THE NIGERIAN PETROLEUM INDUSTRY BILL
TOOL FOR ECONOMIC EMANCIPATION OR
POLITY DESTABILIZATION?
SURAJ OYEWALE, ACA
FOUNDER, JARUSHUB CAREER PORTAL
Presented @ the 1st Public Discussion Forum
organized by the Economic Insight, the Press
Arm of the Nigerian Economics Students
Association, Obafemi Awolowo University
Chapter, Ile-Ife, Nigeria
Saturday, March 29, 2014
OUTLINE
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Introduction
History of petroleum resources
Milestones in the petroleum industry in
Nigeria
A background of the PIB
Objectives of the PIB
Key implications of the objectives
Ownership of the petroleum resources
OUTLINE (Cont’d)
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Agencies under the PIB
Taxation under PIB
Role of the petroleum Minister
Contentious areas of the PIB
Opposing forces in PIB passage
Conclusion
History of petroleum resources
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Petroleum is a naturally occurring liquid,
consisting of a complex mixture of
hydrocarbon and other organic
compounds, formed from the fossilized
remains of dead plants and animals by
exposure to heat and pressure in the
Earth’s crusts over hundreds of millions
of years.
History of petroleum resources
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Petroleum has been around for long,
although usually used in unrefined form
hundreds of years back. As far back as
8th century, some seven hundred years
ago, the streets of Baghdad were
reportedly tarred with substance
derived from petroleum!
Oil fields were exploited in what is
today Azerbaijan, far back 9th century.
History of petroleum resources
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Kerosene lamp was invented some seven hundred years ago. (Zayn
Bilkadi, University of California, Berkeley "The Oil Weapons"). You
all know kerosene is a product of petroleum.
Nearly 200 small refineries operated in the suburbs of Baku by
1884. The first modern oil refineries were built in Poland from
1854–56 (Frank, Alison Fleig (2005). Oil Empire: Visions of
Prosperity in Austrian Galicia (Harvard Historical Studies, Harvard
University Press). The refined products were used in artificial
asphalt, machine oil and lubricants.
The first large oil refinery opened at Ploiesti, Romania in 1856.
Oil drilling in the United States began in 1859, in Titisville,
Pennsylvania.
However, by the first quarter of the 20th century, the United States
overtook Russia as the world's largest oil producer.
The Superior Oil Company (now part of Exxon Mobil) built the first
offshore oil platform off the Gulf Coast of Louisiana in 1938.
By the end of Word War II, the Middle East had gained ascendancy
in Oil production
LOOKING BACK: PETROLEUM INDUSTRY
MILESTONES IN NIGERIA
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1908 -Nigerian Bitumen Co. & British Colonial Petroleum
commenced operations around Okitipupa.
1938 - Shell D' Arcy granted Exploration license to prospect for
oil throughout Nigeria.
1955 -Mobil Oil Corporation started operations in Nigeria.
1956- First successful well drilled at Oloibiri by Shell D'Arcy
1958 - First shipment of oil from Nigeria.
1961- Texaco Overseas started operations in Nigeria.
1962 - Elf started operations in Nigeria. (As Safrap) -Nigeria
Agip Oil Company started operations in Nigeria
1965 - Phillips Oil Company started operations in today’s Delta
State
1968 - Mobil Producing Nigeria Limited) was formed. 1970 –
The Department of Petroleum Resources Inspectorate started.
LOOKING BACK: PETROLEUM INDUSTRY
MILESTONES IN NIGERIA
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Noteworthy: By the mid-70’s, Nigeria
had reached 2 million barrels of oil per
day in production. Today, we still hover
around 2 to 2.5m bpd, despite all the
massive investments that had taken
place between then and now.
THE PIB – A BACKGROUND
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Shortly after President Olusegun Obasanjo assumed
office in his first term, he set up a committee, called the
Oil and Gas Industry Committee (OGIC), with a mandate
to take a comprehensive look at Nigeria’s oil and gas
sector and offer better ways of managing the industry.
Obviously, many of the laws and regulations guiding the
industry had been around for long, some far back 1950’s,
and although they had undergone amendments, the
federal government considered it necessary to take an
holistic review of the industry with a review to getting the
best of it by all stakeholders. The OGIC was led by Mr.
Rilwanu Lukman, veteran petroleum engineer and former
Secretary-General of OPEC, and had other oil industry
eggheads. The committee submitted its report, and its
recommendations formed the basis of Petroleum Industry
Bill, which has since been subjected to further reviews and
adjustments.
OBJECTIVES OF THE PIB
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The Bill seeks to achieve:
A conducive business environment for petroleum operations
Enhanced exploitation and exploration of petroleum resources in
Nigeria for the benefit of Nigerians
Optimize domestic gas supplies, especially for power generation
and industrial development
Encourages investment in Nigerian petroleum industry
Optimizing government revenue
Establish profit-driven oil entities
Deregulate and liberalize the downstream petroleum sector
Create efficient and effective regulatory agencies
Promote the development of Nigerian content in the oil industry
Protect health, safety and the environment in petroleum
operations
OBJECTIVES – KEY IMPLICATIONS
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More jobs for Nigerians – as it will become illegal to
employ foreigners for certain skills that can be sourced
locally
Where such skills are sourced from abroad due to
unavailability locally, a local understudying the expat is a
requirement
The above is applicable not only to skill, but to materials
sourcing
The above means more jobs for Nigerian local contractors,
especially those from the oil producing regions
Gas is still under-focused in Nigeria and the potential
from this source of energy lays untapped. PIB seeks to
maximize
If well explored, this will boost power supply in Nigeria
OBJECTIVES – KEY IMPLICATIONS
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Government revenue from oil industry will increase.
This means more funds in the hands of government to
engage in developmental activities, ideally
The downstream sector becomes fully deregulated.
In other words, subsidy will fully go.
Subsidy removal is not totally bad, if there are no
distortions to market – this is my personal opinion as
an economist (well, accountant with academic
training in economics)
Environmental protection – what Saro Wiwa and co
fought for, and the initial grudge of the Niger Delta
militancy – will be addressed
Who owns the oil?
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The PIB vests ownership and management
of all petroleum resources, offshore or
onshore, in the Federal Government of
Nigeria, which manage on behalf of all
Nigerians. This means irrespective of where
the oil is found, it belongs to the
government of Nigeria. Of course, equity
calls for special consideration for localities
where the resources are mined. This is
taken care of by the Revenue sharing laws
and other provisions of this Bill like the
Host Community Fund.
Notable agencies under the PIB
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PETROLEUM TECHNICAL BUREAU (PTB): This will be
a special unit under the office of the Minister of
Petroleum. It will be peopled by professionals from
both the upstream and downstream sectors and
charged with the responsibility of rendering
professional support to the minister
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UPSTREAM PETROLEUM INSPECTORATE (UPI): The
UPI will regulate technical and commercial activities
in the upstream sector. It will be responsible for
issuing licences and permit. Representatives on
Federal Mistry of Finance, NUPENG, PENGASSAN
etc will part of UPI board, in addition to other
professionals appointed by the president. The UPI is
not profit-driven, it will therefore not pay income tax
Notable agencies under the PIB
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DOWNSTREAM PETROLEUM REGULATORY AGENCY
(DPRA): This is to be the downstream industry, what the UPI
is to the upstream industry. So if you want to set up a
filling station, for instance, you approach DPRA.
Note that the Directorate of Petroleum Resources (DPR)
currently does what UPI and DPRA will be doing. In other
words, PIB unbundles DPR into UPI and DPRA
THE PETROLEUM TECHNOLOGY DEVELOPMENT FUND
(PTDF): The PTDF will continue to exist. The objective of
the PTDF is to develop and train manpower necessary to
service the petroleum industry in Nigeria. The body gives
scholarships to Nigerians, sponsors and support researches
etc
Notable agencies under the PIB
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THE PETROLEUM EQUALIZATION FUND (PEF): The PEF
continues to exist under the regime PIB seeks to introduce.
The PEF is responsible for accounting for the ‘subsidy’ –
the leverage given to Nigerians by making oil marketers
sell at prices below market price i.e equalizing. But what
is unclear to me is how this will continue to exist when
subsidy will be totally removed. But my guess is the
continuous existence will be to take care of the backlogs
in the equalization funds or to continue its function until
after final subsidy is finally removed
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THE PETROLEUM HOST COMMUNITIES FUND (PHCF):
Host communities are communities where petroleum
resources are found i.e the Niger Delta and other areas it
will be found in the future.
Notable agencies under the PIB
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THE PETROLEUM EQUALIZATION FUND (PTF): The PTF
continues to exist under the regime PIB seeks to introduce.
The PEF is responsible for accounting for the ‘subsidy’ –
the leverage given to Nigerians by making oil marketers
sell at prices below market price i.e equalizing. But what
is unclear to me is how this will continue to exist when
subsidy will be totally removed. But my guess is the
continuous existence will be to take care of the backlogs
in the equalization funds or to continue its function until
after final subsidy is finally removed
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THE PETROLEUM HOST COMMUNITIES FUND (PHCF):
Host communities are communities where petroleum
resources are found i.e the Niger Delta and other areas it
will be found in the future.
Notable agencies under the PIB
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THE NATIONAL PETROLEUM ASSETS MANAGEMENT CORPORATION
(NAPEMC): The NAPEMC will be responsible for managing government
investments in the upstream industry. It will have subsidiaries to carry out
different aspects of these activities. It will take over assets and liabilities
of NNPC, will be incorporated and fully profit-driven. It is not a
regulatory entity. NNPC employees shall be transferred to this entity.
THE NATIONAL OIL COMPANY (NOC): This will also be an offshoot of
NNPC, but unlike NAPEMC which will be a limited liability company, the
NOC will be listed on the Stock Exchange, meaning you and I can buy its
shares. Up to 30% of its share will be available for grabs by the public.
Certain employees, assets and liabilities of NNPC will also be
transferred to the NOC.
THE NATIONAL GAS COMPANY (NGC): This will also be listed as a PLC
and certain employees, assets and liabilities of NNPC will be transferred
to it.
Taxation under PIB
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The PIB effectively repeals the Petroleum Profits Tax Act
(PPTA), which has been governed fiscal framework in the
upstream sector pre-PIB. Upstream oil and gas companies
will now be subject to
Companies Income Tax (CIT): Like the downstream
businesses. It remains at 30% of adjusted profits
Hydrocarbon Tax (HCT): This is a new tax to be introduced
by the PIB for upstream operators. The rate is 50%
Roughly, the effective tax rate in the upstream industry
comes to around 80%. It should be noted the repealed
PPTA ranges from 66.75% to 85%. So it may be net
benefit or hit to companies depending on their operations.
Education Tax remains unchanged at 2% of assessable
income.
Key role of the minister
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Exercises supervisory function over the petroleum industry
Advise government on matters pertaining to the petroleum
industry
Represent Nigeria at international organizations on
petroleum
Negotiate and execute international petroleum treaty and
agreements with other sovereign countries and
international organizations on behalf of government
Advise the President on the appointment of CEOs of UPI,
DPRA, NOC, AMC and other agencies that will be formed
pursuant to PIB.
Upon the advice of the inspectorate, grant, amend,
renew, extend, or revoke upstream and downstream
petroleum licences and leases pursuant to the provision of
the act.
Process for award of licence
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Open and transparent competitive
bidding
Parameters such as signature bonus,
work commitment etc shall be used
No discretionary award
*However, section 191 gives the President
the power to grant discretionary award
of licence
Contentious Areas of the PIB
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PIB vesting ownership of oil in the FG
Deregulation
Host community Fund
Power of the petroleum minister
Presidnet’s discretionary power to
award licence
Gas flaring
Opposing forces in PIB passage
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The Niger Delta/Oil producing region
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The northern legislators
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The International Oil Companies
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The independent activists
Conclusion
References
1. PIB DRAFT
DOCUMENT –
2012
VERSION
2. OVERVIEW
OF OIL & GAS
INDUSTRY IN
NIGERIA, EBEN
AKINYEMI, OIL
& GAS TAX
SCHOOL,
GHANA,
AUGUST 2012
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It’s not the law, but the
people implementing
it!!!