-By Fred Ojiegbe
Experts in the oil and gas industry have warned that failure of urgent passage of the petroleum industry bill, PIB, portends dire consequences for Nigeria’s oil and gas industry.
Speaking at the just concluded media engagement session on the PIB, David Ige, Chief Executive Officer, CEO, GasInvest stated that the PIB must address the peculiarities of the time given the fact that the International Oil Companies, IOCs, are transitioning into renewable and power. Speaking specifically on the gas sub-sector, Ige explained that provisions of the bill must provide sufficient incentives to allow the market to grow. He said, “There is a lot of anti-competitive behaviour hindering the growth of the gas market. Nigeria should have a structurally competitive upstream gas sector. “You cannot have a fully competitive gas market without a competent regulator to drive it to full liberalisation. “The law must provide sufficient legislative incentives to allow the market to grow at the rate it was projected to grow.” Explaining the fiscals aspect of the PIB and the implications for the upstream gas, Ige stated that the fiscals at present do not encourage upstream gas development. Though he identified that lease administration may stimulate bid rounds, likely oil majors may not show interest, while international independents may or may not show interest. According to him, there will be likely consolidation of local independents in the upstream, as there will likely be more of the current situation – low to modest growth in the upstream gas activity.
Drawing attention to the Nigeria Gas Master Plan conceptualized in 2005, Ige said it was initiated to make the gas sector among the top five in Africa by deepening gas utilisation in the country. “Unfortunately, the delay in the passage of the PIB which could have provided a clear fiscal framework to attract investors, stalled the implementation of the plan,” he said. According to him, with over 200 trillion cubic feet, TCF of proven gas reserves, Nigeria has the potential of becoming a gas-based industrialised nation if the right policies and infrastructure are put in place.
Also speaking, Omowumi Iledare, Professor of Economics and Director, African Region, Society of Petroleum Engineers International, Dallas, United States of America, harped on the need for the timely passage of the PIB to elicit confidence in the nation’s oil and gas industry and attract the much needed investment. Iledare, who is also Professor Emeritus, Louisiana State University Energy Studies, Baton Rouge, Louisiana, USA, observed that the proposed incentives in PIB 2020 show a clear departure from the traditional effort-based incentives, ITA/ITC, to the more modern output-based incentives in the form of production allowance, generous capital allowance and cost management. “Worldwide, fiscal systems are designed to encourage substantial and progressive investment in the industry, while balancing rewards with risk and enhancing revenues to the host government, based on mutuality of interests”, he said. He also observed that the existing fiscal components and other fiscal laws in Nigeria may not necessarily attract investors, except the ongoing reforms in the PIB 2020 fiscals are appropriately completed. According to him, “The existing fiscal components and fiscal laws in Nigeria may not necessarily attract investors except the ongoing reforms in the PIB 2020 fiscals are appropriately completed. “The proposed dual tax system, may result in a lower effective tax rate than the existing single tax rate and may improve international perception of Nigeria’s fiscal competitiveness complimenting its highly geologic prospects. “It would seem that the important fiscal regime levers, such as royalty, profit split, cost recovery limit and taxation mechanism in PIB 2020 are based on core principles of fiscal rules of general applications.” Iledare however observed that “a vital component of reforms to promote competitiveness and attractiveness for Nigeria’s fiscal regime has been noticeably complemented with clearly defined roles for institutional organs of government – policy, commercial and regulatory.”
For Bello Rabiu, former Group Executive Director and Chief Operating Officer, Upstream, Nigerian National Petroleum Corporation, NNPC, the full deregulation of the downstream petroleum sector as espoused in the PIB 2020 is a critical National economic and strategic endeavour that requires the support and cooperation of all stakeholders to implement. He said; “All hands should therefore be on deck to ensure the attainment of a transparent, competitive, efficient, and sustainable liberalized downstream petroleum sector in Nigeria.” Proffering a short term solution, Rabiu urged the Central Bank of Nigeria, CBN, to provide unfettered access to foreign exchange at the official rates to genuine importers, while calling on the regulators to allow market forces determine the price of petroleum products and services in the medium to long term. “There is need to encourage competition. He said certain charges should be removed from the Petroleum Products Pricing Regulatory Agency, PPPRA template. In establishing the true cost of importation of products, PPPRA should resume the publication of key elements of its templates such as FOB Costs and FOREX rates. If NNPC remains a sole importer of PMS, the total cost of importing the product should be publicly disclosed and the imported product should be shared to all eligible wholesalers at cost. NPSC should be repositioned and adequately funded to operate as a neutral entity. “To minimize actual cost of importation, government should carry out a benchmark audit on the current Direct Sale, Direct Purchase, DSDP, arrangement to determine if it is still cheaper than cost incurred by other Oil Marketing Companies, OMCs,” he said. Giving hint on the medium term expectations, Rabiu stated that there is also need to increase the port capacity so as to receive liquid fuels in greater quantities, increase the speed of discharge, as well as increase fuel storage capacity, while enabling cheaper movement of petroleum products (by pipeline or rail rather than road transport). “Passing the PIB into law and ensuring it is not ambiguous and clearly states that the regulatory Authority has no power to set prices with respect to petroleum products and must distinguish this from the power of authority to develop and enforce tariff methodologies for regulated activities”.
“The regulator should no longer play a role in fixing prices and setting price ceilings. Under a deregulated regime, focus of the regulator, working with the competition regulator is to ensure that industry players are not involved in anti-competitive practices such as collusion and abuse of market share in establishing prices of petroleum products”. As regards the long term, Rabiu maintained that effective operation of network of pipelines and depots will depend on the continuous operations of the four refineries. He said, “The decision to privatize or enter concessions with respect to the assets is a strategic one based on what the government perceives its future role in the sector to be and the market appetite for partnership with the Government. The recent pronouncement from the National Assembly that the Government Plans to engage Strategic investors this year with majority equity of 51 per cent is a welcome development. Strengthening of the Competition Commission by ensuring it includes close monitoring of market behaviour and using the Competition Law framework to ensure fair competition within the deregulated industry”, he added.