PIB 2020: Nigeria to lose $9 bn investment, 38% production

Chairman, Oil Producers Trade Section (OPTS) of Lagos Chaber of Commerce and Industry (LACCI), Mr Mike Sangster.

Sopuruchi Onwuka

Key players in the Nigerian petroleum industry will not proceed with potential $9.0 billion investments if the current propositions in the new version of the controversial Petroleum Industry Bill (PIB) are not altered to address their concerns.

If the investments are frozen, it would lead to fall in the nation’s hydrocarbon liquids production from conventional and deepwater terrains by cumulative 30 percent by 2030.

The Oracle Today reports that the investors gathered under the auspices of the Oil Producers Trade Section (OPTS) of the Lagos Chamber of Commerce and Industry (LACCI) and Indigenous Petroleum Producers Group (IPPG) have sustained their dispute against fiscal provisions in the reconsolidated PIB expected to emerge into an act of the national legislature in the year.

The widening position gap between the nation’s industry regulators and investors groups amplify the lingering disputes over fiscal provisions that will govern commercial investments in the petroleum industry when the new petroleum acts finally emerges as promised by the government.

In a position paper sighted by The Oracle Today, the investor groups allege that concerns they raised against the new fiscal provisions built into the bill by regulators have been largely ignored during stakeholder engagements hosted to achieve pan-industry agreement on the key material contents in the bill.

The position paper attributed to the Chairman of OPTS, Mr Mike Sangster, holds that the fiscal environment to be instated by the 2020 PIB might fail to attract the right level of commercial investments required to meet government’s economic aspirations in the petroleum industry.

The aspirations, our correspondent reports, include building crude oil reserves to 40 billion barrels, growing production capacity to over 4.0 million barrels per day, increasing Nigerian content of the industry to over 70 percent and commercializing Nigerian natural gas resources to achieve economic and environmental goals.

The realization of the key aspirations and broader economic targets for the industry would depend on the outcome of commercial activities that would be driven by deep pocket investors that operate sundry exploration and production agreements with government’s Nigerian National Petroleum Corporation (NNPC) and regulators in the industry.

Then 2020 PIB evolves governance, administrative, host environment and fiscal frameworks that would rule commercial investments in the industry when it eventually scales legislative processes to emerge into an act.

Terms for commercial investments have remained the major road block for the passage of the PIB since 2008 when it was first introduced in the National Assembly where the investor groups mounted strong resistance against its legislative progress.

The bill which was the key outcome of a presidential oil industry review committee in 2000 was conceived to aggregate and upgrade the nation’s fragmented and strewn oil industry legislations into a unified reference document for industry governance.

Whereas government’s regulators and industry operators largely had little issues with the bulk of administrative and governance issues in the original PIB, the major disagreements revolved around fiscal templates that marked up taxes and sundry government’s revenue receivables from industry operations. At the center of argument were cost templates conceived to form the baselines for calculation of payments.

Fiscal disputes associated with introduction of the PIB have stalled investments in reserves growth and production uptick agenda of the government. Investments in exploration, development and oilfield activities stalled as the fiscal climate remained hazy.

With fiscal dispute between government and industry investment groups worsening as the bill lingered, erstwhile Managing Director of Seplat Petroleum Development Company (SPDC) Plc, Mr Austin Avuru, had at an industry conference in 2015 advised government to simplify passage of the nebulous bill by breaking it into smaller segments that could be passed as separate but related acts.

See also  Modular Floating Dockyard: ICRC delivers Business Compliance Certificate to NIMASA

Government subsequently segmented the PIB into four daughter bills, including Petroleum Industry Governance Bill (PIGB), Petroleum Industry Administrative Bill (PIAB), Petroleum Host Community Bill (PHCB) and Petroleum Industry Fiscal Bill (PIFB). The PIGB pulled through legislations but failed to get presidential assent in 2018, dashing hopes that the rest of the legislative bills could make it through to executive assent.

With the four daughter bills hitting the rocks as legislative bills, new efforts were made to reset the process. And the reconstitution of the National Assembly in 2019 to politically align with the executive, regulators recovered, reconsolidated and represented the PIB to National Assembly as one document that has the former daughter bills as chapters.

 But the OPTS and the IPPG still contend that fiscal provisions in the reworked PIB still fails to address investors’ concerns in the operating environment, warning that the PIB 2020 terms could lead to Nigeria foregoing about 30% of its deepwater production potential in 2030.

In the document which the group presented during stakeholder engagement forums, Mike Sangster contended that the current PIB 2020 does not improve the investment environment for new project investment decisions to be taken.

“By 2025, we could see a ~38% reduction in deepwater production compared to 2020 levels,” he said, adding that “over 30% of production potential could be lost by 2030.”

The projected production decline could partially be attributed to PSC assumptions, Mr Sangster stated in the document.

He argued that a competitive PIB could on the other hand unlock Nigeria’s production potential and contribute to the country’s next wave of economic growth, adding that “PIB enabled projects have the potential to create 300,000 direct and indirect jobs2 over the next 10 years.”

“With the right fiscal framework, OPTS could invest an additional ~$9 billion1 in Deepwater projects to grow oil and gas development in Nigeria with resultant benefits for the nation,” Mr Sangster stated.

The document detailed a number of demands that primarily include rollover of accumulated tax credits and allowances into new licenses at the point of conversion from oil licenses to petroleum licenses. Other demands include sanctity of existing contracts upon conversion, as well as, protection of integrated field developments that currently fall vulnerable to segregation of upstream and midstream fiscal requirements.

The group complains that promising deepwater projects would face relatively tough fiscal terms in Nigeria. It pointed out that the situation could jeopardize significant investment, risk sizable resources threaten potential increase in government’s revenue.

According to the OPTS, the 2020 PIB should also aim to address commercial and transaction constraints that create bottle-necks in the gas value chain. It called for settlement legacy debt owed to gas suppliers and an end to regulated gas pricing.

Other grievances of the group which could affect investments in growth projects, according to the document, include deepwater royalty rates, and high overall government’s take from operations output.

While stressing that the 2020 PIB failed to address issues with the most impact towards investment decisions and investor confidence, the investor groups stated in a joint document that ignoring concerns industry operators raised during stakeholder engagements would result in a huge toll on economic aspirations in the industry.

See also  Nigeria needs clear procedures on cross border trade – LCCI

Sopuruchi Onwuka

Key players in the Nigerian petroleum industry will not proceed with potential $9.0 billion investments if the current propositions in the new version of the controversial Petroleum Industry Bill (PIB) are not altered to address their concerns.

If the investments are frozen, it would lead to fall in the nation’s hydrocarbon liquids production from conventional and deepwater terrains by cumulative 30 percent by 2030.

The Oracle Today reports that the investors gathered under the auspices of the Oil Producers Trade Section (OPTS) of the Lagos Chamber of Commerce and Industry (LACCI) and Indigenous Petroleum Producers Group (IPPG) have sustained their dispute against fiscal provisions in the reconsolidated PIB expected to emerge into an act of the national legislature in the year.

The widening position gap between the nation’s industry regulators and investors groups amplify the lingering disputes over fiscal provisions that will govern commercial investments in the petroleum industry when the new petroleum acts finally emerges as promised by the government.

In a position paper sighted by The Oracle Today, the investor groups allege that concerns they raised against the new fiscal provisions built into the bill by regulators have been largely ignored during stakeholder engagements hosted to achieve pan-industry agreement on the key material contents in the bill.

The position paper attributed to the Chairman of OPTS, Mr Mike Sangster, holds that the fiscal environment to be instated by the 2020 PIB might fail to attract the right level of commercial investments required to meet government’s economic aspirations in the petroleum industry.

The aspirations, our correspondent reports, include building crude oil reserves to 40 billion barrels, growing production capacity to over 4.0 million barrels per day, increasing Nigerian content of the industry to over 70 percent and commercializing Nigerian natural gas resources to achieve economic and environmental goals.

The realization of the key aspirations and broader economic targets for the industry would depend on the outcome of commercial activities that would be driven by deep pocket investors that operate sundry exploration and production agreements with government’s Nigerian National Petroleum Corporation (NNPC) and regulators in the industry.

Then 2020 PIB evolves governance, administrative, host environment and fiscal frameworks that would rule commercial investments in the industry when it eventually scales legislative processes to emerge into an act.

Terms for commercial investments have remained the major road block for the passage of the PIB since 2008 when it was first introduced in the National Assembly where the investor groups mounted strong resistance against its legislative progress.

The bill which was the key outcome of a presidential oil industry review committee in 2000 was conceived to aggregate and upgrade the nation’s fragmented and strewn oil industry legislations into a unified reference document for industry governance.

Whereas government’s regulators and industry operators largely had little issues with the bulk of administrative and governance issues in the original PIB, the major disagreements revolved around fiscal templates that marked up taxes and sundry government’s revenue receivables from industry operations. At the center of argument were cost templates conceived to form the baselines for calculation of payments.

Fiscal disputes associated with introduction of the PIB have stalled investments in reserves growth and production uptick agenda of the government. Investments in exploration, development and oilfield activities stalled as the fiscal climate remained hazy.

With fiscal dispute between government and industry investment groups worsening as the bill lingered, erstwhile Managing Director of Seplat Petroleum Development Company (SPDC) Plc, Mr Austin Avuru, had at an industry conference in 2015 advised government to simplify passage of the nebulous bill by breaking it into smaller segments that could be passed as separate but related acts.

See also  Euro Exim Bank poised to create 5, 000 millionaires in Nigeria

Government subsequently segmented the PIB into four daughter bills, including Petroleum Industry Governance Bill (PIGB), Petroleum Industry Administrative Bill (PIAB), Petroleum Host Community Bill (PHCB) and Petroleum Industry Fiscal Bill (PIFB). The PIGB pulled through legislations but failed to get presidential assent in 2018, dashing hopes that the rest of the legislative bills could make it through to executive assent.

With the four daughter bills hitting the rocks as legislative bills, new efforts were made to reset the process. And the reconstitution of the National Assembly in 2019 to politically align with the executive, regulators recovered, reconsolidated and represented the PIB to National Assembly as one document that has the former daughter bills as chapters.

 But the OPTS and the IPPG still contend that fiscal provisions in the reworked PIB still fails to address investors’ concerns in the operating environment, warning that the PIB 2020 terms could lead to Nigeria foregoing about 30% of its deepwater production potential in 2030.

In the document which the group presented during stakeholder engagement forums, Mike Sangster contended that the current PIB 2020 does not improve the investment environment for new project investment decisions to be taken.

“By 2025, we could see a ~38% reduction in deepwater production compared to 2020 levels,” he said, adding that “over 30% of production potential could be lost by 2030.”

The projected production decline could partially be attributed to PSC assumptions, Mr Sangster stated in the document.

He argued that a competitive PIB could on the other hand unlock Nigeria’s production potential and contribute to the country’s next wave of economic growth, adding that “PIB enabled projects have the potential to create 300,000 direct and indirect jobs2 over the next 10 years.”

“With the right fiscal framework, OPTS could invest an additional ~$9 billion1 in Deepwater projects to grow oil and gas development in Nigeria with resultant benefits for the nation,” Mr Sangster stated.

The document detailed a number of demands that primarily include rollover of accumulated tax credits and allowances into new licenses at the point of conversion from oil licenses to petroleum licenses. Other demands include sanctity of existing contracts upon conversion, as well as, protection of integrated field developments that currently fall vulnerable to segregation of upstream and midstream fiscal requirements.

The group complains that promising deepwater projects would face relatively tough fiscal terms in Nigeria. It pointed out that the situation could jeopardize significant investment, risk sizable resources threaten potential increase in government’s revenue.

According to the OPTS, the 2020 PIB should also aim to address commercial and transaction constraints that create bottle-necks in the gas value chain. It called for settlement legacy debt owed to gas suppliers and an end to regulated gas pricing.

Other grievances of the group which could affect investments in growth projects, according to the document, include deepwater royalty rates, and high overall government’s take from operations output.

While stressing that the 2020 PIB failed to address issues with the most impact towards investment decisions and investor confidence, the investor groups stated in a joint document that ignoring concerns industry operators raised during stakeholder engagements would result in a huge toll on economic aspirations in the industry.

Leave a Reply

Your email address will not be published. Required fields are marked *