Nigeria Content Online

The reform process in the petroleum industry appears to have stagnated, as the draft Petroleum Industry Bill (PIB), conceived to establish a fresh legal, regulatory, monitoring and commercial framework for the industry to repeal the outdated Petroleum Act of 1969, is still awaiting National Assembly approval. The proposed law is expected to usher in a revised fiscal sys-tem in the industry, with the introduction of Company Income Tax (CIT) payment regime for all operators, as well as a Nigerian Hydrocarbon Tax (NHT) to replace the current Petroleum Profit Tax (PPT) arrangement.

On the one hand, the multi-national oil companies, under the aegis of the Oil Producers’ Trade Section (OPTS) of the Lagos Chamber of Commerce, have continued to criticise the fiscal terms in the law as capable of stalling investments. The aggregate impact of the multiple taxes proposed in the PIB through increased royal-ties and taxes as well as removal of incentives to operators, the OPTS argues, will create un-certainties capable of adversely affecting industry capacity to invest in new exploration and production projects. They also query the demand for their compliance with the provisions of the Nigerian Con-tent Act, which was initiated to give legal teeth to government’s aspiration to ensure that about 70 percent of the nation’s oil and gas operations are domiciled in-country, to guarantee that indigenous Nigerian service companies are accorded exclusive considerations in the award of contracts and services on land and swamp operating areas of the nation’s oil and gas industry.

Besides, the companies also contest the requirement for mandatory relinquishment of 50 percent of Oil Prospecting Licences (OPLs) and Oil Mining Leases (OMLs) after five years of the expiration of the initial exploration period leading to commercial discovery, and have mobilised every resource at their disposal to instigate a review. On the other hand, government is saying that the proposed law would guarantee more revenue to the country, while more opportunities would be guaranteed for Nigerian firms to participate in the development of the industry. The NNPC claims government may be losing about $55.4 million (about N825.46 bilion) monthly as a result of the continued delay in passing the PIB by the National Assembly, while the petroleum minister, Diezani Alison-Madueke, said government anticipates an average of $18 billion (about N2.7 trillion) as savings from its total annual budget for the nation’s oil and gas industry if the Nigerian Content Law works. The strategic aspirations in the upstream sector of the industry included increasing the country’s daily oil production capacity from an average of 2.3 million barrels to about 4.5mil-lion barrels, and national crude oil reserve from 33 billion to 40 billion barrels by the end of the year. Though the industry, in re-cent times, has witnessed improvements in oil production activities consequent upon the positive impact of the amnesty programme for Niger Delta militant groups, the capacity is hardly near set targets by government.

Limited progress downstream

In the downstream sector of the petroleum industry, government’s plan was to effectively end the importation of petroleum products for domestic consumption over the next decade as well as ensure that Nigeria becomes a key player in the competitive world of inter-national trading in petroleum products worldwide. Though the ability of the Petroleum Products Pricing Regulatory Agency (PPPRA) man-aged to keep the supply of petrol to consumers at the retail price of N65 per litre, even in the face of unstable fundamentals at the international oil market, indications are that this appears threatened, as marketers have already demanded a review of the pricing template to reflect the current market realities and ensure adequate cost recovery.

Denial of extractive industry validation

Perhaps, the biggest failure by government in the energy sector appears to have been the country’s failure to get the validation by the EITI Board as Extractive Industries Transparency Initiative (EITI) com-pliant nation last October. Out of the eight ‘Candidate countries’ whose applications were pending before the validation committee of the inter-national transparency body, only Ghana and Mongolia were confirmed, while Nigeria, Cameroon, Gabon, and Kyrgyzstan, were given various schedules till next April to remedy their status. The implication was that de-spite being one of the foremost countries to sign up to the EITI principles, Nigeria was not doing enough to promote transparency, accountability, and openness in the management of her extractive industries.

Failed Power road map

Last August, the Federal Government launched the Power Sector Road Map with the objective of raising the country’s electricity generation capacity to at least 5,500 mega watts (MW) by last December. Under the action plan, about 2,278 MW was to come from Federal Government-owned gas -fired power plants; about 1,230MW from the refurbished existing hydro power stations; about 350MW from the National Integrated Power Projects; and about 1,520MW from Independent Power Producers (IPPs). Adequate gas supply, which has always been cited as reason for failure of key power plants to function, was not going to be a problem, as government had given assurance of ad-equate stock at about one billion standard cubic feet per day (BSCF/D), apart from about 325 million SCFD from ongoing short term projects.

However, rather than improve, the level of electricity supply has continued to de-cline, with current generation capacity hovering at around 3,000MW as at last December, with no significant milestones in progress in the roadmap. Besides, the power sector re-form scheduled to end by the end of the year with the privatisation of the 18 successor companies from the Power Holding Company of Nigeria (PHCN) only recently reached the stage of invitation of expression of interests (EOIs) by the Bureau of Public Enterprises (BPE) from prospective core investors in 11 electricity distribution and six transmission companies.

Prostrate Steel sector

Earlier in the year, government had given indication that technical audit of the Ajaokuta Steel Company (ASC) and its affiliate, the National Iron Ore Mining Company (NIOMCO), would facilitate the process to restore operations in the two companies before the end of the year. That appears far- fetched as the year rolled by. The situation in the Aluminium Smelter Company of Nigeria (ALSCON) in Ikot Abasi, Akwa Ibom State, appears no different, as the plant’s production is still below installed capacity. The House of Representatives committee on privatisation and commercialisation had earlier in the year asked the management of the controversial core investors, UC Rusal, to immediately refund the sum of $120 million for breaching of the February 2007 Share Purchase Agreement (SPA) with the Federal Government for failure to ensure the complete turn around and modernisation of the plant, including the dredging of the Imo River Channel, within three months.