Blocking The Great Reform Bill–Africa Confidential Report

Posted: May 29, 2013 in Uncategorized

ImagePartisan wrangling and commercial manoeuvring have derailed plans to make the oil and gas industry more efficient and accountable

Efforts towards comprehensive reform of Nigeria’s oil and gas industry are in tatters some five years after the first version of the Petroleum Industry Bill was presented to Parliament. After several redrafts, the PIB is still on the floor of the National Assembly and at the centre of partisan disputes, as parliamentarians pick over clauses which they claim favour one region of the country over another.Meanwhile, well connected companies and officials continue to benefit from an opaque system of management and operation that has allowed as much as US$100 billion to be siphoned off from state oil and gas revenue over the past decade, according to a report drawn up by the former anti-corruption czar, Nuhu Ribadu (AC Vol 53 No 9).

The failure to pass the reforms mooted in the PIB, which was intended to boost accountability and state revenue from exports, has developmental as well as financial costs. Nigeria has been unable to conduct a licensing round to award new blocks since 2007 because of uncertainties about new regulations and fiscal terms. This has limited new investment, raising the possibility that production capacity, which has been fixed at around 2.5 million barrels per day for a decade, could start to fall in the next few years.

Oil companies are now looking to new fields for exploration acreage in countries such as Mozambique and Tanzania in the east and Liberia and Sierra Leone in the west. Ambitious plans for gas processing and exports from Brass and Olokola have been overtaken by more rapid development of discoveries and processing facilities in Australia and Indonesia. Technical advances such as the exploitation of shale gas and the controversial fracking (hydraulic fracturing) mean that the United States, which was formerly seen as a key market for Nigeria’s gas, is now set to become a net gas exporter.

In 2008, when the then Petroleum Minister, Rilwanu Lukman, presented the first version of the PIB to the National Assembly, he said the reforms would end the corruption, inertia and incompetence of the oil and gas industry and bring in a commercially driven structure that would boost investment and production. The petroleum bill would also, he promised, offer incentives for the companies, the state and oil-producing communities.

Imposing accountability
Lukman’s plan was to replace an unwieldy portfolio of sometimes contradictory legislation with a single framework that would create a national oil company obliged to raise finance from the markets rather than the state. That would, the theory went, impose an obligation of accountability on the industry’s operations because investors would demand accurate disclosure about financing, production and revenue. Also, the new laws were to strengthen incentives for local involvement and processing of oil and, in particular, gas. Finally, they would tighten terms agreed with international oil companies for deep-water fields in the 1990s, when oil prices were lower and technology more basic.

The obstruction of the PIB has an immediate financial cost to the government. No licence awards mean no signature bonuses. Sometimes those bonuses were worth over $100 mn., simply for the right to operate a block. They represent an additional revenue source and create patronage opportunities for the Presidency among the competing local companies.

Uncertainty about the oil and gas reforms has also undermined President Goodluck Jonathan’s attempts to fix the legendarily inefficient electric power sector. The aim is to double current output of 5,000 megawatts before the next national elections in 2015. Raising output will depend critically on a $20 bn. plan for new power stations that use untapped reserves of natural gas. That means the industry reforms have to go through and a new pricing tariff must be agreed.

The lack of new oil and gas production has drawn attention to rackets such as the subsidy regime on imported petroleum products. Major problems dogged the management of the sale of assets by Shell, Total and Agip, under which the Nigerian National Petroleum Corporation recovered operating rights but then negotiated several agreements with newly formed companies with little technical capability.

The subsidy controversy has already claimed a scalp, that of Farouk Lawan, the House of Representatives Ad Hoc Committee Chairman (AC Vol 53 No 14). He was charged with corruption in February for accepting bribes to remove Femi Otedola’s Zenon oil trading company from scrutiny. Federal officials used Otedola to set up a sting to catch Lawan, who nevertheless protests his innocence. Well-connected oil traders facing investigation by the National Assembly include the son of Bamanga Tukur, the embattled Chairman of the governing People’s Democratic Party (AC Vol 53 No 7).

Oil minister outmanoeuvred
The handling of the Shell sales and the associated Strategic Alliance Agreements with Atlantic Energy are the subject of a new Senate inquiry under the Chairman of the Petroleum Upstream Committee, Emmanuel Paulker Izibefien, from Bayelsa State. Atlantic was apparently set up for the purpose and controlled by veteran contractor and intermediary Bashorun Jide Omokore, an associate of Oil Minister Diezani Alison-Madueke.

Supporters of Alison-Madueke say the arrest of those charged with fraudulent subsidy claims shows the system is working. They also insist the charges of impropriety in relation to the Atlantic Energy contracts are old and without substance, generated by opponents trying to embarrass the Minister. Abuja is buzzing with speculation that President Jonathan is planning a reshuffle on 29 May, midway through his four-year term.

Alison-Madueke, the longest serving member of the Federal Executive Council, is also Jonathan’s closest ally in government and, like him, she hails from Bayelsa. Jonathan’s predecessor, the late President Umaru Musa Yar’Adua, made her Minister of Works in 2007, then Minister of Solid Minerals before she took the Oil portfolio in 2010. Her many critics say that, although Alison-Madueke is a former Shell executive, she has a poor governance record at the ministry. Her closeness to Jonathan makes her unsackable, they add.

Despite repeatedly promising to get the PIB through the Assembly, Alison-Madueke has been outmanoeuvred by members of parliament. Due to the failure to pass the reform bill, the Ministry has been obliged to agree a series of interim deals with ExxonMobil. It is also stuck in negotiation with other international companies to renew leases for existing joint ventures.

International oil companies initially backed the reform plan but now they are among the most vigorous opponents of the PIB. They want the government to excise key clauses on fiscal terms, rates at which under-explored acreage should be relinquished and terms under which companies should be able to recover investment in new discoveries before sharing the profits with the state.

The companies say adjustments to existing legislation may prove simpler than trying to move forward with a flagship Bill. With clarity over investment terms, the companies argue that Nigeria would be able to bring in substantial new investment without stifling debate on some of the political issues in the industry.

Officials at the Ministry are chary of such proposals, which would signal the end of the PIB. They say they will continue to push for the adoption of the Bill in its current form before the end of this Assembly session in July.

The target is ambitious: several northern legislators have complained that the plans for a proposed Communities Fund that allocates 10% of net profits from oil production to the producing states amounts to an additional distortion of federal character. However, officials in the Presidency say that abandoning the idea of the fund would generate fresh tension in the already volatile Niger Delta.

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