Friday 5 December 2014
Nathan Sogo: Petroleum Industry Bill…The Best Candidate for 2015
The petroleum industry is the life of the Nigerian economy, official records from the budget of the Federal Republic of Nigeria, shows that the petroleum industry accounted for about 29.1% of GDP and 78% of total government revenues through fiscal year 2012.
In the last fifteen quarters,
contribution of the oil sector to national output has continued to
decline. The evolving global energy market dynamics suggest an urgent
need to take a sober look at the Nigerian oil and gas subsector in
particular and the energy sector in general. This is essential, given
the importance of the sector to the Nigeria economy. Despite the
declining contribution to the nation’s Gross Domestic Product (GDP)
–currently at 13.42%, the extreme dependence of government finances and
external trade balances on proceeds from the sector exposes the nation
to significant risks from oil price and production shocks.
The PETROLEUM INDUSTRY BILL 2012 is a
223 page document with 362 sections and 5 schedules. The Bill is divided
into 9 parts, which proposes to cover the entire spectrum of the oil
and gas industry. The PIB seeks to establish a legal, fiscal and
regulatory framework for the petroleum industry in Nigeria in order to
rejuvenate the sector which experts believed has been stagnant for many
decades.
Background to the Bill
The PETROLEUM INDUSTRY BILL 2012 is the culmination of several years of efforts at industry reform. The process began under President Obasanjo in 2000, with the establishment of the Oil and Gas Implementation Committee (“OGIC”). OGIC issued a report and policy document, which was later approved by the Yaradua government and resulted in the Petroleum Industry Bill 2008 being forwarded to the 6th National Assembly. The Petroleum Industry Bill 2008 went through several redrafts including a wholesale amendment by the executive arm of the government (the Interagency Team Draft) but ultimately failed to pass during the 6th National Assembly.
The PETROLEUM INDUSTRY BILL 2012 is the culmination of several years of efforts at industry reform. The process began under President Obasanjo in 2000, with the establishment of the Oil and Gas Implementation Committee (“OGIC”). OGIC issued a report and policy document, which was later approved by the Yaradua government and resulted in the Petroleum Industry Bill 2008 being forwarded to the 6th National Assembly. The Petroleum Industry Bill 2008 went through several redrafts including a wholesale amendment by the executive arm of the government (the Interagency Team Draft) but ultimately failed to pass during the 6th National Assembly.
Fundamental Objectives
•Vests Oil & Gas resources in the sovereign State of Nigeria.
•Separates policy, regulation and commercial activities
•Licenses, leases and permits granted only through guided procedures established by the Act.
•Any company shall apply and be granted leases, permits in accordance with the PIB.
•Management and allocation of petroleum resources in accordance with the principles of good governance, transparency, and to promote sustainable development and economic value to Nigeria.
•Guarantees government participation in licenses or leases and in the exploitation of natural gas..
•Honor international environmental provisions and obligations.
•Encourages community relations and the development of Nigerian Content.
•Vests Oil & Gas resources in the sovereign State of Nigeria.
•Separates policy, regulation and commercial activities
•Licenses, leases and permits granted only through guided procedures established by the Act.
•Any company shall apply and be granted leases, permits in accordance with the PIB.
•Management and allocation of petroleum resources in accordance with the principles of good governance, transparency, and to promote sustainable development and economic value to Nigeria.
•Guarantees government participation in licenses or leases and in the exploitation of natural gas..
•Honor international environmental provisions and obligations.
•Encourages community relations and the development of Nigerian Content.
Economic Benefit of PIB
Nigeria’s annualized real GDP growth forecast averaged 7.5% in 2010 and continues to maintain this momentum into 2015 barring any major unforeseen circumstances. Also, oil demand was expected to rise by an estimated 288,000b/d in 2010 to 395,000b/d in 2015, representing 6-7% average annual growth rate. Nigeria’s oil revenue has been on the exponential climb as the prices of crude oil have continued to surge giving the country a range of 55% to 60% over and above the 2011 budget benchmark price of $65.
Nigeria’s annualized real GDP growth forecast averaged 7.5% in 2010 and continues to maintain this momentum into 2015 barring any major unforeseen circumstances. Also, oil demand was expected to rise by an estimated 288,000b/d in 2010 to 395,000b/d in 2015, representing 6-7% average annual growth rate. Nigeria’s oil revenue has been on the exponential climb as the prices of crude oil have continued to surge giving the country a range of 55% to 60% over and above the 2011 budget benchmark price of $65.
According to the National Bureau of
Statistics, revenue from oil exports rose by 46% to $59billion in 2010
as prices increased and companies raised output on improved security in
the Niger Delta. Nigeria earned $196 billion from oil and gas exports in
the four years up to 2010 with oil revenue accounting for 80% of
government income and 95% of foreign exchange income between 2010 and
2020, it is projected that there will be a cumulative growth of 49.6% in
Nigerian oil and gas liquids production, with volumes rising steadily
to 3.5 million b/d by the end of the 10-year forecast period. Oil
consumption is set to increase by 96.6%, with growth slowing to an
assumed 7.5% per annum towards the end of the period and the country
using 567,000b/d by 2020. Gas production is expected to rise to 80
billion cubic meters by the end of the period. With demand rising by
246% between 2010 and 2020, export potentials should increase to 35
billion cubic meters, largely in the form of liquified natural gas.
Despite federal government’s receipt of
about 95% of accruing oil revenue after costs, an estimated 70% of the
150 million residents in Nigeria live below the poverty line with the
attending social and environmental consequences. The proposed PIB seeks
to enhance the drive to reduce the pervasive unemployment scourge while
spreading the oil wealth more equitably through establishing linkages
between the petroleum industry and other critical sectors of the Nigeria
economy.
In line with global best practices, it
will create better room for environmental protection of the Niger Delta,
and stiff sanctions for defaulters – oil spillage, deforestation etc.
No doubt, government revenues will see a massive boost from the various
taxes that will accrue to government coffers, especially from the
following sources: Joint Venture Cash Calls Royalty, Petroleum Profit
Tax, Rent, NNPC earnings from crude oil sales, proceeds from domestic
market, and penalty from gas flared, pipeline licenses and other fees,
excise and VAT on domestic crude. Hopefully, with transparent dealings
by all concerned, the $6billion theft of crude oil in the country will
be checkmated.
Necessary skills set will find their place in the oil and gas industry. It will be illegal for foreigners to contend with Nigerians for the same job positions. They will be under studied by local counterparts for necessary skills transfer and materials sourcing this will create more jobs will be created for Nigerian contractors especially in the oil producing states to fully address the long years of maximum neglect they have suffered through lopsided political actions. It is often said that Nigeria has more gas than oil. The future of gas in the country will find expression through the massive investment that will flow to the gas utilization sector, fully maximizing its use in homes, and boosting the power sector as well. The heady subsidy scheme that has become a racket for saboteurs will go with full deregulation and liberalization of the downstream sector.
Necessary skills set will find their place in the oil and gas industry. It will be illegal for foreigners to contend with Nigerians for the same job positions. They will be under studied by local counterparts for necessary skills transfer and materials sourcing this will create more jobs will be created for Nigerian contractors especially in the oil producing states to fully address the long years of maximum neglect they have suffered through lopsided political actions. It is often said that Nigeria has more gas than oil. The future of gas in the country will find expression through the massive investment that will flow to the gas utilization sector, fully maximizing its use in homes, and boosting the power sector as well. The heady subsidy scheme that has become a racket for saboteurs will go with full deregulation and liberalization of the downstream sector.
Conclusion
The continued delay in the passage of the PIB was responsible for the large scale abuses and illegalities being witnessed in the nation’s oil sector? Yet those who should put pressure on the National Assembly over the fate of this all important bill could best be said to have expressed mere casual interest or at worst curious indifference. The relentless crude oil export decline, which has already savaged the budgets of Federal, States and Local Governments in 2014, will increase the economic hardship being experienced now and might reduce GDP growth next year. Even at the projected 5.8% for 2014, few new jobs have been generated relative to the volume of job seekers turned out by our schools annually. Slower growth will certainly exacerbate the intractable situation with respect to mass unemployment particularly among the youths.
The continued delay in the passage of the PIB was responsible for the large scale abuses and illegalities being witnessed in the nation’s oil sector? Yet those who should put pressure on the National Assembly over the fate of this all important bill could best be said to have expressed mere casual interest or at worst curious indifference. The relentless crude oil export decline, which has already savaged the budgets of Federal, States and Local Governments in 2014, will increase the economic hardship being experienced now and might reduce GDP growth next year. Even at the projected 5.8% for 2014, few new jobs have been generated relative to the volume of job seekers turned out by our schools annually. Slower growth will certainly exacerbate the intractable situation with respect to mass unemployment particularly among the youths.
I pray and hope that PIB will be voted in come 2015 before any GEJ, GMB, AA.
Photo Credit: Dreamstime | Miriam Doerr
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