UNDERSTANDING THE PETROLEUM
INDUSTRY BILL (PIB)
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OUTLINE
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Preamble
Objectives of PIB
PIB Broad Recommendations
Petroleum Sector Unbundled
New Sector wide Structure
Key Business Deliverables
Opportunities Upstream
Opportunities Downstream
Regulatory Framework
New and existing Parastatals
Fiscal Incentives
Conclusion
The End
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PREAMBLE
• The Nigerian Draft Petroleum Industry Bill 2012 has only been
submitted to the National Assembly and when passed into law, shall be
the overriding guide for Oil and Gas business in Nigeria
• The draft bill was drawn up to replace an aggregation of about 16
existing Petroleum industry laws which had governed the sector for
the over 50 years of oil and gas operations in the country.
• Applying time tested principles and globally acceptable practices, the
bill sets out to deregulate and liberalise business activities in the sector
• It provides for a dynamic but prudent fiscal policy framework across the
value chain which incentivizes sustained investments and productivity
whilst delivering best returns to Nigeria.
• It Creates a business environment that is transparent, globally competitive
and attractive to investors and host communities alike
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OBJECTIVES OF THE PIB
• To Enhance Exploration and Exploitation of Petroleum
Resources
• To Significantly increase domestic gas supplies
especially for power and Industry
• Create Competitive Business environment
• To Establish fiscal framework that is
flexible, stable and competitively attractive
• To create Commercially viable National Oil
Company
• To deregulate downstream petroleum business
• To Create efficient regulatory institutions
• To Engender Transparency and accountability
• To Promote Nigerian Content
• To Promote and protect Health Safety and Environment
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PIB BROAD RECOMMENDATIONS
•
The PIB recommends in the main;
•
•
Unbundling of NNPC as presently constituted
Creation of a National Oil Company that promotes
indigenous operational capacity development
•
•
Creation of an Asset Management Company
Strengthening of Regulatory and Inspectorate
institutions that promote transparency, safety,
consumer rights and safe environments
•
Establishment of a gas market and gas infrastructure
development company
Establishment of a department in the ministry
charged with frontier exploration services
•
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A Petroleum Host Community Fund
Adoption of flexible fiscal measures that attract
investment and allows for production biased taxation
•
A fiscal policy framework derived from a strategic National interest and incentives
for attracting sustainable investment
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PETROLEUM SECTOR UNBUNDLED
S/N
INSTITUTION
OWNERSHIP
ASSET
GOVERNANCE
FUNCTIONS
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Upstream Petroleum Inspectorate
FGN
Upstream Components of
DPR
Directorate
Upstream Industry
Regulation
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Downstream Petroleum Regulatory
Agency
FGN
Downstream Components
of DPR + PPPRA + PI
Directorate
Downstream Industry
Regulation
3
Nat Asset Mgt Corporation (NAMCORP)
FGN
JV Assets
Corporation Board
JV Asset Management
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Nat Asset Mgt Company (NAMCON)
Nat Asset Mgt
Corporation
Assigned JV Assets
CAMA LTD
JV Asset Management
Subsidiary
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National Oil Company
FG + Private
CAMA PLC
Operating company
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National Gas Company
FG + Private
CAMA PLC
Mid and downstream
operations
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National Frontier Exploration
Department.
FGN
Access to Unexplored
basins
Petroleum Ministry
Front End Frontier
Exploration
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Parastatals
FGN
Statutory
FGN Board
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Statutory Sector
programmes
NPDC, PPMC, Refineries,
NLNG, PSCs + New
Acreages
NGC assets and pipelines
FUNCTIONAL STRUCTURE
Ministry of
Petroleum
Resources
NATIONAL FRONTIER
SERVICES
Upstream Petroleum
Inspectorate
Downstream Petroleum
Regulatory Agency
NATIONAL GAS
COMPANY
NATIONAL OIL
COMPANY
NATIONANAL ASSET
MGT CORPORATION
NAMCON PLC
NGC Assets
NPDC Assets
REFINERIES
PARASTATALS
PTDF, PEF, PTI,
NCDMB, PHCF
6 JVs
PSCs, PPMC,
NLNG, ETC
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KEY BUSINESS DELIVERABLES
•
Accelerated expansion of the indigenous operational capability in the upstream segment through
the proposed Nigerian Oil Company and in the process increase the upstream business
participation by Nigerians and their partners.
•
Building and positioning a robust, efficient and respectable regulatory framework to provide a level
playing field for all players and protect the interest of all stakeholders in the industry.
•
A framework for the implementation of a fully private sector driven domestic gas market with clear
roles for the NOC, the IOCs and other indigenous investors.
•
A Frontier Exploration Services programme to deepen/diversify the country’s proven gas and
crude reserves .
•
A framework for the full liberalisation of the downstream sector through the issuance of licenses
for modular refineries aimed at meeting the domestic and regional demand as to drastically reduce
the country’s huge annual foreign exchange exposure .
•
The promotion of other downstream industries like petrochemical plants fertiliser plants, gas
processing etc.
•
A sustainable petroleum sector liberalisation policy aimed at incentivizing new investments across
the value chain whilst consciously growing a spin-off of local enterprises through the local content
policy.
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OPPORTUNITIES UPSTREAM
•
Upon the Unbundling of NNPC as presently constituted the upstream sub sector is thrown open for
competitive businesses and services
•
Allows for the creation of a National Oil Company that engages partners and investment interests to
promote indigenous operational capacity development
•
Creation of an Asset Management Company which manages existing Joint ventures whilst growing
its assets by engaging in new relationships
•
The deregulation allows for full private sector
participation especially through the Capital market
with an attendant impact on the finance industry
•
A Petroleum Host Community Fund that allows for
a win-win business environment with host
communities as reliable partners
•
Flexible fiscal measures aimed at retaining existing
relationships and is also attractive to fresh investments
•
A regulatory Agency solely to serve the upstream
industry with a view to quickening business operation
times and in the same vein developing efficiency
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OPPORTUNITIES DOWNSTREAM
•
The Bill sets out to establish a framework for the full liberalisation of the downstream sector through
the issuance of licenses for downstream businesses hitherto operated by the NNPC
•
Encouragement of small-sized modular refineries aimed at meeting the domestic regional demand so
as to drastically reduce the huge import bill .
•
Creation of a National Oil Company that promotes indigenous
opportunities in both service and technical support systems
•
Establishment of a gas market and gas infrastructure development
company called National gas company which allows for private
sector led development and fair competition in the sector
A liberalised gas sector that allows for technical partnerships and
investments in infrastructure developments that support
the market through cost reflective tariffs.
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Adoption of flexible fiscal measures that attracts investment and
provides for tax holidays and minimum threshold price biased
taxation
Gas market development that drives accelerated investments in
the power sector and indeed the whole energy supply chain
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REGULATORY FRAMEWORK
Two distinct regulatory Institutions are proposed
according to the sector profile
UPSTREAM PETROLEUM INSPECTORATE
– Incorporating DPR Upstream functions
– To regulate and monitor upstream industry
operations
DOWNSTREAM PETROLEUM REGULATORY AGENCY
– Incorporating DPR downstream and PPPRA
functions
– To regulate down stream markets and
operations
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NEW & EXISTING PARASTATALS
NEW
• The Petroleum Host Community Fund shall be created
– Shall coordinate conditional participation of host communities in the
petroleum industry
• National Frontier Exploration Services department shall be established.
– It shall be vested with the responsibility to promote front end seismic data
acquisition of hydrocarbons in the frontier basins in hinterland Nigeria
EXISITING
• Existing parastatals of the ministry shall be maintained to pursue their
public sector functions provided the basis for their relevance in the sector
subsists.
• These include
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–
–
PTDF
PEF
PTI and
NCDMB
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FISCAL INCENTIVES
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• Fiscal regime (Royalty and Tax) predicated on production
as opposed to terrain and investment respectively.
o Royalty by Production
‒ Captures the output of a company as opposed to its location.
‒ Creates a fair balance between small and big producers
operating in the same terrain.
‒ Enables operators to continue to make fair returns during field
decline.
‒ Lower rates proposed for condensate from NAG fields.
‒ Lower rates also proposed for frontier and ultra deepwater
basins
o Royalty by Price
‒ Trigger mechanism is fair to all irrespective of the terrain
‒ Self adjusting rate based on the price of crude oil (> $50/bbl)
and natural gas price (> $2.0/Mmbtu).
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FISCAL INCENTIVES
• Tax Regimes
o CITA
‒ Puts all operating companies on the
same pedestal
.
‒ Provides for the payment of minimum
tax where incentives would otherwise
not have made the company liable to NHT
‒ Removes all the rigours and intricacies involved in the calculation of NHT.
‒ CIT rate is 30% regardless of geographical location
o NHT and Production Bonus (PB)
‒ PB based on production as opposed to investment (which may not fully
capture the essence of capital deployed)
‒ Field size dependent, therefore, fair to both small and large producers
‒ NHT rate is 50% in the case of onshore/swamp/shallow offshore and 25%
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for deepwater operations.
FISCALS EXAMPLE –For Gas Investments
Project NPV10 (6 JV Projects, US$Bn)
Crude Price - $80/bbl; Gas Price - $1.50/Mscf
3.00
2.50
2.00
$2.40
$1.75
1.50
1.00
0.50
0.00
Current
1
Proposed with tax hldy
Generous production allowance, lower royalty rates and tax holiday assures existing and new
gas projects’ profitability without government having to hand out cheques to investors.
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CONCLUSIONS
The new PIB allows for
• A totally liberalised private sector led industry operating on
principles of international best practices
• An open and transparent framework for petroleum sector
businesses
• An attractive investment environment that cuts across sectors
• A flexible fiscal and taxation model that allows for
commensurate returns on investment
• A sustainable environment for petroleum industry business
The time for partnering with the Nigerian petroleum industry is NOW
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