PIB Shocker! Nigeria Risks Additional 875,000 b/d Production Capacity, $100b In New Investments

Refinery
Refinery

By Akanimo Sampson

Final Investment Decisions (FID) on some key offshore oil projects in Nigeria have been delayed because of the failure of the Legislative arm of the Federal Government to pass the Petroleum Industry Bill (PIB) which has been in the works for at least 15 years.

The offshore projects are expected to create an additional production capacity of 875,000 b/d and hopefully attract around $100 billion in new investments.

The projects include: Shell’s Bonga and Southwest Aparo which is expected to add 225,000 b/d; and Bonga North (100,000 b/d); Eni’s Zabazaba-Etan (120,000 b/d); Chevron’s Nsiko (100,000b/d); ExxonMobil’s Bosi (140,000 b/d); Satellite Field Development Phase Two (80,000 b/d); and Ude (110,000b/d).

However, the National Assembly has been promising that the PIB will be passed and signed into law by May. But, this may come just when the International Oil Corporations (IOCs) are reconsidering their investments.

Already, Menas Associates, a consultancy firm that is helping multinational companies operate in the Middle East, Africa, and other emerging markets since the late 1970s, says a recent consultancy report noted that oil majors are shifting attention to projects that will yield returns within four years instead of long-term projects.

Disturbingly, “none of Nigeria’s delayed projects will produce a return within that period’’, Menas Associates said. Menas is also a strategic and political risk consultancy that provides actionable intelligence for its clients, from country entry strategies, to due diligence, stakeholder analysis, political risk reports, market assessments, problem-solving and exit strategies.

On Wednesday, Ahmad Lawan, Senate President, however, said that the National Assembly has commenced consultation with the Executive arm of government on a new version of the controversial PIB to be introduced in the ninth National Assembly.

Going by the current global reality, it appears concerns about climate change and the emphasis on gas as a relatively clean transition fuel, following significant switches from coal to gas in power generation and increasing adoption in the industrial sector, will also drive investment decisions on major projects this 2020.

Analysts say this could be another drawback for Nigeria which, despite its abundant natural gas reserves, has a poor regulatory environment that has ensured that they have remained largely untapped.

“A lot will depend on what the final PIB that comes from the National Assembly looks like. Members have not said if they will adopt the same approach as the last assembly — which broke the bill into four sections and decided to pass each as a different bill — or if they would attempt to pass an omnibus bill that tries to cover all of its aspects.

“Whatever approach they decide the fiscal aspect of the bill will be a key determinant of future investment inflow. The oil majors were uncomfortable with some of the fiscal provision in the draft bill that was under consideration in the last national assembly that ended in 2019 because some of the terms were unfavourable to making profitable investments in the sector.

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“Nigeria is currently even more determined to increase oil sector revenues because it is struggling with a declining tax base and increasing expenditure. This means that the government may adopt a more negative approach in the new bill and aim to squeeze more money from the IOCs which will jeopardise future investments.

“The government has already shown this intention with the amendment of the Production Sharing Contract Act to grab more revenues from oil companies and the imposition of additional taxes on oil production. The expectation is that the new PIB will come with fewer incentives and more taxes.

“Incentives are required to boost oil production at a time when the oil sector is losing its charm. Despite this Nigeria’s cash constraints mean that the government is less amenable to reason and patient regulation for future returns. This could mean that there is less chance that oil production will expand in future and there is a high risk of its starting to decline within the next four years,’’ Menas Associates said.

In the meantime, Lawan, announced this at a meeting with representatives of the International Monetary Fund (IMF), in his office at the National Assembly, Abuja, that the 9th Assembly was determined to see to the eventual passage of the Bill which defied passage into law since 2007, by devising a strategy of constant interaction and collaboration between the executive and legislative arms of government.

The Senate President also said that the interface between both arms will birth a new PIB to be drafted from scratch, and which would be passed by the National Assembly and assented to by the President before the end of the year.

According to him, “going forward, the PIB as referred to, has defied passage over the years since 2007. In 2011, there was another effort by the government, that bill was not passed as well. In 2015, there was a legislative effort and the PIGB was passed eventually, but at the end of the day, it was not signed.

“So, we came up with a new idea in the 8th National Assembly, that the fact that the Executive tried by drafting a bill and bringing it here for two tenures, then the legislature tried to do it on its own, none saw the light of the day.

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“This time around, we should actually interact and collaborate more even before the bill is born. Let the Petroleum Industry bill be one of the Executive and Legislature, and that means starting to work on the bill from scratch between both arms of government.”

“We are in consultation already, and by the time that we are able to fashion out the bill, our committees will swing into action. We believe that this time around, the 9th National Assembly will break the jinx and should be able to pass the PIB.’’

Adding, Lawan said that the economy will get a boost when the federal legislators pass the PIB before the end of the year and is signed into law, and on the relationship between the International body and Nigeria, he said IMF has been a friend of Nigeria for a long time.

“Nigeria needs IMF, we are not contesting this. We have our own challenges and have to borrow resources to implement, particularly the capital part of our budget. So, we always prioritize our budget to reflect our infrastructural needs. We want you to always be there to support us, we believe that you can give us advise that will help our economy,’’ he said.

He then appealed to IMF to support committees of the National Assembly in the area of capacity building for legislators, pointing out that such support to relevant finance committees will assist in the discharge of oversight functions and guarantee prudence and efficiency on the part of Ministries, Departments and Agencies of government.

According to Lawan, “the fact that the National Assembly is critical to the development of this country means that you should help us build our capacities. Members of the finance committee should be able to have more capacities to discharge their responsibilities, and also when they engage Ministry of Finance or the financial institutions, they should be able to have very solid platform to exercise oversight critically to ensuring there is prudence and efficiency.’’

On the IMF delegation were Amine Mati, Senior Resident Representative Mission Chief for Nigeria; Jesmine Raman; Zainab Mangga; Nanrup Ibrahim; Osana Odonye; and Harrison Okafor.