Oil giants tremble at Nigeria's oil reforms
A proposed law aimed at sweeping reforms of Nigeria’s oil sector is almost halfway through the legislative stages of approval but some of its provisions are sending jitters among giant oil
Multinational oil companies, already buckling under incessant militant attacks which have cut production by about 30% in the past three years, back the Bill regarding the streamlining of the industry’s governance and operational processes.
But they are uncomfortable with the proposed taxation regime.
The petroleum industry Bill, which went through its second reading and debate in the senate last week, is intended to overhaul the regulatory and operational systems of the industry, the lifeline of the West African powerhouse.
It plans to transform the existing joint ventures between the transnational oil firms and the state Nigeria’s National Petroleum Company (NNPC), and turn NNPC into an autonomous and internationally profitable entity.
It also wants to improve on tax collection—decoupling oil from gas taxes as well as develop a system responsive to fluctuations in oil prices so as to capture on any windfall profits.
According to leader of the Senate Teslim Folarin, the Bill is designed to “simplify the collection of oil revenue through shifting emphasis to easily collectible revenue as royalties and rents”.
In a discussion document multinationals said they back the reforms, but fear that some of the provisions of the Bill could thwart growth in the sector.
They argue that many provisions in the Bill “are unclear and open to multiple interpretations which would substantially increase investment risk, comparatively placing Nigeria at a disadvantage
for inflow of foreign investment”.
The international oil companies (IOCs) said in a document that “the new tax will decrease by half the capital investment” in the sector in the next 10 years.
“New oil and gas production will be reduced by nearly 50%, with a high proportion of new projects becoming uneconomic.
“Government economic rents will decline in the long-term and overall economic growth will be affected,” they warned.
But Nigeria’s petroleum minister of state Odein Ajumogobia says while government is open to ideas, it will not be dictated to by oil firms, but work out a mutually beneficial law.
“It’s in our country’s interest to ensure that we find a regime that works for both of us. We will not pass a law desiring to destroy our industry,” he said recently.
But the oil firms “want business as usual. We are not going to pass a law that is dictated by IOCs. We have to strike a balance”.
“The law we will pass is going to be a law based on what we consider to be in our best interest, taking into account their interest and concerns,” he added.
He said that compared to rules in other oil producing countries, Nigeria’s fiscal regime was probably too lax.
“We looked at other countries and we found that Nigeria in terms of fiscal regime is at the bottom pile. We don’t want to be at the top with the most stringent, most radical system.”
“We need a fiscal regime that would allow us to get a significant part of the upside,” said Ajumugobia.
NNPC managing director Mohammed Barkindo said if the law were passed, it would mark a turning point in the 50-year-old oil industry.
“The state of this Bill, when passed into law, is going to change the landscape of the oil and gas industry in this country,” said Barkindo.
Nigeria the world’s eighth largest crude exporter, relies on more than 90% of its export revenue from oil. - AFP