As Nigeria delays, Kenya’s PIB cedes 25% revenue to host communities
Chineme Okafor in Abuja and Peter Uzoho with agency report
Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), Dr. Maikanti Baru, has revealed that more than 41 billion barrels of crude oil and 319 trillion standard cubic feet of gas were yet to be discovered in Sub-Saharan Africa. Baru said from available information, the African crude oil and gas outlook remained positive and on the upward trajectory, insisting that the West Africa Sub-Region held all the aces in offshore Deep Water exploration hotspots. Baru spoke last Wednesday during a special session on Africa focusing on “Foundations for New Investment”, at the ongoing 19th CERAWeek Conference in Houston, United States.
But while the Nigerian government has continued to pussyfoot on the fate of the Petroleum Industry Bill (PIB), the Kenyan government has already addressed crude oil revenue-sharing controversy and host community concerns in a new petroleum law signed by its President, Mr. Uhuru Kenyatta, in a sense that made mockery of Nigeria’s attempts to undertake reforms in her oil industry for nearly 19 years.
Throwing light on the future of oil and gas in Africa, Baru stated that a prolific find of 1.0 billion barrels of crude oil was recently made at the Owowo field, offshore Nigeria. While calling on foreign investors to explore the Nigerian Ultra-Deep terrain, which he described as largely untested, Baru told his audience that in Nigeria, NNPC was currently drilling Kolmani River-II Well in the Benue Trough – one of Nigeria’s several frontier inland Basins with about 400 BCF of gas expected to be encountered.
The occasion also provided an opportunity for the NNPC boss to make a case for the domestication of oil and gas technologies within the African continent.
“It is my belief that domesticating these cutting-edge technologies will develop the capacity of our people, improve our economies and emplace our national oil and gas companies on the path of sustainable growth and development,” he stated.
According to him, African countries must react positively to the new reality by deploying new policies and stabilise their business environment to attract meaningful investments. He said critical to achieving that for Nigeria was the passage of the four components of the Petroleum Industry Governance Bill (PIGB), which is expected to usher in a new legislation that would not only enhance the investment climate in the country, but also change the fortunes of the nation’s oil and gas business for the better.
Baru informed delegates at the conference that the NNPC was opening up its business environment to ensure transparency and accountability in its dealings with all stakeholders. He also lauded the federal government for its peace initiatives in the Niger Delta communities, which he said had seen the country hitting very high oil and gas production figures in recent years.
Ministers and high level energy executives from Mali, Somalia, Namibia and Uganda were among panelists at the Special Session.
Organised by IHS Markit, CERAWeek is a global platform on energy trends and public policy, where over 4,000 oil and gas experts convene annually to debate the future of oil, natural gas, renewable energy, power and new technologies.
Curiously, the government of Kenya has taken a major initiative ahead of the Nigerian government by addressing crude oil revenue-sharing challenges, especially the host community concerns, by signing a new petroleum law.
Nigeria currently uses a 1969 law, the Petroleum Act, to manage activities in her oil industry. But industry experts have repeatedly described the 1969 law as archaic and unfit for the purpose in an industry that has continued to evolve.
The country has also failed to adequately address the impacts of oil exploration on host communities, thus resulting to frequent agitation and militancy in the oil-producing Niger Delta region.
A report obtained from Reuters yesterday by THISDAY in Abuja indicated that the Kenyan Petroleum Exploration Development and Production Bill 2017 was signed last Tuesday by President Kenyatta. It granted the central government of the country 75 per cent of the revenue accruing from crude oil and gas exploited in the country, while county governments and the local host communities would take 20 per cent and five per cent, respectively, from the revenue.
Relying on its 1969 law, Nigeria has mined and produced oil for more than 50 years, while Kenya’s Tullow Oil and its partner, Africa Oil, discovered commercial oil reserves in the Lokichar basin in 2012. The companies are working towards a final investment decision (FID) by the end of this year.
Kenya’s enactment of its new petroleum law comes almost seven months after Nigeria’s President, Muhammadu Buhari, refused to assent to the PIGB, a bill legislated by the National Assembly to, among other objectives, address key governance issues in Nigeria’s oil industry.
Stating that his powers will be reduced, Buhari in August of 2018 reportedly failed to sign the PIGB, an offshoot of the larger PIB, which the National Assembly separated into four different bills for ease of passage.
The other bills are the Petroleum Industry Host Community Bill (PIHCB), Petroleum Industry Administration Bill (PIAB), and Petroleum Industry Fiscal Bill (PIFB).
While Nigeria had for up to 19 years unsuccessfully attempted to reform its oil industry using the Petroleum Industry Bill (PIB), the Nigeria Extractive Industries Transparency Initiative (NEITI) in a September 2016 policy brief titled: “the urgency of a new petroleum sector law”, explained the failure of Nigeria to pass an over-arching law for the petroleum sector after repeated attempts had continued to accrue huge costs to her with an estimated loss of $200 billion, and about $15 billion worth of investment lost annually.
But the new law in Kenya was considered an improvement of a 2015 bill, which would have capped allocations to the local county and community on the basis of 10 per cent. It was however not signed by Kenyatta. The new bill also said parliament would review the percentages within 10 years to take into consideration any adjustments needed.
In the Kenyan law, the national government’s share of petroleum revenues before the imposition of taxes shall be deposited to a dedicated petroleum fund, and managed in accordance with the Public Finance Management Act.
Additionally, the local community’s share of the oil revenue shall be payable to a trust fund managed by a board of trustees established by the county government in consultation with the local community. Kenya’s new petroleum law also provided for a comprehensive contracting, exploration, development and production framework.
In its 2016 policy brief on the PIB, NEITI explained that the need for regulatory reforms in Nigeria’s oil sector was based on such reasons as imprecise rules; excessive regulatory discretion; and the fusion of regulatory, policy and operator roles into several agencies. It added that prevalent corruption, lack of transparency, and accountability were also consequences of the archaic law Nigeria uses to govern her petroleum sector, stressing that these have led to the country’s economy severely underperforming, just as loss of benefits from the industry was prevalent and a large population of Nigerians impoverished irrespective of the country’s huge hydrocarbon resources.
Reports indicated that deliberations in the National Assembly over host community aspects of the PIB has for many years remained controversial with arguments often divided along ethnic lines instead of on the basis of environmental and economic considerations.
Putting the impacts of Nigeria’s delay in the passage of a reformed petroleum law into perspective, the NEITI’s policy brief said, “Governance deficiencies have been equally prolific. NEITI’s 2013 audit of the oil and gas sector revealed that a cumulative $10.4 billion and N378.7 billion was lost, under-remitted or outstanding due to inefficiencies, theft or absence of clear fiscal regime in the sectors.
“All these came to N1.74 trillion at 2013 value. At the current exchange rate, total losses, under-remitted and under-payments for 2013 alone sum up to N3.2 trillion. Proper governance framework and clearer fiscal regime for the sector could have resolved most of the underlying causes.
“Attempt to capture the economic losses in a single figure is almost impossible given the scale of effects and size of the multiplier. The cost computation attempted above is therefore only a slice of the real picture, and only limited to the period that the uncertainty surrounding the fate of the PIB has persisted.
“Stretching back to the period before the life of the PIB, Nigeria’s oil and gas sector has continued to deteriorate largely due to the fact that the laws that govern the petroleum industry are either not sufficient for effective regulation of the sector, or too outdated to be relevant in today’s global energy environment.
“For instance, the Petroleum Act (1969) was enacted when the country’s economy revolved less around oil and when the global oil market was less competitive than today’s. Yet, the country has failed to enact laws to adapt to the changing realities in the sector, locally and internationally.”