Concerns over PIB as competition for investment grows
The increasing global shift towards cleaner sources of energy has renewed calls for Nigeria to produce a petroleum law that is capable of attracting the badly needed investments in its oil and gas industry, ’FEMI ASU writes
As competition for capital by oil-producing countries get keener, industry experts have highlighted the need for Nigeria to pass a Petroleum Industry Bill that would provide an opportunity to position the oil industry to attract capital. They noted that the capital available globally to the oil and gas industry had been decreasing because of the increased focus on carbon management and renewables over the long term.
Early this month, the United Kingdom said it was set to end financing for oil and gas projects overseas in a move designed to help position the country as a global leader in the battle to curb climate change. The PIB, which has been in the works since 2008 when it was first introduced to the legislature, suffered setbacks in the last three legislative tenures. In September this year, the PIB 2020 was presented by the President, Major General Muhammadu Buhari (retd.), to the National Assembly for consideration.
The bill seeks to strengthen the governing institutions, establish a strong regulatory framework, ensure transparency and accountability, promote exploration and exploitation of oil resources and foster sustainable development in Nigeria’s oil and gas industry. It covers four key areas, namely governance, administration, host communities and fiscal regime.
The new PIB has scaled second reading in both the Senate and the House of Representatives, with its passage expected to happen in the first quarter of 2021. The delay in the passage of the bill has been a major drag on the industry over the years, significantly limiting its ability to attract investments at a time when many other countries are scrambling to exploit their oil and gas resources.
The Nigerian Association of Petroleum Explorationists said last month that Nigeria was at risk of long-term disruption to oil and gas supplies, power generation, a collapse of industries and significant loss of revenue due to continued reduction in hydrocarbon exploration activities. “Reduction in hydrocarbon exploration and exploitation has dire consequences for a country like Nigeria with a mono-economy hinged on crude oil,” it added.
Experts, who spoke with our correspondent in separate interviews, stressed the need to boost investor confidence in order to attract the capital needed to grow the country’s oil industry. According to them, the right PIB will ensure that total government take (i.e. tax, royalty, and share of deep-water profit oil) is kept at globally-competitive rates, and reduce the cost of doing business in Nigeria. An energy expert, Mr Bala Zakka, said the energy markets dynamics, the world and investment destinations had changed.
He said, “A lot of investors have lost interest in Nigeria because the PIB has been hanging there for more than 10 years. When investors notice that a place is not looking conducive, they will look for another investment destination. “Serious investors cannot wait for a reform taking ages; they will move their investments to comfortable destinations because they need to pay back loans and give their shareholders dividends. It is only us that think they are waiting for us.”
Zakka said many investors had left the country to invest in other destinations considered to be safer, cheaper and friendly. “Even if the PIB is passed today, you will not see the investors; it will be dead on arrival. When you look at even the investment climate, the level of insecurity is enough to scare away investors,” he added.
According to him, there is a need for a win-win relationship regarding deep-water and joint venture projects. “What we have at the moment is very discouraging to investors, especially in deep-water,” Zakka said.
Industry operators have often lamented the high security costs, significant administrative costs associated with overlapping government departments’ oversight, approval delays, and multiplicity of fees, taxes and levies.
A former Chairman, PetroAfrique Oil & Gas Limited, Mr Adams Okoene, wondered why Nigeria would expect major investments, especially in deep-water, when fiscal incentives were not attractive.
He noted that the global shift away from fossil fuels had also affected major oil investments. He said, “Nigeria needs a PIB that looks into the future and put things in place to deal with the future, not a bill that is focused on the past and the present.
“The end of the oil industry is in sight because a lot of nations are already passing laws to ban fossil fuels, and Nigeria doesn’t seem to be taking cognisance of that fact that is staring us in the face. So, a PIB that does not take account of that is not a good bill.”
The African Energy Chamber, in a recent report, emphasised the importance of favourable regulatory and fiscal environment to investment. It noted that several African countries, including Angola, Gabon, and Cameroon, had implemented reforms, adding that Nigeria could be next.