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Expert Lists PIB’s Grey Areas

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Discretionary powers prescribed for the President in the granting of licenses and leases, restrictions on reconnaissance survey, inadequate financial guarantees for work commitments on return of acreage and the power of incumbent minister to set rentals and royalties by regulations were some of the gray areas identified in the drafted copy of the Petroleum Industry Bill (PIB), currently before the National Assembly.

Presenting a paper on the commercial and fiscal assessment of the 2012 PIB organised by Ernest & Young in Lagos recently, Dr. Pedro Van Meurs commenting on discretionary allocation said the provision would leave the door wide open to political favouritism and corruption in a manner that has been practiced in the past.

Meurs who is an international oil and gas fiscal policy expert pointed out that the call for the complete removal of confidentiality on all contracts, information and documents was an extremely good clause and added that it would be the most modern clause in Africa if passed into law.

He recommended the removal  of power to grant licenses and leases from the President, and the establishment of credible financial guarantees for work to be committed.

He also recommended a reasonable return of current acreage and the establishment of rentals and royalties in the PIB.

His words: “The PIB 2012 has adequate downstream provisions related to tarrif methodology and network codes, license conditions for pipelines, pipeline networks, gas suppliers and gas distributors as well as oil product consumer protection mechanisms.

“In general, Part V enshrines the desirable goal of creating a fully competitive gas market for Nigeria. However, with open access to transportation severely limited for the smaller companies, this may be difficult to achieve.”

On gas flaring, he said the current drafted copy of the PIB has strong provisions to limit gas flaring.

He however, pointed out that “open access provision are severely limited; no tarrif or open access provisions for gas processing plants and in fact franchise areas are set up; no definition of any policy on refining, and domestic supply obligation is severely weakened, and no initial gas pricing framework is defined. “

Meurs therefore, recommended putting in place a procedure for major project approval and strong open access provisions for all oil and gas pipelines and gas processing plants.

He also said there should be a defined policy for refining, and refiners should get fair market value for all products to be produced stressing that they should not pay more than fair market value for the crude oil.

On taxation Meurs said the section was limited to taxation alone and not with the total fiscal package noting that Nigeria needs to increase investment in oil and gas which can only be achieved through comprehensive total fiscal package that would encourage companies to make necessary investments.

According to him, “The PIB 2012 does not deal with rentals, royalties and production sharing. Therefore, it is not possible to obtain a complete view of the new fiscal conditions.

“Royalties should be determined upon production at the measurement point. This is international practice. It will make stealing of oil more difficult since production volumes are known.

“The fair market value concept for the value of oil and gas should be established. In particular, the PIB leaves the door wide open for transfer pricing on exported LNG. Of concern is that the Deep Offshore and Inland Basin Production Sharing Act is being repealed.

“This means that also the royalties are eliminated. The PIB does not deal with production sharing. Yet, this is an area that needs improvement if new production is to be stimulated.”

To be competitive and encourage production from new leases, he said the country should aim for an overall income for oil of 60 per cent for the small and high cost of fields to 75 per cent for the large and low cost fields under current price conditions and noted that government income take does not include the government take because of NNPC participation.

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Oil & Energy

BUA Group, A’Ibom Sign MoU For Refinery’s Access Road

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Bua Group has signed a memorandum of understanding, (MoU), with Akwa Ibom State Government, and the host communities in Ibeno Local Government Area, for the construction of access road to the proposed Bua Refinery and Petrochemical plant site in Ibeno, last week.
Akwa Ibom State Commissioner for Power and Petroleum Development, Dr. John Etim, who presided over the signing of the MoU, applauded BUA for their commitment to the project, prompt documentation and the preparation of the site towards the construction of the refinery.
Etim said that the refinery project will bridge the gap between host communities and Akwa Ibom State, thereby bringing about more developments in the oil and gas sector of the State.
The Commissioner called on all parties concerned to be committed to the terms of agreement and to ensure that peace dominates their relationship, while appealing to the host communities to protect the facilities which is now in their custody
“The refinery and petrochemical project is in line with the Governor’s vision to industrialise the State, develop local capacity in key industries where value can be added and raw materials sourced locally.”
Speaking shortly after the MoU signing, the Chairman of Ibeno local government, Williams Mkpa, expressed delight over the development, describing it as a giant stride in the industrialisation vision of the Akwa Ibom State Government.
The paramount ruler of the area, Owong Effiong Archianga, assured the company of his people’s unalloyed support and cooperation to see to the actualisation of the project.

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Oil & Energy

CSO Urges Oil Communities To Challenge PIA In Court

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A Civil Society Organisation, Policy Alert, has faulted President Muhammadu Buhari’s signing of the Petroleum Industry Act 2021, urging communities to test the provisions of the Act before the courts.
President Buhari had signed the erstwhile Petroleum Industry Bill, PIB, into law last Monday amidst protests from community groups and many other stakeholders that the Bill do not adequately cover the rights and interests of the host communities.
In a statement signed by its Communications and Stakeholders Engagement Officer, Mrs. Nneka Luke-Ndumere, Policy Alert, which is working for economic and ecological justice, described the presidential assent to the PIB as “grossly insensitive and problematic.
“It is sad that the bill has been assented to in the most controversial manner despite its many obvious flaws and its rejection by many stakeholders,” the statement read.
It added: “For example, the controversial provision for a direct payment of 30 percent profit oil and profit gas to the Frontier Exploration Fund potentially shortchanges the oil producing states and local governments of some of its thirteen percent derivation as it bypasses the requirement in section 162 (2) of the 1999 Constitution (as amended) which provides that all revenues be channeled through the federation account.
“This is most unfair, viewed against the ceding of only three percent of previous years’ operating expenses to the Host Communities Development Trust Fund and the punitive provision to charge costs of any damage to facilities against the community’s Fund, among other obnoxious provisions.
“That Mr. President has gone ahead to give assent to these vexing provisions only reinforces the politics of exclusion and expropriation that has for long characterised the relationship between the Nigerian state and the oil producing communities.
“We are also concerned that the host communities’ component of the legislation flies in the face of one of its stated objectives to address tensions between host communities and companies as it has all the ingredients for escalating rather than abating such conflicts.
“At a time when fossil fuel investments are being deprioritised elsewhere as a result of the global energy transition, it is unfortunate that this Act failed to provide a bridge between the current era of fossil fuel dependency and the low-carbon energy future that Nigeria aspires to within the framework of government’s much vaunted commitments under the Paris Agreement.”
The statement also said: “Granted, the new legal framework introduces some predictability and clarity to the governance and fiscal arrangements in the oil and gas industry. We are also not oblivious to certain clauses that respond to some of our earlier demands, such as those providing that the Board of Trustees of the Host Communities Development Trust will now be determined in consultation with the host communities, with  membership drawn from community members. But that is just as far as it goes.
“As a tool for improved benefit sharing to host communities, the Act falls flat on its face. It actually ridicules the exertions of the host communities and advocacy groups that have clamoured over the years for a law that yields some space for participation, direct socio-economic benefits and environmental remediation for oil-rich communities.
“The theatre of action will now have to move to the communities and the courts of law. As implementation of the Act gets underway over the next 12 months, we urge host communities and civil society groups to begin to seek interpretation of some of its more controversial provisions before the courts.”

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Kyari Tasks Greenfield Refinery On Fuel Importation

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The Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), Mallam Mele Kyari, has charged members of the Board of the NNPC Greenfield Refinery Limited (NGRL), to explore all available options to bring an end to the current challenge of petroleum products importation.
Mallam Kyari gave the charge Thursday while inaugurating the Board of the newly incorporated subsidiary of the Corporation, NNPC Greenfield Refinery Limited (NGRL), at the NNPC Towers, Abuja.
The NNPC Greenfield Refinery Limited is a subsidiary of the Corporation set up in December 2020 with a mandate to oversee the establishment and operation of new refineries.
The GMD, who is also the Chairman of the NGRL Board, challenged members of the Board to focus on profitability in order to remain afloat and avoid liquidation.
“As a business, this is a big opportunity for us and this company’s balance sheet must change positively. Going forward, with the Petroleum Industry Act (PIA), I can tell you that if you continue to post negative for three years, you are out. So, there is really no excuse”, Mallam Kyari stated.
He urged the Board and Management Team of the new company to set up a proper structure with the required skills, technology and financing to drive the company’s operations, adding that he was optimistic that the company would be able to achieve its mandate.
“Our company must grow and we can’t do well except we are able to process our production whether it is the liquid or gas. If we don’t monetise it then we have done nothing. This is really a new chapter and we are committed to making it work,” he said.
The NNPC helmsman stated that all the Corporation’s initiatives in the areas of new refineries, condensate refineries and equity acquisition in credible private refineries were geared towards ensuring energy security for the country.
In his remarks, the Alternate Chairman of the Board and Group Executive Director, Refinery and Petrochemicals, Engr. Mustapha Yakubu, declared that the operations of the company would be guided by the principles of cost effectiveness in line with the new Petroleum Industry Act (PIA), noting that profitability would be the key focus.
Speaking in similar vein, the Group General Manager, Greenfield Refineries and Project Division (GRPD) and Managing Director of the NGRL, Engr. Bege Talson, disclosed that the Division was working with third party investors to establish greenfield, modular and condensate refineries with a combined capacity of 250,000barrels per stream day (bpsd).

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