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NIGERIA: Petroleum Industry Bill (PIB) about to enter crucial stage

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Petroleum Industry Bill (PIB) about to enter crucial stage During last week’s public hearings, industry stakeholders voiced various concerns regarding the bill’s investment provisions. Representatives of the oil-producing Niger Delta region meanwhile advocated for a larger revenue share. Despite an acute revenue crisis, considerations beyond the current electoral cycle may result in a more accommodative government stance vis-à-vis industry concerns. Public hearings held by both chambers of the National Assembly last week suggest the key fault lines regarding the content of the Petroleum Industry Bill (PIB) center around two familiar issues: investment terms for International Oil Companies (IOCs) and additional funding for so-called host communities. Nevertheless, given the smooth relationship between the executive and the legislative arms of government, neither issue appears to have the potential to obstruct passage of the bill this year. On the flipside, IOCs’ ability to push through amendments will largely depend on whether the administration remains fixated on drumming up additional revenue in the short term, or whether the forces thinking beyond 2023, when President Muhammadu Buhari steps down, gain more traction.

Following the bill’s presentation to parliament in September 2020, it had already scaled the hurdle of the first and second readings in both the Senate and the House of Representatives by November. Following last week’s public hearings, it will now enter the crucial committee stage in which amendments can be made. After that, it will be referred back to both houses’ plenaries for a third reading and passage. Subsequently, the bill will need to be ‘harmonized’ by joint committees of the Senate and House of Representatives before it can be transmitted to the president for assent. Given the swift progress of the lawmaking procedure thus far, assurances given by Senate President Ahmad Lawan and House Speaker Femi Gbajabiamila that the bill will be passed in H1 seem plausible.

However, it remains to be seen how the committees will deal with input from various stakeholders made during last week’s public hearings. Most notably, this concerns pleas from IOCs to amend crucial investment terms as well as demands from representatives of the oil-producing Niger Delta to increase the share of revenue allocated to the region. IOCs’ concerns revolve around five key issues:

Provisions to clarify the sanctity of existing contracts and dispute settlement procedures are deemed insufficient. The planned segregation of upstream, midstream and downstream assets into independent companies could jeopardize the integrity of current investments. They oppose the planned prohibition of gas exports until a domestic gas supply obligation is met. Tax and royalty terms concerning deepwater developments: IOCs argue that full royalty relief for the first five years of production and a permanent exemption from the hydrocarbon tax are needed to make investment in this growth area for hydrocarbon production viable. Limits of capital allowances and costs eligible for deduction under the hydrocarbon tax are deemed excessive. For their part, representatives of the Host Communities of Nigeria Producing Oil and Gas (HOSTCOM) expectedly tabled proposals to increase their share of revenue. Most notably, HOSTCOM demands a 10% equity position in all licenses, while the only additional funding resource currently envisaged is a 2.5% levy of companies’ operating costs to fund a host communities development trust fund.

Given the smooth relationship between the parliamentary factions of the ruling All Progressives Congress (APC) and the executive during Buhari’s second term, the government will likely prove able to navigate the traditional divide between oil-producing states and non-producers over revenue allocation. What is less certain, however, is how it will go about IOCs’ demands, and whether said allocation problems will be solved at their expense.

Here, the key question remains whether the administration continues to focus on maximizing revenue in the short term, or whether the sector’s long-term prospects will receive greater attention. While the onerous tax terms of the 2019 PSC act suggest the former, the oil minister’s swift rejection of HOSTCOM’s demands may signal a rethink among parts of the administration that still aim to benefit from oil revenues beyond 2023.

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NIGERIA: Petroleum Industry Bill (PIB) about to enter crucial stage

Petroleum Industry Bill (PIB) about to enter crucial stage During last week’s public hearings, industry stakeholders voiced various concerns regarding the bill’s investment provisions.