Nigeria, the continent’s top oil producer ranking ahead of Angola, is getting ready to pass a crucial reform bill governing the country’s oil and gas sector.
The piece of legislation barely seems able to grab the media’s attention given the complexity of the issue, not to mention its dry technical and legal aspects. But that doesn’t mean it’s any less important amid the global economic and health crisis.
Indeed, the draft bill has been put on hold on many occasions since it was first introduced in 2007. This state of limbo has delayed investments that could have helped maintain output levels, notwithstanding the collapse in oil prices and persistent insecurity in oil-producing areas in the Niger Delta.
The declining competitiveness of extractive industries threatens Nigeria’s position, as new fields discovered in East Africa appear to be much more promising and attractive.
Nigeria’s oil is taxed at the highest rates in the world. But this stumbling block was for a long time offset by low extraction costs, with fields on the continent literally level with the surface of the soil.
To encourage oil majors to invest in offshore production, the military dictatorships in power at the beginning of the 1990s had to resort to offering them more favourable tax treatment for deep offshore projects than for marginal onshore fields or shallow-water fields along the coast.
The 2020 draft bill doesn’t break with this principle, as profit taxes and royalties continue to be differentiated based on the type of field involved. In the onshore segment, costs have the potential to increase significantly because the bill is now proposing that companies devote 2.5% of their operating expenses to fund community trusts, the creation of which could take up to one year after a prospecting or production licence is awarded, reducing the actual duration of the licence by as much.
Meddling of the political class
Judging by its content, the Petroleum Industry Bill (PIB) does not appear capable of addressing the major problems undermining the competitiveness of Nigeria’s oil industry: corruption, repeated violations of the rule of law and the conflicts of interest characteristic of the country’s state-owned oil and gas company. It is a mandatory partner in joint ventures with oil majors and the ultimate “cash cow” of each successive regime since the fall of the last military dictatorship in 1999.
In theory, the 2020 draft bill aims to remove the regulatory responsibilities currently discharged by the Nigerian National Petroleum Corporation (NNPC), thereby limiting its role to that of a producer. The legislation thus intends to put an end to the aberrant policy of entrusting the state-owned oil company with anti-pollution efforts by asking it to fine itself when it causes oil spills or practices gas flaring outdoors.
However, the PIB’s plan to privatise NNPC isn’t really about helping the company to improve its performance, escape the meddling of the political class or reinvest its cash to grow its businesses; rather, the point is to continue to prop up the political patronage system. President Muhammadu Buhari’s administration hasn’t scrapped the practice of obtaining positions for representatives of the relevant ministries on the company’s board of directors.
For the time being, the government’s marketing objective is simply to allow the NNPC to sell crude oil to the state at market price. What’s more, such a scheme could increase the price of fuel at the pump, which was deregulated at the beginning of the year.
The draft bill currently being debated in Abuja doesn’t seem likely to improve relations with the residents living in the oil-producing areas of the Niger Delta in the long run. The legislation plans to set up trusts to meet the needs and demands of “host communities” residing near oil fields and wells, including coastal communities located in the vicinity of deep offshore sites.
But the development of these new institutions could very well end up reproducing the mafia mindset already embodied by the misuse of oil revenues and the redistribution of state emoluments.
Indeed, the “settlors” (oil companies) who are supposed to initiate community trusts are very vaguely defined as oil industry “stakeholders”. It is unclear whether they are local operators, bigwigs from the ruling parties or puppets – i.e., stooges – working for the corrupt governors leading the oil-producing states in the delta.
Self-constituted for a term of four years, the board of trustees of these trusts also have extremely broad powers. They can, for instance, make decisions on the allocation of their income and the compensation of their members. These mysterious settlors can even appoint qualified individuals who don’t come from the communities concerned. The same is true for members on the management committees, which award contracts and select candidates for tenders to implement development projects.
Communities under pressure
The communities in question, for their part, seem to have been left out of the equation. For example, they don’t need to be consulted prior to setting up the trusts, whose institutional and tax-exempt framework is the only aspect likely to really distinguish them from the agreements already signed with operators in the industry.
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In the end, the aim isn’t so much to develop the Niger Delta, but instead to involve the “host communities” in production to encourage them to protect the oil facilities. Their role is then to ensure the smooth running of operations. If a facility is sabotaged or attacked, repair costs will be deducted from the income of the corresponding trust.
The trouble is that crude oil theft, known as “bunkering” in Nigeria, is often committed by gangs who don’t live in the villages they target near pipelines.
The draft bill currently being debated thus places a very heavy burden on the “host communities”. Once the trusts are set up, protests are expected to ensue. It is safe to say that the PIB will fall far short of solving the crisis in the Niger Delta.