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Professionally Speaking SPE Digest


Dr Emmanuel Egbogah

The Presidential Adviser on Petroleum Matters.

The Africa Report No 31, June, 2011


After four years of heated debate over the attempt to reform Nigeria’s underachieving oil and gas industry, the Petroleum Industry Bill is likely to pass into law this year. Dr. Egbogah explains the issues at stake, and the difficult negotiations with international oil companies, in an exclusive interview with the African Report’s Patrick Smith and Donu Kogbara.

Will we see the passing of the Petroleum Industry Bill (PIB) through the National Assembly this year? And what has caused the long delay in its passage through the two chambers?

The National Assembly promised and assured President Goodluck Jonathan that the Petroleum Industry Bill will be passed into law before the end of this administration (this year). The process of the passage of any law is always a long one, but the case of the PIB may have been longer than normal and may be related to the intervention of the international oil companies (IOCs) who have been campaigning against the passage of the bill due to their concern for the fiscal terms proposed in the bill.  Although we consider the bill very investor-friendly one, the IOCs see it differently.

Why have so many of the IOCs so virulently opposed the provisions of the Petroleum Industry Bill? Will its passing into law mean that Nigeria’s share of earnings from oil and gas exports will increase?

The PIB introduces the concept of incorporated joint ventures – to eliminate the perennial problem of cash calls – and a number of changes to the existing fiscal system governing oil and gas operations in Nigeria. The key changes include the fact that all companies engaged in upstream petroleum operations, including the national oil company (NNPC), will be required to pay company income tax, as well as the ne Nigerian Hydro Carbon Tax (NHT), which we believe to be a simplified version of Petroleum Profit Tax. These changes will mean higher government take for deep offshore fields and a marginally higher government take for on-shore and shallow waters, but it will still leave (Nigeria’s) industry with very competitive terms compared to other jurisdictions. It is these changes that the IOC are virulently against, wishing that we maintained the status quo. It is these changes that they are campaigning against, urging the National Assembly not to pass the bill in its present form.

How much interest is there in the market to finance NNPC operations?

There is a significant appetite in the market to finance NNPC operations.

What type of oil-production contracts do you think are most appropriate for Nigeria: joint-venture and NNPC equity-stake operations, production-sharing arrangements or other variants?

Nigeria is offering three types of petroleum arrangements:

1.       Sole risk contracts for indigenous operators of marginal fields;

2.       Joint ventures;

3.       Production-sharing contracts.

The new fiscal system in the PIB will make Nigeria’s production-sharing contracts very progressive.

Many independent commentators claim that Nigeria has lost billions of dollars to the IOCs through overpaying on production costs and service charges and tolerating tax evasion techniques. Do you think there is any truth in this? Why does Nigeria appear to benefit less from its oil and gas industry than countries such as Indonesia and Algeria?

Nigeria may have lost billions on production costs and service charges through overpayment to IOCs, as claimed, and there may have been other tax-payment inadequacies. Over the years, the laws regulating Nigeria’s oil industry have not been comprehensively reviewed. The main laws are the Petroleum Act 1969 (as amended) and the Nigerian National Petroleum Corporation Act of 1977 (as amended). There are also a number of other laws, mostly decrees that have become obsolete and proven to be impotent in regulating the country’s petroleum industry. It is because of these lapses and obsolescence that the reform of the industry was undertaken, as encapsulated in the Petroleum Industry Bill.

The PIB coalesces all existing 16 laws into one comprehensive, all-encompassing legislation, which captures all the experience of the past 50 or more years in addressing all institutional matters: policy, structure, legal and governance. The reform as captured in the PIB will reposition the industry for better performance and also will bring the industry in line with modern-day oil and gas industry standards of efficiency, effectiveness and transparency.

The PIB will serve to promote transparency in the operation of the oil and gas industry in Nigeria. Transparency, good governance and accountability will be promoted through the removal of confidentiality which in a way encourages corruption. With the passage of the PIB, prospecting licenses and mining leases can only be granted by the minister through a truly competitive bid process. Such processes will be open and transparent and accessible to all qualified companies. The details of all transactions will no longer be confidential. It is therefore the expectation of government that the new law will transform the industry from the “most opaque” to one of the most open and transparent in the world. To that extent, the PIB has the prospect of bringing to an end the age-long decadence and orgy of exploitation and corruption in the industry.

How do you rate the attempts to reform accounting procedures at the NNPC over the past 10 years? If NNPC audits were rated on the markets, how would the company compare in size with other substantial national companies such as Sonatrach or Sonangol?

The attempts to reform the accounting procedures at NNPC over the past years may not have yielded the desired results. Rated on the markets, NNPC audits have not fared well against other substantial national oil companies such as Sonatrach or Sonangol.

How is the range of Nigeria’s partners in oil and gas production and processing likely to widen over the next decade? Would you see Chinese and Indian oil companies taking a leading role and perhaps replacing western companies such as Shell and Exxon Mobil?

The range of Nigeria’s partners in oil and gas production and processing is very likely to widen over the next decade and beyond. The new acreage management system and other partnership features are enshrined in the PIB. Chinese and Indian oil companies, by desire and by need, will make significant and sustained inroads into the Nigerian petroleum industry, but not to the extent of threatening or replacing our traditional western partners such as Shell and Exxon Mobil.

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