On Monday, Nigeria’s Senate President Ahmad Lawan said “our expectation is that we’ll pass the PIB within this month of June.”
“I’m sure that at the end of the day, the National Assembly will give this country the kind of legal framework to regulate the oil industry… Companies will be able to attract more funds to this sector, because it’s going to be very profitable,” Lawan said at the Nigeria International Petroleum Summit (NIPS) in Abuja.
“We need a competitive environment that will not only retain businesses in Nigeria, but also attract [those] from other climes… I want to assure you all that the final product of the PIB will ensure a win-win situation for everyone,” he said.
Waiting to see
Last month, Nigeria’s minister of state for petroleum resources, Timipre Sylva, told journalists: “PIB is fully on course and we are very happy because we have focused on that for a long time and we had many meetings…. The National Assembly has given a timeline… We are hopeful that between now and June, they will pass the PIB.”
We are losing time. There is a global energy transition in full flow. The shift away from fossil fuel is supported by very strong political will, and risk capital is following suit.
However, oil majors do not appear to be sold on the idea that the bill will be passed this month. And according to them, the delay could make the legislation irrelevant by the time it is eventually signed.
“Everyone one of us is talking about PIB. We’ve got the commitment that it will come up in June; we’ve heard that before and we are waiting to see,” Bayo Ojulari, managing director of the Nigerian unit of Royal Dutch Shell said during the oil conference on Wednesday.
“The most important thing is [that] for every month and every week that we delay, the investment fund is moving somewhere else. If we pass the PIB today, is it going to be consistent with today’s dynamics around energy transition? I think it’s important to pass the PIB but all of us need to think about how we implement it to ensure that the energy transition does not make the PIB obsolete the day it’s passed,” Ojulari said.
Oil majors are right to be skeptical over whether the PIB will be passed, said Joachim McEbong, senior analyst at SBM intelligence. “They have heard similar assurances before. We must never forget that this PIB journey began in the early 2000s, and is one of the examples of how long reform can take in Nigeria.
“But there is another layer to this. The IOCs are gradually moving away from the country, not just because of the issues with the business environment and dealing with host communities, but because of the gradual shift away from fossil fuels in the West. It is not that fossil fuels will stop being used, rather, some of the largest consumers of these fuels are slowly shifting their economies. Nigeria has successfully wasted about 20 years and two oil booms due to inaction,” he said.
The delay is preventing contractors (who have been hoping for greater fiscal and institutional clarity in laws governing the sector) from incentivising incremental onshore developments in the country.
Lack of competitiveness
Squabbles with international energy companies – who say they are worried that proposals in the oil industry law could deter investments in the sector – have also stalled the bill. “Our review of the PIB shows that deepwater provisions do not provide a favorable environment for future investments and for the launching of new projects,” Mike Sangster, managing director of Total SE in Nigeria, told lawmakers at a hearing in Abuja last year.
In January, the Oil Producers Trade Section (OPTS) – led by Total’s Sangster – criticised the bill for not making provisions for investment in the oil and gas sector. “If the PIB is passed in its current form, it will not meet the government’s objectives of making Nigeria the leading destination for oil and gas investment and the recent scarcity of investment will continue,” he said at a public hearing organised by the Senate Joint Committee on Petroleum Sector (Downstream), Petroleum Resources (Upstream) and Gas at the national assembly.
“Nigeria faces ever-increasing competition for investment and despite having the largest reserves, only $3bn out of the $70bn committed in Africa for projects sanctioned between 2015-2019 were attributed to Nigeria, representing a meagre 4%. This lack of competitiveness is caused in part by the high cost of doing business in Nigeria, with overall project costs and operations costs [at] 69% and 42% higher than the global average respectively. A PIB which safeguards existing projects and introduces competitive terms, is required to fully utilise the country’s resources for the benefit of all Nigerians,” Sanger said.
Dr Ekpen Omonbude (energy and mining economist and director at UK-based Bargate Advisory, sees justifications in the oil majors’ reluctance. “There’s also the need for some measure of closure. It will never be perfect. We all have misgivings about the bill in its current form but we do need some clarity in legislation from which to proceed,” he said.
“The most important thing we are losing is time. There is a global energy transition in full flow. The shift away from fossil fuel is supported by very strong political will, and risk capital is following suit. The sooner the government moves its energy from this bill to finding solutions to future problems such as potentially stranded petroleum assets, the better,” he said.
At a recent forum, Deputy Senate President Ovie Omo-Agege said Nigeria has lost $235bn ($15bn a year) to the non-passage of the PIB. McEbong’s response to this is that “this yearly loss is not far off Nigeria’s annual budget. It shows in real terms the catastrophic consequences of delaying reforms. We should take note of the fact that this delay in reforms in other sectors also has its own costs. In its current situation, Nigeria cannot afford to leave a single dollar on the table due to delaying reforms. And yet it continues to do so.”
Whether or not the PIB will be passed this month remains to be seen, but right now, it seems oil players are not holding their breath.
“The goal post keeps shifting, we might be too late by the time we sign it, it may be irrelevant with what is happening now because each day, new things are emerging,” Patricia Simon-Hart, Aftrac Limited managing director, said at the NIPS conference on Wednesday.
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