It has been just over a week since the Public Hearing at the House of Representatives. Enough time to have mulled over some of the issues raised by investors, the Federal Government & the public on the Petroleum Industry Administration Bill, the Petroleum Industry Fiscal Bill & the Petroleum Host & Impacted Communities Bill. Here are 5 takeaways from the hearings.
- Gas fiscals do not work yet: One of the key aims of the reform is to facilitate the development of gas infrastructure projects with its catalytic effect on the wider economy. Presentations given by the Independent Petroleum Producers Group, the Oil Producers Trade Section (OPTS), the Ministry of Petroleum Resources, the Nigerian Gas Association and NUPENGASSAN, suggests that producers are not sufficiently incentivized to develop gas resources. This is due to a mix of factors including the removal of the Associated Gas Framework Agreement (AGFA) terms, the perceived low production allowances in respect of gas and the capped prices of gas to the domestic market. The policy to remove AGFA was announced in the Petroleum Policy approved by the Federal Executive Council last year. This was based on concerns that AGFA effectively discriminated against pure midstream players with no gas production. The development of gas resources is a fundamental requirement for the success of the petroleum industry reforms. The National Assembly would, therefore, need to consider other fiscal levers to incentivize its development.
- Ditto for Deep Offshore Oil Production – whilst the general commentary with respect to the production of oil on land and in shallow waters was very positive, the OPTS raised concerns about the impact of the fiscal terms on deep offshore oil production. This is not surprising given the imposition of royalties where previously royalties were not payable. A few commentators were also concerned about the effect of the removal of existing allowances and a lack of replacement of these allowances. It is important to clarify whether the proposed production allowances would apply to ALL production and not just to new production. This may help to ameliorate the perceived negative impact of the proposed fiscal terms on deep offshore production.
- The Communities want equity – a number of the presenters from the Host Communities demanded that the communities be granted equity in the assets of the companies. There was no consistency in terms of percentage but it ranged from 2.5% – 10%. Some commenters proposed that a proportion comes from the equity held by the government and the companies. This is an area in which the National Assembly must tread with care given the constitutional concerns and the risk of expropriation.
- Take from NDDC – commenters also suggested that (some of) the funds paid over to the Niger Delta Development Commission be transferred to the host communities directly. This was based on the perception that the NDDC had failed in its mandate of developing the Niger-Delta and the high associated costs of utilising this centralised structure in delivering this mandate.
- All powerful Commission – there were a few comments, from different perspectives, about the power of the Nigerian Petroleum Regulatory Commission. OPTS & IPPG were concerned that the Commission had excessive discretionary power particularly in the areas of dispute resolution, competition monitoring, the imposition of public service obligations and tariff methodologies. Whilst some of these concerns may be borne out of a failure to appreciate the obligations on the Commission to consult in making these decisions, it would be necessary for the National Assembly to clarify some of these powers. On the other hand, the Ministry also expressed some concerns about the powers of the Commission or the lack of powers of the Minister. In particular, the Ministry expressed concerns about the Minister not being able to issue regulations, lack of involvement in the licensing process and the lack of requirement to seek the approval of the Minister when the Commission is exercising certain powers. A number of the comments of the Ministry would have been more appropriately addressed in the discussions on the Petroleum Industry Governance Bill (PIGB) and may perhaps reflect the Ministry’s position regarding the President’s assent to the PIGB.