Shell has criticised Nigeria’s new draft Petroleum Industry Bill (PIB), claiming that newly formulated tax provisions will deter large investors and prove overly onerous to small-scale investors, potentially damaging the market.
The comments come in response to the latest draft of the PIB; a Bill which has been on the legislative cards for 3 years now with a view to reforming regulation and funding of the oil sector in Africa’s number one oil producing country. However, the PIB has seen much negotiation and delay; due to parties’ inability to agree terms that strike a balance between government and investor interests.
Chevron Corp, Eni SpA, Exxon Mobil Corp., Royal Dutch Shell Plc. and Total SA – together pumping over 90 percent of Nigeria’s oil output – made representations to the government in 2009 making it clear that if the tax provisions initially planned were to enter into force, oil exploration in the country would become “uneconomical”; thus forcing the government into review of the proposed legislation. In turn these delays made it impossible for the government to pass the legislation in the 2011 round, thus it has been tabled again with further revisions.
The latest draft of the Bill presented to lawmakers in July of this year proposes tax rates of 50 percent tax on profits for production operating onshore or in shallow waters, while the rate is set at 25 percent for profits from deep water operations. These figures are a substantial decrease from the 85 percent and 50 percent respective taxes that were originally opposed by oil producers in 2009-2011.
However, Shell still feels that the provisions are overly onerous to investors. Commenting at a stakeholders’ engagement session in Lagos, Shell Petroleum Development Company (SPDC) Managing Director Mutiu Sunmonu argued that the PIB should be: “fair to all investors – big, small, new or old.” He went on to say: “What we have seen of the draft PIB to date does not indicate a bill that fits these criteria. And this is the opinion not only of the major players in Nigeria’s oil and gas industry, but… industry analysts as well”.
While Sunmonu accepts that the government needs to protect its own interests and revenue in an exceedingly profitable industry, he highlights the importance of agreeing a Bill that will allow both investors and the government to benefit; rather than the current draft which removes investor incentives and may lead to a decrease in exploration and pumping.
In addition to tax provisions, the PIB plans to privatise the so-far state-owned Nigerian National Petroleum Corp. (NNPC)which operates alongside investors in the sector through joint-ventures.
The Bill also envisages the creation of a new gas company which would oversee the regulation of Nigeria’s gas reserves. The country currently does not have the infrastructure in place to process gas, despite owning the largest gas reserves in Africa – approximated to total over 180 trillion cubic feet.
