Un-Jinxing the Petroleum Industry Bill
The ninth National Assembly appears poised to break the jinx associated with the Petroleum Industry Bill sent to the sixth assembly by the late President Umaru Musa Yar’adua in 2007, report Deji Elumoye and Shola Oyeyipo
The Petroleum Industry Bill (PIB) has been in the works for more than a decade and is an instrument capable of changing the narratives in the oil and gas sector if embraced as it could make Nigerians feel more impacts of the abundance of crude reserve in the country.
Many observers are therefore of the opinion that there should not be any further delay by President Muhammadu Buhari to sign the PIB into law after its passage by the Ninth Assembly.
In the annals of the history of the Nigerian parliament, the 12 year-old PIB remains one of the oldest bills that has gone back and forth between the National Assembly and the executive without becoming a law due to the power play and sometimes, the selfish interest of stakeholders.
So, it was heartwarming recently, when the Senate President, Dr. Ahmad Lawan, assured Nigerians that the 9th Assembly would ensure that the bill was reintroduced and passed in earnest.
While giving the assurance, when he received the Chief Executive Officer (CEO) of ExxonMobil Group of Companies, Mr. Paul McGrath, who led the team of executives from the company, Lawan acknowledged that despite several attempts by previous assemblies, the PIB has not seen the light of the day.
He, however, assured Nigerians that the 9th Senate, under his leadership, would break the jinx by ensuring that the PIB legislation becomes law in the overall interest of Nigeria and Nigerians.
“We came closer in the 8th Assembly. We disaggregated the Bill. We did better than previous assemblies but unfortunately, we ran out of time,” he said, expressing optimism that with the vibrant members of the Ninth Senate, “I promise Nigerians, we will start as soon as we inaugurate our committees and they will start the work on the PIB.
“This time around, we will work with every stakeholder in the industry. Whatsoever it will take to make this Bill beneficial to Nigerians and the players, we will not hesitate. We demand your collaboration, we will work together in the interest of the country and everyone,” he added.
For those conversant with the politics responsible for the setback the Bill had suffered over the years, the promise made by the Senate President was a welcome development and considered as one of the greatest legislations the ninth assembly could deliver to Nigerians.
Thus, by the time the standing committees of both the Senate and House of Representatives are inaugurated at the end of September, when the federal lawmakers are expected back from their two months long vacation, the committees on Petroleum (Upstream and Downstream) would be expected to give the PIB some priority once re-introduced at the two chambers and referred to the appropriate committees.
It is common knowledge that the Nigerian economy depends largely on earnings from the oil sector. This informed why the Executive Director/Chief Executive Officer of Nigerian Export Promotion Council, Mr. Olusegun Awolowo, in June posited that Nigeria’s Gross Domestic Product (GDP) was driven by the services sector, while oil still made up 90% of foreign exchange.
He noted that in the most recent dataset, services contributed over 50 per cent to Nigeria’s GDP while data from early 2018 showed oil contributed 87.7 per cent to foreign exchange. The National Bureau of Statistics in its 2017 report, put Nigeria’s total export earnings at N3.1tn for the second quarter of this year, oil and gas accounted for N2.43tn, which is 92 per cent while the non-oil sector accounted for the N670bn balance.
Earnings from the oil and gas sector are responsible for about 80 per cent of recurrent and capital expenditure in Nigeria today.
Sadly, a Nigerian economist and former member, Central Bank of Nigeria (CBN) Monetary Policy Committee, Dr. Doyin Salami, also recently noted that Nigeria was not oil rich, but oil dependent. He said there is a clear distinction between the two, because despite the huge earnings from oil, a large quantum of Nigerians still lives below the poverty line.
Salami, who estimated that Nigeria could produce 800 million barrels of oil per year, which means that for every one of Nigeria’s roughly 200 million people, the country produces four barrels of oil, however regretted that “The reality is that Nigeria remains a very poor country, despite a handful of very rich Nigerians.”
In his calculation, he noted that if Nigeria produces 800 million barrels per year at $45 per barrel, it goes to about $180 per person per year whereas Saudi Arabia which projected that it would produce four billion barrels each year, with its population put at only 30 million, the kingdom would produce $6,000 for every one Saudi citizen.
That estimate is over 130 barrels per person per year. So, apart from corruption, which is well entrenched in the Nigerian oil and gas sector, the country is not producing enough and therefore not earning enough to cater for the citizenry hence the need for PIB, which seeks to establish a framework for the creation of commercially-oriented and profit-driven petroleum sector.
It would also ensure value addition and bring the Nigerian petroleum industry to international standard through the creation of efficient and effective governing institutions with clear and separate roles for the petroleum industry.
Ironically, some forces are getting maximum benefits from the haphazard arrangement in the sector to the detriment of the larger society and they have been fighting tooth and nail to ensure that the status quo remains.
That much was corroborated by the Deputy Majority Leader of the House of Representatives, Hon. Peter Akpatason, when he said recently that some powerful forces benefitting from a dysfunctional oil and gas sector of the economy are behind the high level politics responsible for the non-passage of the Petroleum Industry Bill (PIB).
Akpatason emphasised that if government was truly committed to the passage of the bill, lawmakers in the National Assembly and the executive must work together to produce an acceptable draft of the legislation.
As a former President of the National Union of Petroleum and Natural Gas Workers (NUPENG), Akpatason, has a very rich background in the oil sector, so his opinions could not be waved aside.
On what the ninth assembly ought to do with the PIB if it must see the light of the day, Akpatason noted that the “PIB Bill is the most politicised in this assembly all the way from the seventh assembly when I joined.
“The PIB is such a highly politicised project all the way from the executive, where it emanates and even right here in the National Assembly because there are a lot of contending factors – a lot of interests all over the place.
“The multinationals form a block of interest; in politics we have our various interests also. The refining block is another factor, the marketers another factor, transporters another big factor; a lot of people are benefitting from a dysfunctional oil and gas industry and these people are very powerful, highly entrenched interests – people that can manipulate anything possible in this country.
“And that is why you see that even in the drafts; come to the National Assembly, you’ll see elements of political twisting and then if you tried to correct it at the level of committees and the rest of them, these interests still come to play.
“I believe that the only way that we can have PIB that will scale through without much delay is for the executive and the legislative arm of government to sit down together and get some experts to work out the best draft that we can get.”
He added that, “One single PIB will not help the case because that was what actually scuttled it in the first place when we placed everything together and some of the provisions were not acceptable to the government and because of those few provisions, they declined assent to that document.”
There are various areas of concern depending on where you stand, but principally government fears potential for protests by Nigerians against any removal of the fuel subsidy, which may arise from the deregulation of the industry.
There are also concerns about regional imbalances in the distribution of oil revenues and, of course, mounting pressure from foreign oil companies that are unwilling to pay more oil taxes.
But in the course of the 12 years of non-passage of the PIB into law, the Nigerian economy has suffered serious consequences. There has been a waiting game on the part of potential investors, who want the country to chart its legislative path before putting their hard-earned money into a business that may take even up to 25 years before profit starts to manifest.
The global perception of the future of the Nigerian economy, which relies on oil, is filled with uncertainty, and this explains why many well-meaning Nigerians are staunch advocates of the ratification of the PIB.
For the proponents of the PIB, if passed into law, it would secure the long term macroeconomic stability of Nigeria, reform the extractive industry institutional framework, support production to ensure Nigeria remains the top African oil producer, kick-start a domestic gas to power market and provide clarity and stability for Nigeria and its partnership with the oil and gas industry for the next decade.
It would also increase oil and gas production whilst protecting the environment and facilitate economic diversification of Nigeria.
With regards to issues relating to the host communities, with the creation of Petroleum Host Community Fund (PHCF), aspects of compensation, environmental cleanup and improved socio-economic development of the operating regions and the needs of the oil-producing communities are enshrined in the PIB.
Going by the provisions of the bill, a fund is to be designated for the development of the economies and social infrastructure of the communities within the petroleum producing areas.
The funds are to be contributed on a monthly basis of 10 per cent of the net profit of the companies operating both onshore, in shallow water and the deep offshore.
Some other elements of the PIB are that it proposes a new fiscal regime for Nigeria’s oil industry to govern the economic benefits derivable from petroleum exploration and production. This is important to create workable balance between government taxes and incentives to invest in oil exploration and production.
This relates mainly with the Nigerian Hydrocarbon Tax, Companies Income Tax and Royalties. The Bill is also to provide legislative frameworks for the relationships that will exist between operators, government and communities.
In the case of Companies and Income Tax (CIT), it would be payable on upstream (exploration and production) operations.
Therefore, companies engaged in upstream and downstream (refining and distributing) will enter CIT separately on each operation. There are however series of tax incentives for more involvement in downstream oil investment as a way give incentives for the gas market and improving Nigeria’s refining capacity.
Though royalties are not contained in the bill, the minister is equipped with the right to change the system. For instance, the new system currently under examination makes the calculation of the royalty more complex.
Before the bill, royalties encourage deep-water exploration and the rate was based on the position of the activity. For onshore, 20 per cent; shallow, 18.5 per cent; 200 metres, 16.67 per cent; 200-500 metres, 12 per cent; 501-800 metres, 8 per cent; 800-1000 metres, 4 per cent and above 1000 metres, 0 per cent.
What is being considered now combines location with volumes and price. With that and the increased production per day, there will be higher rates of taxation. This radical change to the royalty regime will surely make Nigeria to be seen as one of the least profitable regions to export oil and therefore globally uncompetitive.
If the change in the PIB sees the light of the day, the changes proposed in the royalty and taxation regime will increase income to the federal government by about seven per cent annually.
Though the NHT and CIT put together will generate less revenue than the old PPT, the new royalty regime promises to increase the level of revenue.
Although there are critics of some provisions of the PIB, it is generally considered as capable of overhauling the Nigerian petroleum sector to serve Nigerians better by getting better deals for oil and sharing the revenues more efficiently.
Therefore, considering the controversy surrounding the bill, Nigerian journalists were recently urged to collaborate towards ensuring that the Bill sees the light of the day in the overall interest of Nigerians.
At an interactive session held in Lagos last week, journalists were advised to join forces to sensitise the citizenry, the lawmakers and members of the executive on the need to make the Bill become law.
The Executive Director, Business A.M Newspapers, Mr. Philip Isakpa, who was guest speaker at the forum, expressed concern that “Nigerian journalism has taken a step backwards from what it should be doing,” regarding the Bill, which has suffered several setbacks.
He said to ensure that the bill becomes law, “There is need to collaborate. You cannot work in isolation. Since we are part of the society we live in, whatever happens in the society we live in is of concern to us. We must attain a position of an advocate or an agenda setter in the case of the PIB.”
According to him, forces working against the passage of the PIB, which aims to increase Nigeria’s earnings from the oil and gas sector, should be exposed so that Nigerians can know them.
“We (journalists) have a responsibility to make sure that we have an understanding of that industry and that it works for the betterment of the world that we live in. Journalists do themselves a lot of harm because we act as if the economy does not matter to us.
For instance, we tend to unconsciously support the labour unions who when pushing their agenda say ‘no to subsidy removal for instance,’ but we should think what it would mean to me, my family and the society.
“The reforms are tied to the functioning of the economy. As journalists, our immediate constituency is the society that we live in, so, anything that will put pin in the balloon, we should prevent it. We must be interested in the core, which is the economy. It is impacting our lives.”