By Matthew Green in Lagos
Published: October 20 2008 03:00 | Last updated: October 20 2008 03:00
Nigeria’s government is to pass new laws to overhaul the country’s oil and gas sector before the end of the year, ramping up the pace of reform in spite of fears among Western majors that the changes could cost billions in profits.
Umaru Yar’Adua, the president, hopes the new law will form the foundation for a revival of an industry where attacks on pipelines and constraints on investment have fuelled a growing sense of crisis among energy companies.
But executives from Nigeria’s biggest producers – which include ExxonMobil, Royal Dutch Shell, Total and Chevron – said the proposed new terms were so stringent that they risked deterring investment rather than encouraging it.
Emmanuel Egbogah, a senior adviser to the president, said the proposed legislation would soon be submitted to the National Assembly for approval.
“I believe the passage will be very, very speedy,” Mr Egbogah told the Financial Times.
“For the first time the Nigerian petroleum industry will be able to reach its full potential.”
The overhaul has, however, created fresh uncertainty in one of the few frontiers open to Western majors that still has huge untapped reserves. Oil companies complain that a slowdown in decision-making at the Nigerian National Petroleum Corporation, the state oil company, has reduced the pace of new developments to a crawl.
The 175-page Petroleum Industry Bill, seen by the FT, aims to inject new vigour into the NNPC by reforming its opaque, octopus-like structure to create discrete units to handle tasks such as exploration and production, regulation and research.
The committee that drafted the bill, chaired by Rilwanu Lukman, the former Opec secretarygeneral, also tried to ensure that Nigeria wins a greater share of profits from huge deepwater fields, and its growing industry for exporting Liquefied Natural Gas to the US and Europe.
The central plank of the reform strategy is to restructure joint ventures between the NNPC and Western majors to allow them to raise private capital, rather than rely on a notoriously unreliable annual injection of cash from Nigeria’s government.
The lack of investment is slowly strangling hopes that Nigeria will be able to raise production much beyond this year’s levels – estimated to have ranged from 1.5m b/d to about 2m b/d – compared with closer to 2.5m b/d in 2005.
The new bill says the reform of the joint ventures will take effect a year after it is passed, although analysts said the complex task of re-engineering the businesses – which account for the bulk of Nigeria’s oil production – could take much longer.
The global financial crisis, which has made banks more averse to risk, has also raised a question mark over the kinds of terms for financing multibillion oil ventures that Nigeria may ultimately attract.
Falling oil prices may also undermine the government’s leverage in its push to enact the reforms.
Industry bill
Key proposals of the Nigerian oil industry bill include: *Measures to ensure the government increases its take from a growing number of deep-water developments. *Review of the royalties on gas production. *Increasing the tax take from gas by creating a new fiscal regime separate from rules governing oil. *Changes to the way tax breaks are applied for new developments. *Oil companies will be encouraged to refine at least 50 per cent of their production in Nigeria by the end of the decade. *New rules to boost employment of Nigerians in the oil industry. *Incentives to encourage development of marginal fields. *Improved community programmes in the Niger Delta.
Copyright The Financial Times Limited 2008
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