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 deem the bill controversial because many of them have not read it but rather depended on the opponents 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 the economy.
The bill is not perfect; nevertheless it will re-launch the deteriorated sector into a solidified 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. Since the discovery of oil in Nigeria by Shell-British Petroleum in 1950, Nigeria has made billions of dollars, yet the country has accrued one of the worst indexes of misery. Over 70 percent of Nigerians live in abject poverty, struggling to provide their families with three square meals.
Electricity and modern infrastructures are pipe dreams. The wealth of the nation has been siphoned to foreign and off shore accounts. Worst of all, the environmental degradation brought by oil exploration and the subsequent health problems have approached explosive dimensions – an unmitigated disaster.
The oil curse and imminent Dutch disease has done untold harm to Nigeria’s manufacturing and agricultural sectors. Therefore without a doubt, a reform is needed, but is the 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 the country’s ambition; therefore we rightly welcome the PIB. But wait a second! Let’s put this PIB in perspective.
How is it going to benefit the 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 examined in order to make sure that it will not be an obstacle for further investment in oil and gas sector of the economy.
The bill stipulates 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 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. Wards’ criticism cannot be waved off easily, without a detailed examination, but that does not entail 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 a somewhat lower percent in the course of 5-10 years until it approaches 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 the of the petroleum bill, that we are all together in the struggle to develop the industry. Other aspects of the PIB are encouraging including the total deregulation of the downstream drilling.
My idealistic wish is that there comes a day that the Federal 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, government must concentrate and direct her resources in developing the industry with verifiable and strong local content.
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