PIB? Which PIB?

One of the casualties of the misgovernance of the last few years is the Petroleum Industry Bill, or PIB, as it is now widely known. Work on this governance tool started exactly fifteen years ago this April when the government of then President Olusegun Obasanjo commissioned two committees with parallel but convergent tasks of looking into and articulating ideas on sectoral reform of the oil and gas industry. The first committee, the Oil and Gas Sector Reform Committee (OGSRC), was chaired by his Vice-President, Alhaji Atiku Abubakar, and the second committee, the National Committee on Oil & Gas Policy (NCOGP) was headed by Dr. Bright Okogu, who was an energy economist at the Organisation of Petroleum Exporting Countries, OPEC.

The Oil & Gas Implementation Committee (OGIC), headed by Obasanjo’s Special Adviser on Petroleum and Energy Matters, Dr. Edmund Daukoru, was later inaugurated to formulate reform policies based on the recommendation of the two earlier committees. 

The three committees paraded technocrats that were amongst the best  Nigeria has produced in their various fields. Professionals including the late Dr. Rilwanu Lukman, Dr. Edmund Daukoru, Dr. Bright Okogu, Dr. Mohammed Ibrahim, Professor Nuhu Obaje, Mr. Chamberlain Oyibo, Miss Sena Anthony, etc, were brought together to look into various sub-sectors of the industry.

The games commenced in December 2008 when the work of OGIC, now a legislative bill, was forwarded to the national assembly for debate and eventual assent. Voices of understandable regional positions and business interests shouted louder and drowned those of national interest.

Since the original bill was presented to the national assembly it has under gone various official and unofficial revisions. At one point there was even a fake version of the bill circulating in the national assembly and the lawmakers were confused as to what or which bill was being discussed. 

Due to such confusion and the distractions of the 2011 general elections deliberations on the bill were suspended until after the elections. Once the elections were out of the way, the out-going Minister of Petroleum Resources, Mrs. Diezani Allison-Madueke, inaugurated a task force chaired by Sen. Udo Udoma to draft a ‘harmonized’ version of the bill from the various versions that were then in circulation. On July 18th 2012, the latest version was presented to the legislature for renewed cogitation.

That a need is found to re-assess the proposed legislation is nothing out of the ordinary. After all there are instances where even bills that have already become law were re-assessed and amended in light of new information. The difference in this case is that other contending interests that are perceived by the collective to be far from wholesome for the nation were given prominence by a pliable executive and legislative arm of government. Instead of the PIB to be seen as what will eventually reform the issues in the industry, it became the issue.

The highlights in the ‘harmonized’ version of the bill are mostly the same as those in the original version. The difference is in the specific legislation on the issues under those highlights and also the elevation of some provisions of the bill to higher prominence over others. 

In case we forgot, the main focus of the reform bill as penned by the first drafters, in broad strokes, include:

The unbundling and commercialisation of the national oil company, the NNPC;

The transformation of the existing joint ventures between the Nigerian state and the various international E & P companies;

The increase in the benefits accruing to the nation through the introduction of a new fiscal regime;

The promotion of openness and transparency in the industry;

The promotion of local value addition through Nigerian Content;

The deregulation of the downstream sector of the industry; and, 

The creation of new regulatory bodies.

It became apparent from the above that powerful interests would be affected by some features of the PIB. So, understandably, the guardians of these interests would seek for ways to mitigate or eliminate any potential damage to them or their principals. These guardians range from the international oil and gas companies, or IOCs, unhappy with almost all the aspects of the fiscal regime that the bill proposes to indigenous oil producing communities who see the PIB as an opportunity to correct an environmental injustice and extract some compensation from the centre. 

At one point, the most heated debate was centred around Sections 125 - 127 of the bill which deals with the issue of the Petroleum Host Community Fund (PHCF). Here, a tug-of-war ensued between the non-oil producing states who believe the oil states are already getting too much considering the 13% revenue derivation formula and the oil producing states who see that particular legislation as a legitimate compensation for the environmental degradation brought about by the economic activities in their domains.

But the most strident complain came from the IOCs who are not happy with the bill on so many fronts - most important of which is their calculation that the PIB’s fiscal provisions make 87% and 100% of new joint venture gas and deepwater PSC investments respectively unviable even at a $80/barrel oil and 15% rate of return - which is the minimum rate at which projects stand a chance of attracting funding.

Their other worries range from what they see as the PIB’s lack of clarity on key terms, such as how future JV obligations will be funded, to the unsettling scenario where key variables in any upstream investment calculations such as royalties, fees and penalties can be changed arbitrarily by the government. They are also unhappy that the bill seek to not only introduce these game-changing regulations to new investments but it also aims to revise existing projects to bring them in line with the new regulations with total disregard to the sanctity of contracts and funds already invested.

Further to that, a wholesale transformation of the industry with no clearly defined transition plan is but a recipe for large scale confusion, in their opinion. 

Meanwhile, as the proverbial grass suffers where two elephants fight, inward investments into the sector dipped and stagnated. This unhealthy trend for the economy and the nation’s upstream ambition has everything to do with the uncertainty occasioned by the delay in passing the bill. It was estimated by industry insiders that since the squabbles started Nigeria lost a colossal $40B in inward investments due to this uncertainty. The bottom line is that although Nigeria remains a competitive (or borderline competitive, according to the IOCs) oil & gas investment destination, that competitiveness is eroded by the slightest infusion of unwarranted risk. To put it bluntly, no matter how welcoming the investment environment may be, a hugely capital intensive and risky business such as oil and gas exploration and production which already has its own inherent uncertainties to deal with would rather not have to contend with any additional precariousness.

Whatever one’s position may be on the bill the fact remains that the delay in passing it has hamstrung the great leap forward of the Nigerian energy industry - a leap that should be led from the front by a transformed and refocussed national oil company a là the Petronases and Petrobrases of this world.

In its first statement after the recent presidential elections, Wood Mackenzie, the powerful energy consulting firm that has been keeping a close eye on the bill, suggested a redraft of the PIB. Considering the dissimilarities between the original and the ‘harmonized’ version of the document, one is inclined to agree with them. But care has to be taken here that the process does not degenerate into another time consuming venture. Or a talk shop that adds nothing of substance to the final document.

Few stakeholders, apart from the Nigerian Extractive Industries Transparency Initiative, or NEITI, were agitating for those provisions in the bill that are unselfish and for the common good such as increased transparency or the deepening of the gains of the Nigerian content initiative. So a pertinent issue that the bill needs to address - also in light of new realities - is the need to open up the linkages between the petroleum sector, the most technologically driven in the national economy, and the rest of the economy in the arena of technology  and knowledge transfer. One has mentioned so many times on this column and in other fora that Nigeria’s technological uplift is best achieved when other sectors of the economy, from agriculture to manufacturing, are positioned to access and benefit for knowledge, technologies and systems that are commonplace in the oil and gas industry.

If redrafting the PIB is ever considered by the incoming administration then care must be taken to avoid introducing policies, no matter how well-intentioned, that could unsettle an industry that is already suffering from depressed revenues and competition for investments. Further to that, if possible, the fiscal reform provisions of the bill should be taken out, revised in light of new revenue realities and  expedited through the legislative process so that investors can have a clearer picture of the nation’s oil & gas investment position. The rest of the bill, which is bound to elicit more elongated and raucous debate, can then be put through the normal legislative process.

The oil and gas industry, anywhere in the world, is as dynamic as it is sensitive to uncertainty. A case in point is that of the rise in prominence of tight formation hydrocarbons, such as shale oil/gas, and the subsequent crashing of the price of oil. Coincidentally, as I write this, news just hit the wires that a local UK firm, UK Oil & Gas Investments, has just discovered nearly a hundred billion barrels of shale oil in the Kent countryside near Gatwick Airport, just outside London. Back in 2008 when the PIB was  initially presented to the national assembly this scenario was not factor because the rush for shale hydrocarbons was either non-existent or in the distant horizon. But it is now a reality that has pushed the price of a barrel of oil way below the amount used in investment modelling for the PIB.

Additionally, in the fifteen years since Nigeria has been working on the bill newly-minted west African oil states have emerged and are chasing investment dollars from the same international oil and gas operators as Nigeria. The point here is that any week, month or year wasted dragging our collective feet on this is more likely to be disadvantageous to the Nigerian commonwealth.

Nigeria’s target of increasing its daily production to 4 million barrels of oil per day from the current 2.37 million barrels by 2020 is hampered by many factors such as under-investment in the deepwater end, under utilisation of marginal acreages and oil theft. In addition to that, the country also expects to have a fully deregulated downstream industry and also enhance Nigerian local content to each link of the oil & gas value chain. A strategic positioning of the sector to achieve these goals is required and should start with the passage of a fair, comprehensive and workable PIB.

The in-coming leadership, headed by someone who was once intimately involved with the industry at the highest level, is expected to see beyond the smoke and mirrors and give Nigerians a bill that will be both a path and a light to the hydrocarbons sector. At the end of the day, Nigerians are not only eager to know when we shall be getting a PIB but equally anxious to see which PIB we shall be getting. We wait in the hope that a people-centred executive and legislative arm of government will see beyond narrow sectional, personal and business interests and give Nigerians a Petroleum Industry Bill worth its name. 

Doing that would surely be a CHANGE from the way things were done until recently!