Month: August 2012

Posted on

The week ahead

Having started the week on a fiscal theme, with the conclusion to Dr. Omonbude’s tongue in cheek analysis and the link to KPMG’s fiscal article, we’ll continue with a feature article from Humphrey Onyeukwu, a Lagos lawyer and President of the Lagos Oil Club. This article will be published mid-week. We’ll also publish the Summary of Part V of the Petroleum Industry Bill (Downstream Petroleum) and end the week with our critical analysis of the proposed NNPC restructuring. Hint: we don’t like it.

Remember If you would like answers to any questions about the Petroleum Industry Bill, send an email to: questions[at]petroleumindustrybill.com. If we can’t answer your question, we’ll find someone who can! Have a good week.

Posted on

Petroleum Industry Bill Unlikely to Optimise Domestic Gas Supply

Continuing with our fiscal theme, here’s the link to KPMG’s recently published article titled Petroleum Industry Bill 2012: Highlights of the Fiscal Provisions.The article highlights critical provisions of the Petroleum Industry Bill and concludes by stating that its provisions are likely to lead to an increase in the effective tax rate of many companies. It also opines that the current provisions of the PIB are unlikely to optimise domestic gas supplies as the fiscal incentives for upstream gas development under the PIB are less attractive than available under the Petroleum Profits Tax regime. The article may be found here.

Posted on

Fiscal Provisions of the Nigerian Petroleum Industry Bill: A not so quick-and-dirty assessment, Part II

This part concludes Dr Omonbude’s feature article on the fiscal provisions of the PIB

In the previous part of my note, I introduced and discussed two major features of the fiscal elements in the PIB. The aim of this exercise was to investigate these provisions in the context of how they had been presented within the Bill, and to set the ground for some of the analysis that would follow in this second part. The aim of this part of my note is to consider the other two big-ticket fiscal instruments as far as the Bill is concerned (namely the Nigerian Hydrocarbon Tax and the Companies Income Tax), and to then carry out a simplified analysis of these instruments. Continue reading “Fiscal Provisions of the Nigerian Petroleum Industry Bill: A not so quick-and-dirty assessment, Part II”

Posted on

Fiscal Provisions of the Nigerian Petroleum Industry Bill: A not so quick-and-dirty assessment, Part I

Feature Article by Dr. Ekpen J. Omonbude

Background

After what can be described as a very, very long wait, the Nigerian Government has forwarded the Petroleum Industry Bill (‘PIB’ or ‘the Bill’) to the National Assembly. This follows a series of drafts, disputes and revisions as the Government, the international oil companies (‘IOCs’), and the legislature failed numerous times to agree on previous versions.

The Ministry of Petroleum Resources (‘the Ministry’) describes the PIB as potentially “one of the most important pieces of legislation in the history of the oil industry in Nigeria, changing everything from fiscal terms to the make-up of the state-oil firm”. It is clearly an ambitious document, one which in our assessment could change, fairly significantly, the way in which the oil and gas business is conducted in Nigeria if passed into law as-is.

The industry has greeted the PIB with mixed reactions. For some upstream E&P players, it does not appear that there is satisfaction with the fiscal terms as stated in the Bill. For others, there appears to be a certain degree of confusion as to what would apply when, and how. International organisations appear to have taken a position of quiet optimism for now.

At over 220 pages, the PIB is a daunting read for most non-lawyers. It does however try to simplify what is currently a difficult petroleum legislative and regulatory framework to explain to the untrained eye (lawyer’s paradise, anyone?). Highlights of such attempts at simplicity are the apparent amalgamation of the relevant petroleum sector laws into one piece, and a reduction of the points of fiscal burden to a handful of fiscal instruments. The Bill in fact defines fiscal rent as “the aggregation of royalty, Nigerian Hydrocarbon Tax and Companies Income Tax obligations arising from upstream petroleum operations”[1]. This simplicity may not however translate to reduced fiscal burden. In my view at least three separate pieces of legislation could have been submitted to the National Assembly, rather than one, but this is not the purpose of this particular exercise. Continue reading “Fiscal Provisions of the Nigerian Petroleum Industry Bill: A not so quick-and-dirty assessment, Part I”

Posted on

Arbitrary Powers in the Petroleum Industry Bill

One of the significant highlights of the PETROLEUM INDUSTRY BILL 2012 are the arbitrary powers granted under it. In particular, ministerial power has been consolidated and appears to retain the colossal status of ministerial influence under the Petroleum Act 1969. This is in addition to the new absolute discretionary power granted to the President to grant petroleum prospecting licences and petroleum mining leases under the Bill. Our upcoming papers will spell out some of these powers along with other highlights of the PETROLEUM INDUSTRY BILL 2012. In the meantime, Thisday highlights some of the arbitrary powers introduced in the Bill here.

Posted on

The Nation on oil companies’ objections to the PIB

Yusuf Alli writes on the perceived objections of the multinational oil companies to the PETROLEUM INDUSTRY BILL 2012. Some of the areas of objections mentioned in the article include increase in taxes and royalties and the grant of vast powers to the Minister of Petroleum. It should be noted that the  PETROLEUM INDUSTRY BILL 2012 does not explicitly increase royalty rates although it grants the minister powers to determine these rates by regulations. The article can be found here.

Posted on

Alison-Madueke – Petroleum Industry Bill will boost output by attracting foreign investment

Nigeria’s Petroleum Minister, Mrs Diezani Alison-Madueke is reported by Bloomberg commending the potential benefits of the PIB for investment in the Nigerian oil and gas industry. According to Alison-Madueke, the PIB is designed to create “a fair balance between small and big operators in the same terrain.” The Minister’s comments are likely to refer to the provisions for Production Allowances in Schedule 5 of the PETROLEUM INDUSTRY BILL 2012, which give producers an allowance in accordance with their levels of production. As an example, under those provisions, small oil producers in onshore areas that produce less than 27,300 barrels of oil per day would be entitled to oil production allowances of the lower of US$ 30 per barrel or 30% of the official selling price.