The Petroleum Industry Bill 2012 which was introduced to the National Assembly seeks to ensure that the management and allocation of petroleum resources in Nigeria is conducted in accordance with the principles of good governance in the overall and best interest of the Nigerian populace. There is now the inclusion of bitumen in the definition of petroleum. If it sails through, the PIB will be going contrary to the petroleum act which expressly excludes bituminous shales in the definition of petroleum.
Some of the objectives of the PIB include:
To create a conducive business environment for petroleum operators.
To enhance the exploration and exploitation of petroleum resources in the country for the benefit of the people.
To optimize domestic gas supplies particularly for power generation.
To establish a commercially oriented company
To ensure better compliance with the Health, Safety and Environment in the industry.
To ensure more transparency and openness in the administration of petroleum resources.
The bill does not sturdily institute the framework for the actualization of these noble objectives. Let us examine each of the objectives piecemeal.
The first objective requires the government to facilitate private sector investments. This requires the removal of constraints to private capital, guaranteeing an absence of political interference and a clear regulatory, legal and fiscal regime. The bill fails to put in place the mechanism for providing the enabling environment aimed at boosting private sector investment. The interference of the government in the sector is a bane in the industry as it stifles initiative and creativity.
The second objective does not put in place viable structures for infrastructural development which is a great drawback in the industry. The development is not there to guarantee the sustainable profitability of the existing oil fields.
The third objective does not include tariffs for gas processing and lacks sufficient supply obligations for non-compliance. It also doesn’t provide for domestic supply obligations for crude oil. Given the scarce nature of petroleum products in the country, it would have been a very useful avenue to encourage domestic supply obligations for crude oil to ensure the availability of crude oil for local refining and distribution.
The fourth objective does not include details of how to make the newly created National oil company more profitable. It is necessary for the unbundling of the government owned NNPC for the sector to truly witness the gains of deregulation if we want a repeat of what occurred in the telecommunications sector.
The fifth objective does not address the thorny and contentious issue of gas flaring which is a gargantuan challenge in the oil and gas industry as huge wastages occur as a result of it. There is also no requirement for insurance claims to adequately cover environmental disasters. The oil spillages have been a problem of the Niger-Delta which is one of the remote causes of the militancy there. The bill sadly neglects coverage of how these communities should be compensated.
The sixth objective is not met as it grants too much discretionary powers to the President and Minister for Petroleum Resources. The President is given discretionary powers over the licensing process for upstream activities even though these licenses and leases are expected to be issued through competitive bidding. The Petroleum Minister has the power to serve as chairman of the board of agencies or to recommend the appointment of such to the President. These wide powers have been subject of abuse in the past. The monumental corruption and graft in the oil sector is attributable to these absolute powers enjoyed by the President and Petroleum Minister. This will only increase the sleaze in the already rotten industry. Going down memory lane, we recall how a former first lady facilitated the procurement of an oil block to her former maid. How ludicrous! Power corrupts and absolute power corrupts absolutely. It will be counterproductive to hand over such powers to the president and petroleum minister.
There are other grey areas in the bill which need to be addressed. The taxation inherent in it will make investments unattractive in the country. Joint Venture agreements will increase from 86 to 91 percent. Production Sharing Contracts will take a hike from 30 to 77 percent and Gas Joint Ventures will take a quantum leap from 0 to 60 percent. There is also a tax hike of five percent for deep water projects. All these will greatly foreign investors from coming in. Many of the existing international oil companies may be forced to pull out from the country and the already terrible unemployment crisis will exacerbate.
The Petroleum Host Community Fund (PHCF) is a new fund that will make provisions for the economic, social and infrastructural development of communities within the petroleum producing areas. The fund will be filled through a monthly ten percent net profit tax from every upstream production company. The bill does not define what constitutes a host community. The proposed fund will spark further controversy as oil producing states already get 13 percent derivation from oil resources.
We commend the ad-hoc committee of the House of Representatives on the PIB for removing the broad powers of the president and minister as defined above. The other contentious areas like the high tax and the PHCF should be critically looked into. There has been a lot of politics that has played itself out between the Presidency and the National Assembly which has stalled the passage over the last three years. We urge the incoming eight national assembly and the incoming administration to ensure that the bill is passed after the necessary modifications for the greater interest of Nigerians who have been shortchanged for decades from the gains of the oil sector.
END
Be the first to comment