Persistent policy advocacy mounted by investors in the Nigerian petroleum industry may have started earning the conviction of key government agencies on the need for adequate rewards for investments in the industry.
The Nigerian National Petroleum Corporation (NNPC) which manages government’s economic interests in the operations of commercial investors demanded legislators to build clear business incentives into the new fiscal terms proposed in the revised Petroleum Industry Bill (PIB).
Group Managing Director of the corporation, Mallam Mele Kyari, stated during a session with legislators that appreciable returns on investment were required to encourage commercial players to stake funds in tapping petroleum resources at the nation’s deepwater basins.
Oracle Intelligence reports that risk-reward ratio has been one of the most vehement disagreements between government’s regulators and commercial investors in the oil and gas industry, and fiscal provisions in the new PIB have not adequately addressed investors’ concerns over high risks and thin margins.
Biggest investor groups gathered under the auspices of Oil Producers Trade Section (OPTS) of the Lagos Chamber of Commerce and Industry (LACCI) and the Indigenous Petroleum Producers Group (IPPG) had in several position papers expressed displeasure over the fiscal terms proposed in the PIB. They blamed the PIB’s stringent fiscal propositions for the protracted investment drought in the nation’s upstream petroleum industry.
Leader of the OPTS, Mr Mike Sangster, stated in a presentation at an industry forum that Nigeria’s current business environment presents the highest risk and offers the least rewards for risked investments among peer operating environments in the world.
In protest, the group has stalled development programmes in the nation’s deepwater terrains where huge discovered reserves have missed high price market opportunities since 2005 as fiscal disputes lingered across 15 years to the current low price cycle.
Besides, the new PIB also introduced separate operating terms for gas which entails development of new gas terms for investors. The “Inclusion of Gas Terms in Production Sharing Contracts (PSCs)” formed the subject of a one-day public hearing organized by the House of Representatives Joint Committee.
Group General Manager, Group Public Affairs Division of the corporation, Dr. Kennie Obateru, clarified in a statement that investors needed clarity on fiscal terms to be encouraged to commit their capital for gas development projects.
He stated that a functional legislative framework that provides a clear sight on investment returns forms the key objective of the PIB, adding that the passage of the Bill would help resolve issues of fiscal terms in the Production Sharing Contracts (PSC).
Dr Obateru explained that the PSC agreements were focused mainly on crude oil production leaving the gas development component to the discretion of the parties thus making the provision in PSC for development of gas was very weak.
“The PSC simply says the parties can sit down and agree on a framework for monetizing the gas on terms that are mutually acceptable,” he noted, stressing that a gas pricing mechanism was urgently needed to drive gas development.
He pointed at the government’s gas commercialization initiative and the urgent need to evolve a gas pricing policy that provides commercial outlook for investments in gas.
Speaker of the House of Representative, Femi Gbajabiamila, said the Joint Committee on Gas and Petroleum Resources was set up to collate the views of stakeholders and help resolve issues hindering the efficient development and utilization of oil and gas in the country.
Chairman of the Joint Committee, Hon. Nicholas Mutu, said his team would liaise with stakeholders to design fiscal terms that fit into existing PSCs with the aim to attract investors and grow the economy.