Nigerian President Goodluck Jonathan approved the latest draft of the Petroleum Industry Bill, or PIB, last month, and parliament is expected to open debate over the next few weeks, Reuters reported.
In comments from a stakeholders’ forum that Shell, Nigeria’s leading oil producer, sent to the news wire on Wednesday, Shell Nigeria Managing Director Mutiu Sunmonu welcomed the bill’s arrival in parliament, but warned it may stifle investment if its terms are not improved.
“A balanced PIB is what is required – one that will provide optimal revenue to the government whilst providing sufficient incentives for new investment to fuel growth,” Sunmonu said.
It must also “take local business challenges into consideration as well as the impact on existing investments,” he added.
“What we have seen of the draft PIB to date does not indicate a bill that fits these criteria,” he said.
If it becomes law, the bill should end years of regulatory uncertainty that has blocked billions of dollars of investment in this West African country.
The PIB is meant to overhaul everything from fiscal terms to the state-owned Nigerian National Petroleum Corporation.
Its comprehensive nature has sparked disputes between lawmakers, ministers and the oil majors that have held it back for more than five years. A previous draft never got through parliament.
“The current draft PIB requires significant improvement to secure Nigeria’s competitiveness,” Sunmonu warned. “As it stands right now the PIB will render all deepwater projects and all dry gas projects … non-viable.”
But Magnus Abe, chair of the Senate petroleum committee, said Shell would have a fair chance to give input to the PIB before it is passed.
“Anybody – any Nigerian, any stakeholder – has the right to comment on the bill on or before the public hearing,” he told Reuters.
In the current draft, oil companies will pay 50% profit tax for onshore and shallow areas and a 25% levy for frontier acreage and deepwater areas.
Current taxes on both were not disclosed.
An industry source, who could not be named, said the deepwater profit tax was a worse deal than most oil majors were getting on existing deepwater projects.
Since the PIB is supposed to govern these retrospectively, the companies would lose earnings on such existing investments, he said, although there was no disagreement over onshore.
Sunmonu also expressed concern over the terms on projects to unlock Nigeria’s huge latent natural gas potential for domestic use in power plants. The country has 187 trillion cubic feet of proven gas reserves, he said.
“A bad PIB will deter investment … Nigeria needs to compete – and the PIB will either enable or strangle that competitiveness,” Sunmonu said.
Little is known about secretive terms on offshore contracts, but analysts say the terms for onshore are much more favorable than the deals in existence now.
Nigeria exports some 2 million barrels per day of oil, but could double that with a better-managed industry, foreign oil majors say.
They also say fiscal terms need to compensate them for the extra security risks of operating here such as piracy, kidnapping and oil theft by armed gangs.
An amnesty ended political militancy in the oil-rich Niger Delta in 2009, but industrial scale oil theft continues.
“All of this has had a huge impact on both cost and revenues, but we can live with them … provided the underlying fiscal regime is positive,” Sunmonu added.