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Nigeria: Few friends for reform bill

THE GOVERNMENT's flagship Petroleum Industry Bill, which reached the public hearing stage of its journey through the National Assembly in late July, seems to have upset almost all the organisations likely to be affected by its reforms. Oil companies, the governments of the oil-producing states, factions within state-owned Nigerian National Petroleum Corporation (NNPC), revenue-transparency activists and even tribal representatives have heaped criticism on the measure.

The minister of petroleum resources, Rilwanu Lukman, was forced to backtrack at the hearing, saying the Bill – with 495 sections – was only a proposal and that he was ready to listen to alternative suggestions. But he rejected the criticism of transparency organisations, saying the Bill "removes confidentiality on a scale not seen before", with Nigeria moving "in one step from one of the most opaque petroleum nations in Africa to one of the most open and transparent in the world".

Licences and leases will be granted only after "a truly competitive bidding process, open to all qualified companies"; the texts of licences, leases and contracts will no longer be confidential; payments to the government will be made public; and all geological, geophysical, technical and well data will be made accessible for all in a national database.

The oil companies' criticism was led by Basil Omiyi, chairman of Shell's local subsidiaries and head of the Oil Producers' Trade Section of the Lagos Chamber of Commerce. Omiyi told the hearing that "the aggregate impact of multiple taxes, higher royalty rates and loss of incentives under the Bill, as proposed, will have a significant negative impact on gas and deep-water projects." "The majority of gas and deep-water projects will not be viable," he claimed.

Causing most concern to the main operators are measures in the Bill calling for increases in the royalty and tax applying to deep-water production – a move seen as the government seeking to shift its revenue base away from the troubled onshore to the generally safer offshore. Omiyi said deep-water production has built up to 0.6m barrels a day (b/d), at which level it accounts for about a third of the country's terrorism-constrained output.

At present, the standard 20% onshore royalty rate is reduced in stages for offshore fields, to: 16.67% for fields in up to 200 metres of water; 12.0% for 201-500 metres; 8.0% for 501-800 metres; 4.0% for 801-1,000 metres; and to zero for 1,000 metres or deeper. One version of the Bill – there are several, some said to be fake – calls for a royalty of 25% on production exceeding 20,000 b/d from water deeper than 200 metres, while another calls for 12.5% for production in the range 25,000-50,000 b/d rising to 25% for production exceeding 50,000 b/d. A provision allows for higher rates at higher oil prices.

Additionally, the country's production-sharing contracts – introduced in 1993 when deep-water licences were first offered – will be revised to increase their tax yield. New measures will allow the state to reclaim and relicense acreage it says is unused.

The Bill also calls for NNPC to be broken up and for a new profit-driven national oil company to be created. The new company – initially 100% state-owned, but Nigerians might be offered shares in the future – will be able to raise funds on international capital markets, releasing the government from the obligation of funding it and allowing the new company to form incorporated joint-ventures with the producing companies.

Producers and the new state company will be encouraged to refine at least 50% of their crude in the country. The ministry of petroleum will be replaced by a new national petroleum directorate, and the department of petroleum resources will be replaced by a national petroleum inspectorate. However, for now, the country's petroleum industry remains in disarray as military attacks, sabotage and oil theft increase in frequency.

A 60-day amnesty and ceasefire agreed with organised saboteurs in the Niger Delta region has given President Umaru Yar'Adua some breathing space. But the region remains in crisis: the long-standing complaint from the Delta that it receives an insufficient share of oil revenues, despite producing most of the national output, is complicating the government's already troubled attempts to restructure NNPC.

And Yar'Adua has a growing fiscal problem. Nigeria's government badly needs royalties from oil, which accounts for 95% of the country's export earnings. But Nigeria is now exporting less than half the crude it did in 2008, by some estimates, and selling it at about half the price. What is more, most production is now offshore, where the state's share of earnings is less.

Capable of producing 3m b/d at capacity, the country has lost its position as Africa's top oil producer to Angola, which has only a third of Nigeria's reserves. More seriously, Yar'Adua's government is losing out on billions of dollars it badly needs to renew Nigeria's crumbling infrastructure. In addition, according to a Chatham House report, Nigeria's oil-for-infrastructure programme has produced no benefits for the country (see p26).

The recent amnesty agreed with militants follows a failed attempt by Nigeria's military to crack down on rebel attacks in May. Analysts say the Movement for the Emancipation of the Niger Delta (Mend), the biggest militant group, has a strategic advantage over army units in the creeks of the Niger Delta as it knows the terrain better and receives assistance from the civilian population.

Mend, which has been active since 2005, says it is fighting for a larger share of oil wealth for the impoverished local population. As well as vandalising oil pipelines and other facilities, the organisation has kidnapped local and foreign oil workers. On the evening of the recently agreed amnesty, Mend shocked the country by blowing up a large fuel-importing facility on the outskirts of Lagos – Nigeria's commercial capital, and far from the Niger Delta.

Under the terms of the amnesty, the government has effectively bribed rebels to lay down their arms, granting generous monthly stipends and food allowances to each militant in return. But the ceasefire is considered a stop-gap solution only and attacks are expected to resume unless meaningful action is taken to address the militants' concerns. Meanwhile, a large black market in stolen oil persists.

Amid such uncertainty, fresh exploration has long since ground to a halt. And with legislation unlikely to be agreed before 2011, Nigeria looks set for at least two more years of paralysis.

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