After five years of stalled negotiations, a bill overhauling Nigeria’s oil industry has finally won cabinet approval and if it makes it beyond the president’s office and through parliament, it would ideally lead to a rejuvenation of crude oil production in the country by releasing billions in investment.
Nigeria’s oil officials say the Petroleum Industry Bill (PIB) will revolutionize the industry, partly privatizing the state oil company and tax levy 20% taxes on deep-water offshore oil profits and 50% taxes on shallow-water offshore and inland oil profits.
Under the PIB, the Nigerian National Petroleum Corporation (NNPC) would be deconstructed and replaced with an independent National Oil Company, partly privatized, listed and handed control of key oil infrastructure currently (mis)managed by the government. However, the details of this aspect remain vague and we can expect a serious amount of jockeying over exactly what will be handed over to the new National Oil Company, whose NNPC-era management has already been replaced.
The country’s oil minister, currently Alison-Madeuke, would be given a very powerful supervisory role over every aspect of the country’s oil production, hence the Ministry’s opinion that the bill is revolutionary.
The latest draft of the PIB (and there have been many) is possibly more attractive to the multinational oil companies than its predecessors, and this time it appears to have the president’s support. But it should also be noted that President Goodluck Jonathan’s track record on fighting corruption is abysmal at best.
According industry analysts, some $40 billion in exploration and production investments has been halted while the government debated the nature of the PIB for the past five years. Local industry players, however, say these five years have bought them enough time to latch on to lucrative oil deals and choice exploration blocks that would otherwise have gone to the multinationals.
The end result of the five years of stalling over the law is that crude production has declined and multinationals, like Royal Dutch Shell, are losing interest in Nigeria and setting their sights elsewhere. So we are seeing now a shift in the Nigerian oil industry away from larger international companies to smaller, local companies who partner with smaller multinationals.
The smaller companies so far seem to be optimistic about the new PIB, should it actually gain passage, and because of a trend toward local bank consolidations over the past years, they also have greater access to capital to fund their projects.
ConocoPhillips, for instance, is reportedly seeking to offload its Nigeria operations, and the trend for now seems to be for the larger companies to sell off their onshore operations in order to finance off-shore expansion. Off-shore is less risky only in terms of the Niger Delta militancy, and the regulations are easier to bend.
It is possible that this shift will usher in a new security paradigm in the Niger Delta, for better or worse. With the off-shore push of larger international companies who have largely destroyed the country’s environment and fostered a large-scale oil insurgency while doing nothing to contribute to community’s who could benefit from Nigeria’s crude oil production, smaller oil companies with local elements stand a better chance of quelling the Niger Delta militancy. In the least, this situation stands to turn more Niger Delta enemies into stakeholders.
Of course, in the immediate- near term, this will result in a transformation (rather than a cessation) of violence as local players fight for greater control of production and a greater share in the profits. Corruption is too deep, but will be spread out more thinly.
As for the offshore ventures of the international companies, it will certainly provide greater impetus to piracy on the high seas.
By. Charles Kennedy