Today, the Nigerian Extractive Industries Transparency Initiative (NEITI) warned that Nigeria stands to lose billions of dollars in oil revenue over the coming years if the new oil law, the Petroleum Industry Bill (PIB) is passed unamended.
“NEITI does not see the rationale for passing a bill that is designed to reduce government revenue from petroleum operations by a minimum of $3 billion annually through inappropriate and unfavourable adjustments to the fiscal provisions,” the agency said in a statement.
“Sadly, the House of Representatives Report establishes fiscal terms with a government share of oil revenues below internationally competitive levels and with a structure that will result in a rapid erosion of government petroleum revenues during the next 5 years.”
I should point out that Nigeria has lost billions to successive corrupt regimes. But that’s another blog post entirely.
Here’s some background on the PIB.
The PIB, presented to the National Assembly in 2008, is Nigeria’s attempt to re-structure its embattled oil industry, primarily to resolve long-standing funding issues and incorporate NNPC, the national oil company. However, the Bill has been subject to substantial mission creep, and could eventually affect a wide range of issues from fiscal terms, gas flaring to host community rights.
Earlier drafts of the PIB included a proposal to increase the taxes and royalties due to the state, (known as state “take”). Oil companies such as Shell, Exxon Mobil and Chevron have fought long and hard to defeat such an increase in taxes. Anne Pickard, the top Shell executive in West Africa, boasted of infiltrating government ministries, and spoke of using the US Embassy as a “silver bullet” to kill off offending terms in the PIB. Companies argued that the increase in taxes would make Nigerian oil industry uncompetitive, and drive business elsewhere. Uncertainty over the new fiscal terms in the PIB was said to be blocking $60 billion in oil investment.
In a country dependent on oil for 85% of total government revenues, oil companies wield immense power and influence. Under such pressure, lawmakers at the House of Representatives are now proposing to downgrade Nigeria’s tax regime below internationally competitive rates. Far from increasing taxes on oil companies, they now plan to drop taxes even lower.
For those following the oil industry, it’s a familiar story. A host country attempts to change the rules governing its oil industry to increase the state share of profits from its natural resources. Deals signed under dictatorship or occupation, are seen in the cold light of day to be unfair and exploitative. But multinational companies unanimously oppose any changes. Heavy political lobbying, scare tactics and histrionics follow, with companies claiming that even minor increases in the state’s take will lead to the industry crumbling and a massive exodus of foreign investors.
Ultimately, when the rules do change and the taxes on oil companies rise, everybody returns to business as usual and profits remain high. The exodus never seems to get off the ground so long as there’s crude oil beneath it.