TRANSACTIONAL: Corporate / London: Nigeria’s Petroleum Industry Bill: promising legislation beset by problems

by King & Spalding
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The History

A “Petroleum Industry Bill” has created an unprecedented level of discussion for a new piece of legislation in Nigeria. Perhaps the level of interest should not come as a surprise given the extent to which oil and gas revenues contribute to Nigeria’s economy. Recent figures show that oil sector revenues account for 90 percent of federal government revenues.

Reaching consensus on the Bill has been far from easy and continues to be problematic. The Bill has suffered a number of stops, starts, and setbacks since its origin during the Obasanjo administration in 2000. However, recently there has been a renewed impetus to pass the Bill and to revolutionize Nigeria’s most precious industry.

A Revolutionary Bill

The Bill was intended to address legal and regulatory frameworks applicable to Nigeria’s oil and gas industry. For proponents of the Bill, it signified a long overdue attempt to address well-documented inadequacies in the structure, policies, and management of industry.

Key features of the Bill are aimed at raising Nigeria’s petroleum industry to global standards. The Bill seeks to create new regulatory institutions, transform upstream contractual agreements, provide a new fiscal regime to encourage investment whilst optimizing revenues for the Government, deregulate the downstream sector, improve Government participation in the industry, and create overall transparency in contractual agreements.

Lurching Ahead

The Bill has been frozen in the Nigerian federal legislature for years with commercial, ethical, and other interests scrutinizing its provisions. Dissatisfaction was voiced by stakeholders at many levels. Amongst them are the interests of legislators from the poorer North pitted against their Southern counterparts. Both regions disagree over the extent to which the Bill should balance the entitlement and allocation of rich proceeds to various nationwide zones and regions.

Criticism over the drafting of the Bill originally resulted in multiple revisions, related disputes over authenticity, constant delays, and damaging debates. The revision process has culminated in a proliferation of diverse and irreconcilable versions and an inability to enact any version.

After this impasse, discussion of the Bill recommenced in 2012; put back on the agenda by President Goodluck Jonathan who presented a new version to the National Assembly. This time a Special Task Force was assigned the responsibility of crafting a Bill that incorporated, as far as possible, the concerns of all stakeholders whilst achieving the principal objectives.

One can put the resurgence of the Bill down to a number of factors. Among them, the slowing of investment in Nigeria’s petroleum sector, which is contributed to by uncertainty over the impact that the Bill may have on the industry. A separate factor prompting renewed discussion is growing alternative investment opportunities in other sub-Saharan African countries such as Ghana, Angola, and Sao-Tome and Principe. Additionally, a nationwide strike sparked by Government attempts to deregulate the downstream industry in January 2012, which led to increased fuel prices, spurred efforts to reform the oil and gas sector.

Opposition from IOCs

The Bill contains many provisions that continue to receive strong opposition from certain IOCs who argue the Bill would create an environment that would materially change the economics of new and existing investments. Tax changes introduced under the Bill would lead to an increased Government take from 73 percent to a projected 82 percent of projects in an apparent move to increase the local distribution of oil profits. The motivation behind these proposed increases has been called into question by IOCs that may be affected by the change.

Anthony Long
London
+44 20 7551 7571
along@kslaw.com

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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