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.
Emeka Chiakwelu, Principal Policy Strategist at AFRIPOL. His works have
appeared in Wall Street Journal, Huffington Post, Forbes and many other
important journals around the world. His writings have also been cited in
many economic books, publications and many institutions of higher learning
including tagteam Harvard Education. Africa Political & Economic Strategic
Center (AFRIPOL) is foremost a public policy center whose fundamental
objective is to broaden the parameters of public policy debates in Africa.
To advocate, promote and encourage free enterprise, democracy, sustainable
green environment, human rights, conflict resolutions, transparency and
probity in Africa. [email protected] www.afripol.org,
