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. Continue reading “House of Reps Public Hearing – A Few Takeaways”
Reacting to the Minister of Petroleum’s suggestion that the Petroleum Industry Bill be split up to ensure prompt passage, the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN) has retorted that such suggestion would not be in the interest of the country. The association maintained that the provisions, as contained in the current Bill, are capable of transforming the industry and in particular, grow the upstream sector.
The Senate’s Joint Committee on the Petroleum Industry Bill (PIB), yesterday, July 18, 2013, held the first of its two-day public hearing on the Bill.
As reported in ThisDay and the Guardian, stakeholders in the petroleum industry (including the Minister of Petroleum Resources, State Governors and representatives of both government parastatals and oil companies) made their presentations on the Bill before the Senate’s Joint Committee.
International and local oil companies under the auspices of Oil Producers Trade Section (OPTS) opposed the passage of the PIB in its current state. In a presentation made by the Managing Director, Mobil Producing Nigeria, Mr. Mark Ward, the OPTS said the PIB fell short of addressing the challenges in the oil industry.
He observed that the Bill sought to significantly increase royalties and taxes making Nigeria one of the harshest fiscal regimes in the world, a situation that will culminate in the country, as an oil and gas producing region, becoming uncompetitive as projects will now become uneconomical.
Given the enormous expenditure required to develop gas infrastructure, he also opined that an incentive-based approach to domestic gas supply obligations will be required to jump start Nigeria’s much needed gas revolution.
According to him, while OPTS supports the objectives of the Bill and the reforms it seeks, the Bill as drafted will fail in delivering such objectives and will reduce the oil and gas industry contributions to the Nigerian economy.
The Nigeria Extractive Industry Transparency International (NEITI), in its submissions, explained that for effective regulation of the industry, it was necessary to reduce the powers of the Minister and ensure the creation of autonomous institutions that would promote effective governance and control in the management of Nigeria’s petroleum resources.
NEITI also noted that the Bill did little to protect the Nigerian environment. They insisted that the Bill should provide minimum environmental standards in the relationship between Operators in the sector and the environment.
The Revenue Mobilization Allocation and Fiscal Commission (RMAFC), in its presentation, opposed the Bill’s provision mandating a ten per cent (10%) contribution of Operator profits to the Petroleum Host Community Fund (PHCF). The Commission instead advocated exploring the open-ended opportunity available under the Constitution vis-a-vis the provision stipulating that a minimum of thirteen per cent (13%) of the revenue accruing from the Federation Account be paid to oil producing States. They also recommended that the Bill provide for the remittance of revenue by petroleum regulatory agencies into the Commission’s account.
RMAFC’s position on the PHCF was supported by the Governors of Niger and Kaduna State who described its conception as the most controversial of the entire Bill’s provision.
The Honorable Minister of Petroleum Resources, Mrs. Diezani Alison-Madueke, in her presentation, said it would take about five years before the provisions of the Bill could be fully implemented. She urged stakeholders not to personalise or politicise the Bill adding that the PIB was put together in the interest of the nation.
She downplayed beliefs that the Bill accorded enormous powers to the Minister, stressing that the current Petroleum Act actually vested more powers in the office.
She further added that “Whilst we take best practices from other developed regions, we should also work within the understanding of our own socio-economic and social-cultural norms, and create entities and policies that will work and are not destined to fail from the word-go.”
The Minister also noted that the PHCF was proposed to mitigate the human and environmental conditions in oil producing regions and to assuage the feelings of the host communities towards oil and gas companies.
Declaring the hearing open, the Senate President, David Mark, promised that the National Assembly would facilitate the passage of the bill, noting that the pursuit of the Bill must be a win-win situation.
He however urged that: “Oil companies should not take undue advantage of Nigeria. What I do not want is when people begin to threaten that if you do not do this, we will park out of Nigeria. That is not the correct thing. We are conscious of the fact that there is frustration in the oil industry”.
Continuing with our fiscal theme, here’s the link to KPMG’s recently published article titled Petroleum Industry Bill 2012: Highlights of the Fiscal Provisions.The article highlights critical provisions of the Petroleum Industry Bill and concludes by stating that its provisions are likely to lead to an increase in the effective tax rate of many companies. It also opines that the current provisions of the PIB are unlikely to optimise domestic gas supplies as the fiscal incentives for upstream gas development under the PIB are less attractive than available under the Petroleum Profits Tax regime. The article may be found here.