Delta Development Commission (NDDC)? What concrete provision different from all that have not worked in the past will this bring, to reduce the Niger Delta conflict? Will it escalate the conflict?

National Interest or Personal Gains…??

Our politicians and bureaucrats often tell us that their actions are in the promotion of “national interest.” But what really is national interest? Is it an amalgamation of patriotic actions that will promote national prosperity and wellbeing? Have our “parasitic” elite appropriated this word and used it to advance personal gains instead? The oil and gas sector is one area where ‘national interest’ is daily misrepresented by those who are supposed to safeguard it. Government officials in most regulatory agencies are allegedly immersed tokenism and national interest has never been on their agenda. As soon as they receive handouts, they look elsewhere and allow the multinationals to do as they like.

The NEITI audits described these complexities as information asymmetry and capacity gaps. But that sounded too simple. They may well be a deliberate attempt to allow a convoluted process to be manipulated to permit preventable leakages from our national patrimony. A watered down PIB will mean reduced revenue to government at all levels, an export oriented oil and gas sector with minimal downstream multiplier effect on the economy (poor local content), increased unemployment, low incentive for domestic gas utilization leading to hiccups in power generation and industrialization.

Despite the threats of Senator Mark and our “wise” parliamentarians, it is crystal clear that the Petroleum Industry Bill as it is being conceived and pursued cannot reform the Nigerian oil and gas sector. We are just undertaking another national adventure from point A. After spending so much energy, time and resources, we will suddenly find ourselves where we began. It is called a national perambulation!

By Uche Igwe

The author is an Africa Public Policy Scholar at the Woodrow Wilson Center and Visiting Scholar at the Africa Studies Program, Paul H. Nitze School of Advanced International Studies Johns Hopkins University.

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