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Nigeria’s Petroleum Industry Bill Could Become Law By Mid-2013

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Nigeria’s Petroleum Industry Bill Could Become Law By Mid-2013

Post  Admin on Wed Jul 10, 2013 1:29 pm

NIGERIA – Nigeria’s House of Representatives, the lower house in the country’s two-chamber Parliament, on Nov 14, held the second reading of the new draft of the Petroleum Industry Bill (PIB), opening the way for its debate. The bill is expected to overhaul the country’s corrupt oil industry, open the sector for more investment, and give more oil earnings to government.

A public hearing is to follow the second reading during which many interests, including the international oil companies (IOCs) operating in Nigeria that oppose some provisions in the bill, which will table their views before the final reading is held in the lower house.

The house and the Senate in late September finished the first reading of the PIB, but the Senate is yet to take the second reading.

Some of the bill’s mandates are to replace all existing oil and gas legislation, 16 previous bills, various acts and decrees that administered the sector for about 50 years, redesign the oil and gas governance structure (including the establishment of seven new institutions), commercialize and restructure the state-run Nigerian National Petroleum Corp. (NNPC), revise fiscal regime for onshore, shallow water and deepwater oil and gas production, and change the provisions for awarding, renewing and revoking licenses and leases.

The PIB also will finally outlaw gas flaring with fines equal to the cost of the flared gas.

Diezani Alison Madueke, Nigeria’s oil minister, defending the PIB, said in a statement that the new draft “is fair to all,” adding that concerns by some operators over the proposed increase in government take from 61% to 72% in the deep and ultra-deep offshore is competitive “when we look at the scale of other entities around the world like Norway, Indonesia and even Angola.”


Fidel Pepple, acting group general manager, Public Affairs Division of the NNPC, told Hart Energy in a text message, that “I believe the PIB will re-position the industry in Nigeria for global competitiveness. I also believe the National Assembly (Parliament) will address the concerns of all stakeholders to come up with workable law.”

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Re: Nigeria’s Petroleum Industry Bill Could Become Law By Mid-2013

Post  Admin on Wed Jul 10, 2013 1:31 pm

But the oil majors point out that there are implications in respect to the bill’s mandates. A key one being its extreme complexity. With the objective of transforming the entire industry, there is lack of clarity in implementation, including lack of a transition plan, which will cause delays and impact day-to-day operations, the companies said.

Mark Ward, who is chairman and managing director of ExxonMobil Nigeria and the president of the Oil Producers Trade Section (OPTS) of the Lagos Chamber of Commerce, which includes Royal Dutch Shell, Total, Chevron, ExxonMobil, and Agip, said at a recent workshop organized in Lagos by Ernst & Young that tax terms in the bill are “so uncompetitive these risk rendering offshore oil and gas projects unviable, and could halt investments.”

Without the new investments, Nigeria’s oil production is expected to drop by 42% within the same period, Ward said, adding that oil and gas production from existing fields is declining and new investments are required. But, the new PIB would make many projects non-viable. It was not clear how the new management company will fund joint venture operations.

The OPTS said the effect of the PIB will be that: most gas projects will not go ahead; Nigerian government’s objective to triple power generation (using gas) will not be achieved; the new fiscal regime renders all new deepwater and several onshore projects uneconomic; Nigerian oil and gas sector will not be globally attractive; joint venture funding issues are not resolved; contract approval challenges are not resolved; there is lack of clarity around key terms; and investment will be lower as viability declines.

The oil majors stated that revising fiscal regime for onshore, shallow water and deepwater oil and gas production brings “enormous investor uncertainty with apparent disregard for previous investments and existing contracts.”

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Re: Nigeria’s Petroleum Industry Bill Could Become Law By Mid-2013

Post  Admin on Wed Jul 10, 2013 1:32 pm

The IOCs acknowledge that the government of Nigeria has the right to change law; however, the companies explain that there is need to “recognize sanctity of existing contracts and prior investments to maintain investor confidence.”

The bill, which has being delayed for about five years because of disagreements between government, oil majors, and lawmakers, will bring sweeping changes in the oil industry, including splitting the NNPC into three entities: the National Oil Co. (NOC), the National Gas Co. (NGC), and the National Petroleum Assets Management Corp.

In the draft bill, oil companies will pay the following tax rates on profits: 50% for onshore and shallow water areas and 25% for bitumen, frontier acreages and deepwater areas.

A new fund, the Petroleum Host Community Fund (PHCF), will be created for the development of the economic and social infrastructure of the communities within a petroleum producing area. Oil companies will contribute 10% of the net profits to the PHCF after royalties and other taxes have been deducted, if the bill is passed without amendments to the clauses on PHCF.

Industry experts said this will bring peace in the volatile but oil-rich Niger Delta. It is significant legislation as host communities have over the years pressed for more money from oil companies to develop their areas, which they insist are constantly being degraded by oil production and pollution, making it difficult to pursue their major economic mainstays - farming and fishing. Giving more money to the communities could stop restiveness and other militant activities that disrupt and hinder oil and gas production.

“But the PIB does not specify how the money will be distributed. So political interference may be significant while the amount will fluctuate with the oil prices,” said Pedro van Meurs, of Nassau Bahamas, a consultant to the Inter Agency Team which prepared the Nigerian government`s memorandum on the 2008 PIB though has no contract with the NNPC now.

The oil majors said the new 2012 draft PIB submitted by the Nigerian government to Parliament in July, if passed as it is, will make it unprofitable for new investments worth $108 billion to go ahead.

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Re: Nigeria’s Petroleum Industry Bill Could Become Law By Mid-2013

Post  Admin on Wed Jul 10, 2013 1:32 pm

The $108 billion is the sum of the planned capital expenditure of all the oil majors from 2012 to 2025, Ward said. This will raise Nigeria`s oil production per day, by 64% to about four million barrels from its current average of slightly over two million barrels.

The bill provides for scrapping 1990-era incentives for the deepwater, when new production sharing contracts (PSCs) were introduced. Nigeria is looking to its deepwater frontier to drastically increase production – and deepwater fields are expected to account for up to 70% of production by the end of 2013. The country has been seeking to collect more revenue from deepwater offshore projects.

Under rules governing the upstream sector of the Nigeria oil industry in the PIB, “a very negative provision is that the Nigerian president has the power to grant licenses without competitive process or any other process. This leaves the door wide open to political favoritism in a manner that has been the practice in Nigeria in the past,” Van Meurs said.

Gbolahan Elias, a law professor in Lagos, said it could take about six months before the PIB becomes law. The House of Representatives and the Senate must pass the bill before it is sent to President Jonathan for his assent.

If Jonathan refuses to give his assent, the Parliament will need two-thirds majority to override him and pass the PIB into law, Elias explained.

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Re: Nigeria’s Petroleum Industry Bill Could Become Law By Mid-2013

Post  Admin on Wed Jul 10, 2013 1:32 pm

http://www.epmag.com/Technology-Regulations/Nigerias-Petroleum-Industry-Bill-Become-Law-Mid-2013_109986

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