From Uche Usim, Abuja
Oil and gas analysts have described the recently-signed Petroleum Industry Act (PIA) as one that has some good offerings, but cannot address the energy transition challenges that have made it harder to fund fossil fuel projects globally.
The analysts, whose views are contained in Organisation of Petroleum Exporting Countries’ (OPEC) selected oil market related news and statements from August 27-30, further explained that the PIA cannot protect the new regulatory institutions from a predatory elite that continually interferes in government business and treats the national oil company as a patronage tool.
Wood Mackenzie, Research Director Gail Anderson said: “The Act provides for a new entity, Nigerian National Petroleum Corp.
(NNPC) Limited to be created within six months but does not specifically provide for
privatization. A clause calling for the sale of 30% of NNPC was removed in 2020. NNPC Limited
will be able to draw on numerous sources of finance, and vested interests will likely continue to fuel the expansion that has seen NNPC take control of federation assets without remuneration.
“The legislation provides few signs that the new Nigerian Upstream Regulatory Commission or the Nigerian Midstream and Downstream Petroleum Regulatory Authority will operate independently of the government. “At the end of the day, both regulators will do what they are told. The Act is also vague on what assets and liabilities will be transferred to the new Nigerian
National Petroleum Corp. (NNPC) Limited, leaving international oil companies (IOCs) in a difficult position as they trying to divest equity in the joint ventures they operate with
NNPC.
“If the liabilities ended up shifting towards the government, they would have a lot less
certainty as to how and when those liabilities would be paid back”.
He added that the timetable for assigning the assets and liabilities clashes with elections scheduled for early 2023, which suggest the complicated issues may not get the attention they need.
“NNPC’s arrears and “funding
shortfalls” with all joint ventures date back long before 2016 and are estimated to tally
$12 billion.
“The Act requires Nigeria’s petroleum and finance ministers to determine what should be
transferred within 18 months and the rest will go to the government, which will develop a framework for payment. If the ministers and the attorney general don’t decide in good time, the IOCs could end up with a different set of ministers to deal with that will drag the
process out for longer.
“The new tax regime significantly improves terms for the onshore shallow water blocks operated by the joint ventures. The catch is that Investors must control their costs more carefully due to lower cost ceilings, and those who convert to PIA terms must waive all outstanding arbitration as well as stability provisions and guarantees provided by NNPC.
“The legislation is academic for deepwater production because the production sharing
contracts (PSCs) are renegotiated bilaterally with NNPC.
“Total tax on the onshore shallow-water blocks falls to 60% — that’s 25% lower than the
current regime and at least 12% lower than rates proposed last year (PIW Oct.9’20). The new Hydrocarbon Tax, which replaces the existing Petroleum Profits Tax, will be applied at 30% alongside a 30% rate for corporate income tax.
However, the cost ceiling has been lowered to 60% and the old investment tax credit has been replaced with an allowance that is not as beneficial. The deepwater production sharing contracts (PSC) due for renegotiation are likely to follow Royal Dutch Shell’s new contract on OML 118, hosting the Bonga field. Big question is whether the ambiguities of the PIA and other factors will trap existing
investors who want out — and how sellers could surmount this”.
Another local expert who craved anonymity also expressed worry over the late passage of the Act as some of the laws are already getting obsolete and may not addressing current realities in the global oil and gas industry.