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THE 2012 PETROLEUM INDUSTRY BILL(PIB): AN OVERVIEW
Chika Onuegbu JP,FCAPENGASSAN National Industrial Relations Officer
The Nigeria Petroleum Industry Reforms started long time ago
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010-12
Inauguration of OGIC
24th Apr
5th Sept, 2007
Approval of National Oil & Gas Policy
Re-Inauguration of OGIC
7th Sept
May 2008
OGIC Report completed
2004
Draft National Oil & Gas Policy
PIB
Phase-1
PolicyPhase-2
Legislation
Unfortunately the PIB was not passed during the 6th National Assembly
3
… and so the Fed Govt was advised to re-start the whole process over
Public Hearings
Senate Committee Recommendations
House Committee Recommendations
PIBFEC Submission
2008 Jul 2009 Dec 2010 Mar 2011
NASS Passage
NASSHarmonisation
Presidential Assent
Memoranda; IATSB 236 IAT HB 159 (+170 clauses)
…Journey to the 2012 Petroleum Industry Bill(PIB)
Special PIB Task Force led by Senator Udo Udoma was set in January 2012 to work with relevant government bodies to produce a new version of the PIB for presentation to the National Assembly. The PIB Technical Committee was headed by the Director of DPR Osten Oloronsola.
The Task Force was directed to consult with key stakeholders and to liaise with the National Assembly to ensure the quick passage of the 2012 PIB
The Special Task Force on PIB submitted its report in June 2012 to the Presidency
Federal Executive Council of Nigeria approved the PIB on 11 July 2012
The Presidency upon the approval of the Federal Executive Council (FEC)forwarded the 2012 PIB to the National Assembly on 18th July 2012
The bill is now before the National Assembly
Any moment from now the National Assembly will call for public hearing.
… So how ready is PENGASSAN for the public hearing?
…Journey to the 2012 Petroleum Industry Bill (PIB) cont’d
PENGASSAN National Secretariat set up a PIB Committee made up as follows:1. Comrade Chika Onuegbu Chairman2. Comrade Zaid Kolawole Member3. Comrade M. B. Saidu Member4. Comrade (Rev.) S. F. Oginni Member5. Comrade Chinedu Ajabor Member6. Comrade Tony Nwoha Member7. Comrade Seyi Gambo Member8. Comrade Azubuike M. Azubuike Member9. Comrade Emmanuel Onuorah Member10. Comrade Bayo Olowoshile Co-opted Member11. Comrade Babatunde Oke Secretary
The PENGASSAN PIB Committee had an interactive session with the Senator Udo Udoma Federal Govt Task Force on PIB and the Osten Oloronsola Technical Committee on PIB on April 11, 2012 in FCT Abuja.
The PENGASSAN PIB Committee obtained and circulated the PIB submitted by the Presidency to the Senate to all our branches and members for their review and inputs.
However the response was not encouraging as many branches did not respond. For instance among the PF family only Total E&P submitted a position to the PENGASSAN PIB Committee.
Overview of the 2012 PIB
The 2012 PIB: Is a 223 page document ;comprises 363 sections divided into 9 parts with 5 schedules. Provides for
the legal, fiscal and regulatory framework for the oil and gas industry. Note that some sections of the PIB were not correctly numbered. E.g. no section 119
Create two regulatory entities. The Upstream Petroleum Inspectorate and the Downstream Petroleum Regulatory Agency Provides for Host Community Fund ; Upholds in its entirety the Nigerian Oil and Gas Industry Content Development Act 2010
Split the NNPC into three entities; two incorporated, one not. Subjects the Petroleum industry to heavy political manipulations &interference, which could lay
foundation for unrivalled corruption .e.g. Presidential power to grant licenses and leases without competitive process or any other process; Excessive powers of the Minister of Petroleum including the power to determine rentals and royalties by regulation; recommend all persons to the boards; chairman most of the boards ;make regulations without public hearing etc.; power to receive gifts by the agencies; non application of fiscal responsibility and public procurement acts for many agencies
Introduces new fiscal framework for the oil and gas industry; NHC, CIT and Royalties No mention of refining or refining operations other than in Section 220 (2)(b) which mentions that
regulations may be made for these operations. Meanwhile there is a refinery Bill in the senate. Its outcome will determine the future of the Nigerian oil and gas industry , as well as the Nigerian
workers. Most influential and important legislation after the Nigerian constitution
Overview of the 2012 PIB cont’d
The 9 parts of the PIB are:
Part I. Objectives (Sections 1 to 4)
Part II. Institutions (Sections 5 to 169)
Part III.Upstream Petroleum (Sections 170 to 205)
Part IV.Downstream Licensing (Sections 206 to 220)
Part V. Downstream Petroleum (Sections 221 to 283)
Part VI.Indigenous Petroleum Companies (Sections 284 to 288)
Part VII. Health Safety and Environment (Sections 289 to 298)
Part VIII Provisions on Taxation in the Petroleum Industry (299 to 353)
Part IX Repeals, Transitional and Savings Provisions (Sections 354 to 363)
Overview of the 2012 PIB cont’d
The 5 Schedules of the PIB are:
First Schedule. Rights of Pre-emption
Second Schedule. Supplementary Provision Relating to the Proceedings of the Boards of institutions under this Act:
Third Schedule. Powers and Duties of the services under the Act:
Fourth Schedule. Capital Allowances
Fifth Schedule. Production Allowances
OBJECTIVES OF THE 2012 PIB (s.1)
Create a conducive business environment for petroleum operations;
Enhance exploration and exploitation of petroleum resources in Nigeria for the benefit of the Nigerian people
Optimize domestic gas supplies, particularly for power generation and industrial development
Establish a progressive fiscal framework that encourages further investment in the petroleum industry while optimizing revenues accruing to the Government
Establish commercially oriented and profit driven oil and gas entities;
Deregulate and liberalize the downstream petroleum sector;
Create efficient and effective regulatory agencies;
Promote transparency and openness in the administration of the petroleum resources of Nigeria
Promote the development of Nigerian content in the petroleum industry
Protect health, safety and the environment in the course of petroleum operations; and
Attain such other objectives to promote a viable and sustainable petroleum industry in Nigeria
10
2012 PIB:BROAD POLICY THRUST FOR PENGASSAN
2012 PIB – Broad Policy Thrust for PENGASSAN
Transparency and Accountability : Competitive, non-discretionary licensing and tender processes
for all contracts and licenses. Specific provisions for Voiding ALL confidentiality clauses for oil
revenue and payment information The reduction to the barest minimun of all discretionary powers
and political interference in the running of the agencies set up by the PIB
Sincere and genuine pursuit of transparency and accountability as key enabler of business growth in the nation’s petroleum industry and sustained economic development of Nigeria
Specific provisions for Publication at least on a quarterly basis the comprehensive production, export and import figures
Specific provisions for Publication of NNPC/ NOC/ National Petroleum Asset Management Corporation/Host Community Funds annual reports and audits online as the case with the multinationals
2012 PIB – Broad Policy Thrust for PENGASSAN cont’d
Balance b/w Government Take & Industry Growth:
PENGASSAN believes that there should be a good balance between government take (royalties, Tax etc) and industry growth.
The PIB should optimise the returns to Nigeria from its oil and gas resources without stifling investments and growth of the industry.
Our position is informed by the lessons presented in Economic theory by Laffer curve.
The PIB should provide a fiscal regime that is competitive and that will encourage investments in critical areas of the Nigerian oil and gas sector.
This position is furthered strengthened by the discovery of oil and gas in the Gulf of guinea , Dahomey regions and similarly close regions; and the urgent need for the development of gas and power, local refining capacity etc.
2012 PIB – Broad Policy Thrust for PENGASSAN Cont’d
Labour Issues : PENGASSAN supports the PIB in principle, provided the following are fully met :
There is mandatory recognition of the right to freedom of association and effective collective bargaining by all companies operating or doing business in the Nigeria oil and gas industry irrespective of where they are located .
The PIB ensures that all companies operating in the Nigerian oil and Gas industry comply with all international labour conventions that have been ratified by Nigeria; the collective agreements with the labour unions and the extant labour laws as a minimum in all their dealings with the Nigerian workers and their representatives.
All Workers in the NNPC and ALL other government agencies to be impacted by the PIB shall transit to the new companies/agencies on same terms and conditions. This is crucial to the successful take-off of these agencies, the NOC and the PIB itself.
2012 PIB – Main Policy Thrust for PENGASSAN cont’d
Labour Issues Contd :
Proper arrangements should be made in the PIB to ensure that the liabilities of the NNPC and other agencies to their staff such as pensions to retired and existing employees are adequately provided for prior to the effective commence date of the PIB.
Ensure that companies operating in the oil and gas industry do not use the PIB as a ploy to disengage Nigerians. To this end, the PIB should give the Upstream Petroleum Inspectorate (UPI) the power to protect the jobs of Nigerians working in the oil and gas industry such that no Nigerian will be relieved of his/her job in the Nigerian oil and gas industry without the approval in writing of the Upstream Petroleum Inspectorate (UPI). This will ensure the reduction of anti-labour practices and engender industrial peace and harmony
Strengthen the Nigerian Content Act and policies especially as relates to labour, training and manpower development
2012 PIB – Broad Policy Thrust for PENGASSAN cont’d
Membership of All Boards in the PIB :
Workers and their unions are strategic partners and
stakeholders whose participation, initiatives, drive
and inputs are important for the successful
operations of the oil and gas industry.
Consequently we demand for one representative
EACH of PENGASSAN and NUPENG, in ALL the boards
and committees set up in the PIB as strategic
partners with cognate industry knowledge
16
2012 PIB:INSTITUTIONS
Structure of Institutions under the PIB
Ministry of Petroleum Resources
NATIONAL GAS COMPANY
NGC Assets
NATIONAL OIL COMPANY
NPDC Assets
REFINERIES
PSCs, PPMC, NLNG, ETC
National Petroleum
Assets Management Corporation- NPAMC
NPAMC
6 JVs
PARASTATALS
PTDF, PEF, PTI,
NCDMB, PHCF
Downstream Petroleum Regulatory
Agency
Upstream Petroleum
Inspectorate
Petroleum Technical Bureau
PIB Institutions
1.The Minister - Supervision + Policy
2. Petroleum Technical Bureau – PTB; Special Unit of the Office of the
Minister
3. Upstream Petroleum Inspectorate – UPI; Independent? Regulator,
Upstream
4. Downstream Petroleum Regulatory Agency – DPRA; Independent?
Regulator, Downstream
5. Petroleum Technology Development Fund - PTDF; Capacity
development
6. Petroleum Equalisation Fund - PEF;…..Collects net surplus revenue
from petroleum products marketing companies . Will manage
subsidy fund post PIB
7. Petroleum Host Community Fund – PHCF; FTO issues, security of
facilities
8. National Petroleum Assets Management Corporation- NPAMC;
………JV Operations
9. National Oil Company – NOC; Commercial
10. National Gas Company Plc.; Commercial
PIB Institutions Cont’d
PIB Institutional Alignment
1. Minister of PetroleumPolicy Regulation Operations
Minister UPI NOC
PTB DPRA NGC plc.
PHCF PTB? NPAMC
International / Indigenous OCs
2. The Petroleum Technical Bureau (PTB)
PIB Institutional Alignment Cont’d
A special Unit of the Office of the Minister
Provide technical and professional support to the Minister
Assist the minister in formulation strategies to implement government
policies in the Petroleum Industry(PI)
Assist the minister in monitoring the implementation of government
policy in the PI
In addition to its other duties carry out the functions of the former Frontier
Exploration Services (FES) of the NNPC
***No information on staffing structure
3. Upstream Petroleum Inspectorate (UPI)
PIB Institutional Alignment Cont’d
Upstream Regulator
With the approval of the Minister, allocate petroleum production quotas
Execute government policies assigned to it by the Minister
Regulate all technical aspects of the upstream sector
Regulate commercial activities within the upstream sector
Determine and ensure implementation and maintenance of technical
standards and specifications
Administer and enforce policies, laws and regulations relating to upstream
operations
4. Upstream Petroleum Inspectorate (UPI)
PIB Institutional Alignment Cont’d
Members to be appointed by the President on recommendation of the
Minister
Structuring the Inspectorate into such number of departments as is deemed
fit for the effective discharge of its functions will be subject to the approval
of the Minister
The Board shall appoint a Secretary for the Inspectorate
PIB Institutional Alignment Cont’d
***UPI Board
Chairman *
Director General
2 Directors of the Inspectorate
2 persons (min. Directors) of the Ministry of Petroleum Resources
1 person (min. Director) from the Federal Ministry of Finance
1 representative from NUPENG *
1 representative from PENGASSAN *
3 others **
***4-yr terms renewable for no more than additional 4 years
*Part-time
PIB Institutional Alignment Cont’d
5. Downstream Petroleum Regulatory Agency (DPRA)
Downstream Regulator
With the approval of the Minister, allocate petroleum production quotas
Facilitate the supply of gas to the strategic sectors
Execute government policies assigned to it by the Minister
Regulate all technical aspects of the downstream sector
Regulate commercial activities within the downstream sector
Determine and ensure implementation and maintenance of technical
standards and specifications
Administer and enforce policies, laws and regulations relating to
downstream operations
PIB Institutional Alignment Cont’d
6. DPRA Board
Members to be appointed by the President on recommendation
of the Minister
Structuring into such number of departments as is deemed fit
for the effective discharge of its functions will be subject to the
approval of the Minister
PIB Institutional Alignment Cont’d
Chairman ***
Director General**
2 Directors of the Inspectorate
2 persons (min. Directors) of the Ministry of Petroleum Resources
1 person (min. Director) from the Federal Ministry of Finance
1 representative from NUPENG*
1 representative from PENGASSAN*
3 others ***
**4-yr terms renewable for no more than additional 4 years
*Part-time
DPRA Board
PIB Institutional Alignment Cont’d
7. Petroleum Technology Development Fund (PTDF)
Develop local human capacity for the oil and gas sector through
but not limited to:
Provision of scholarships and bursaries, wholly or partially in
universities, institutions and in petroleum undertakings in Nigeria
or abroad
Making suitable endowments to faculties in Nigeria universities,
college, or institutions
Liaising with research centres in Nigeria and abroad on the
adaptation of technology and innovations appropriate to the
needs of the Nigerian petroleum industry
Enhancement and development of infrastructure in tertiary
institutions that provide courses of study relevant to the
petroleum industry
PIB Institutional Alignment Cont’d
PTDF Board
The Board shall appoint a Secretary for the Inspectorate Minister as Chairman 1 person (min. Director) from the Federal Ministry of Finance 1 person (min. Director) from the UPI 1 representative from the Nigerian Content Development and
Monitoring Board (NCDMB) The Executive Secretary of the PTDF The Principal, PTI A representative of the Society of Petroleum Engineers A representative of the Society of Engineers6 persons from the 6 geopolitical zones to be appointed by the
President on recommendation of the Minister* Part-time 4-year terms and renewable for another 4 years.
8. Petroleum Equalization Fund (PEF)
Shall continue to be the PEF into which shall be paid:
Any net surplus revenue recovered from petroleum products
marketing companies pursuant to this Act
Such sums as may be provided for purpose of the Equalization
Fund by the Federal Government
Manage the Subsidy fund post PIB
Exist only as long as there is subsidy on petroleum products
PIB Institutional Alignment Cont’d
PIB Institutional Alignment Cont’d
PEF Board
The Board shall appoint a Secretary for the Fund Minister as Chairman The Executive Secretary of the PEF 1 person from the Federal Ministry of Finance 1 person from the Ministry of Petroleum Resources 1 person from the PEF 1 person from the National Association of Road Transport Workers 1 representative of the Major Marketers Association of Nigeria 1 representative of the Independent Petroleum Marketers
Association of Nigeria 1 representative each of the NLC and the TUC of Nigerian 3 persons to be appointed by the President on recommendation of
the Minister
* Part-time 4-year terms and renewable for another 4 years.
PIB Institutional Alignment Cont’d
9. Petroleum Host Communities Fund (PHCF)
Utilized for the development of the economic and social
infrastructure of the communities within the petroleum producing
areas.
Every upstream petroleum-producing company shall remit on a
monthly basis 10% of its net profit:
onshore, shallow waters and offshore- remittance to be made
directly into the PHCF
Deep-water areas – remittance directly to the Fund for the benefit
of the petroleum producing littoral States
PIB Institutional Alignment Cont’d
10%10%
100%
Profits generated
PPHC Fund
Profits generated
Share for Communities
Fund
State Governments of 8 littoral
states
Community Funds (PML
cover)
Strategic Community
Fund
90% 10%
1) There shall be established a Petroleum Producing Host Communities Fund (“Fund”). The total value of the fund will be equal to 10% of the Profits (defined as Total Revenues minus Royalties and minus Costs minus Tax).
2) The fund shall consist of two main components:-
1) A direct Community Fund which shall be maximum of 90% of the PPHC, which shall be remitted to Communities covered by PMLs
2) A Strategic Community Fund which shall be maximum of 10% of the PPHC, to be utilized for communities not covered by PMLs.
3) Distribution of the funds to each community will be guided by regulations to be promulgated by the Minister of Petroleum Resources
Petroleum Host Community Fund
The new Bill establishes the Host Communities Trust Fund, but does notdefine “host community’ rendering that description amenable to several
interpretations.
10. National Petroleum Assets Management Corporation (NPAMC)
A holding company operating fully on commercial principles: Acquire and manage investments of the government in the
Nigerian upstream petroleum industry Undertake such other activities as are necessary or expedient for
giving full effect for the performance of its functions e.g. acquisition and maintenance of subsidiaries
Funding: (1) monies made available by the government for the purpose of funding the subsidiaries (2) such monies as may be received by the Corporation in the course of its operations
The NPAMC, though incorporated under the Companies and Allied Matters Act, but shall not be subject to the provisions of the Fiscal Responsibility Act and Public Procurement Act, both of 2007
Following the incorporation of the NPAMC, assets and liabilities comprising exclusively the interest in all the unincorporated joint ventures held by the NNPC and excluding the assets that the government may have vested in the NOC shall be vested in the NPAMC (12-24 months)
PIB Institutional Alignment Cont’d
NPAMC Board
PIB Institutional Alignment Cont’d
***UPI Board
a. Minister as Chairman
b. The PS, Federal Ministry of Finance
c. MD of the Management Company
(Subsidiary to be established by the
Corporation)
d. 2 persons to be appointed by the
president
PIB Institutional Alignment Cont’d
11. National Oil Company (NOC) A public company limited by shares and vested with certain
assets and liabilities of the NNPC (to be incorporated no later than 3 months after the effective date)…Initial shares to be held by a nominee of the MPR and MOF incorporated on behalf of the Federal Government:
Within 6 years from the date of incorporation of the NOC: up to 30% of the authorized shares of the NOC shall be divested to the public
Following the incorporation of the NOC, assets and liabilities held by the NNPC except the interests in the unincorporated joint ventures and Nigerian Gas Company Limited shall be vested on the NOC within 12-24 months from the effective date
The NOC shall be subject to the Governance rules of the SEC
The NOC shall not be subject to the provisions of the Fiscal Responsibility Act and Public Procurement Act, both of 2007
PIB Institutional Alignment Cont’d
12. National Gas Company PLC (NGC Plc.) A public company limited by shares and vested with certain
assets and liabilities of the NNPC: Within 6 year from the date of incorporation of the NGC Plc.: up to
40% of the authorized shares of the NGC Plc. shall be divested to the public
Following the incorporation of the NGC Plc., assets and liabilities held by the NNPC except the Nigerian Gas Company PLC shall be vested on the NGC Plc. within 12-24 months from the effective date
The NGC Plc. shall be subject to the Governance rules of the SEC The NGC Plc. shall not be subject to the provisions of the Fiscal
Responsibility Act and Public Procurement Act, both of 2007
166: prior to vesting of the assets and liabilities of the NNPC on the NGC Plc., the Minster may give to the Board of Directors of NNPC directions in writing and the BOD shall comply with every such direction
PIB Institutional Alignment Cont’d
13. Other Institutions
1. The Petroleum Training Institute (PTI), established by the PTI Act
2004 shall remain a parastatal supervised by the Minister
2. The Nigerian Content Development and Monitoring Board,
established by the Nigerian Oil and Gas Industry Content
Development Act 2010, shall remain a parastatal under the
Minister
2012 PIB Institutions :COMPARATIVE ANALYSIS
AGENCIES FUNCTIONS BOARD C E O’s STAFF C O S FUNDING REMUNERATION PENSIONPetroleum Technical Bureau
Specified. Pg 16 sec. 10
Not Specified Not Specified Specified. Pg 17 sec. 11
Specified. Pg 17 sec. 11 (2)
Not Specified Specified. Pg 17 sec. 11 (2)
Specified. Pg 17 sec. 12 (1&2)
Upstream Petroleum Inspectorate
Specified. Pg 19 sec. 15
Specified pg 21 sec.17 (NUPENG & PENGASSAN)
Specified. Pg 24 sec. 23
Specified. Pg 26 sec. 28
Specified. Pg 27 sec. 32
Specified. Pg 26 sec. 30
Specified. Pg 24 sec. 24 & pg 26 sec 29 Oil & Gas
Specified. Pg 26 sec. 30
Downstream Petroleum Regulatory Agency
Specified. Pg 32 sec. 45
Specified. Pg 36 sec. 47 (NUPENG & PENGASSAN)
Specified. Pg 39 sec. 53
Specified. Pg 40 sec. 58
Specified. Pg 41 sec. 59
Specified. Pg 42 sec. 62
Specified. Pg 37 sec. 49, pg 39 sec 54
Specified. Pg 41 sec. 60
Petroleum Technology Development Fund
Specified. Pg 48 sec. 76
Specified. Pg 48 sec. 77
Specified. Pg 51 sec. 84
Specified. Pg 53 Sec. 88
Specified. Pg 53 Sec. 88 (3)
Specified. Pg 46 Sec. 74, pg 47 Sec. 75
Specified. Pg 50 sec. 79, pg 52 sec 85, pg 53 sec 89 Oil & Gas
Specified. Pg 53 Sec. 90
Petroleum Equalization Fund Management Board
Specified. Pg 58 sec. 103
Specified. Pg 57 Sec. 101. NLC, TUC
Specified. Pg 59 Sec. 105
Specified. Pg 60 Sec. 107
Not Specified Specified. Pg 60 Sec. 108 (Note pg 56 sec 100 (4)
Not Specified Not Specified
Petroleum Host Community Fund
Specified. Pg 63 sec. 118
Not Specified Not Specified Not Specified Not Specified Specified. Pg 63 sec. 118 (a & b)
Not Specified Not Specified
2012 PIB Institutions :COMPARATIVE ANALYSIS Cont’d
AGENCIES FUNCTIONS BOARD C E O’s STAFF C O S FUNDING REMUNERATION PENSIONNigerian Petroleum Assets Management Company Limited
Specified. Pg 64 sec. 120
Specified. Pg 68 sec. 131
Not Specified. However, MD as a board member
Transfer of staff, etc pg 189 Sec 356
Transfer of staff, etc pg 189 Sec 356
Specified. Pg 64 sec. 121
Specified. Pg 52 sec. 85, pg 53 sec. 89 pg 69 sec. 133, Oil & Gas
Transfer of staff, etc pg 189 Sec 356
Transition from NNPCPg 76 sec 155Transition from NNPC
Transition from NNPC
Transition from NNPC
Pg 76 sec 155 Pg 76 sec 155 Pg 76 sec 155
Nigerian Content Development & Monitoring Board
NOGICD Act 2010 NOGICD Act 2010 NOGICD Act 2010 NOGICD Act 2010 NOGICD Act 2010 NOGICD Act 2010 NOGICD Act 2010 NOGICD Act 2010
PTI Act, CAP. 16 of the Laws of the
PTI Act, CAP. 16 of the Laws of the
PTI Act, CAP. 16 of the Laws of the
Petroleum Training Institute
PTI Act, CAP. 16 of the Laws of the
PTI Act, CAP. 16 of the Laws of the
PTI Act, CAP. 16 of the Laws of the
PTI Act, CAP. 16 of the Laws of the
PTI Act, CAP. 16 of the Laws of the
Transition from NNPC. Pg 76 sec. 155
Transfer of staff, etc pg 189 Sec 356
Transfer of staff, etc pg 189 Sec 356
National Gas Company Plc
Not Specified Transfer of staff, etc pg 189 Sec 356
Transfer of staff, etc pg 189 Sec 356
Transfer of staff, etc pg 189 Sec 356
Transfer of staff, etc pg 189 Sec 356
National Oil Company
Transition from NNPC. Pg 76 sec. 155
Not Specified Transfer of staff, etc pg 189 Sec 356
Transfer of staff etc pg 189 Sec 356
NB: The present NNPC will become 3 companies-National Oil Company Plc (Government 70% ;30% will be made available to members of the public. ), National Gas Company Plc – (present NGC, govt 51% ,49% to public) and National Petroleum Asset Management Corporation - this will be a holding company fully-owned by the government
41
2012 PIB:FISCAL FRAMEWORK
2012 PIB: Fiscal Framework
DESIGN CONSIDERATIONS and Thrust of Federal Government:
A main objective of the PIB is to –’Establish a progressive fiscal framework that encourages further investment in the petroleum industry while optimizing revenues accruing to the Government’. The design considerations for Fiscal framework according to the federal government technical subcommittee on PIB led by Osten Olorunsola are to: Improve overall competitiveness in the oil and gas sector. Maintain per cent government revenues from onshore/swamp and shallow
offshore for crude oil and condensate at the current level. Increase government revenues from deep-water PSC operations, through
adjusted royalty rates. Create attractive fiscal terms for gas in all terrains. Improve savings index by reducing tax rate (Sole risk/JV) and eliminating
investment based fiscal incentives. Special incentive provisions (increased production allowances) included for
PSCs in onshore/swamp/shallow offshore to partially compensate for investor value erosion compared to sole risk operators in these terrains.
2012 PIB: Fiscal Framework Cont’d
Principles for Royalties and Tax : Fiscal regime (Royalty and Tax) predicated on production as
opposed to terrain and investment respectively Royalty by Production
Captures the output of a company as opposed to its location Creates a fair balance between small and big producers
operating in the same terrain Enables operators to continue to make fair returns during field
decline Royalty by Price
Trigger mechanism is fair to all irrespective of the terrain Self adjusting rate based on the price of crude oil
Abrogation of Royalty by Terrain
2012 PIB: Fiscal Framework Cont’d
The Nigerian Hydrocarbon Tax (Sections 299 – 352) which shall be administered &
collected by the Federal Inland Revenue Service. S.313 provides for the following as
assessable tax :
50% for onshore and shallow water areas
25% for bitumen, frontier acreages and deep water areas
Where petroleum operations fall in geographical areas that are subject to different tax
rates, NHT shall be levied on the proportionate parts of the profits arising from such
operations.
The Company Income Tax ( Section353, page 184): Previously, in the upstream
sector, companies’ income tax (CIT) is only levied on gas profits. Under the PIB, CIT will be
30% of all assessable profits, and is not deductible from NHT. There are incentives in the
Companies Income Tax Act such as tax holidays which will be retained for LNG companies.
A tax holiday is also available for any company which supplies gas solely for the domestic
market.
It is important to note that the PIB does not amend/delete paragraph (h) of section
19(1) of the CIT Act, Cap 60, LFN, 1990, which exempts “the profits of any company
engaged in petroleum operations” from CIT. It may be expedient for the Bill to
specifically delete this paragraph to avoid potential controversy on the liability of
profits derived from petroleum operations to CIT.
2012 PIB: Fiscal Framework Cont’d
Royalties(Section 197):
The PIB does not specify the basis and percentage of royalties to be paid by companies engaged in petroleum operations. However, the Bill empowers the Minister for Petroleum Resources (‘the Minister’) to make regulations in that regard. However it is expected that royalties will be by price and production rather than the current practice where it is by terrain.
Contributions to the Petroleum Host Communities Fund (Sections
116 – 118): All upstream petroleum producing companies shall remit, on a monthly basis,
to the Petroleum Host Community Fund (PHC Fund), 10% of net profits from their onshore, shallow water and deep water operations. “Net profit” is defined in the PIB as “the adjusted profit less royalty, allowable deductions and allowances, NHT and companies income tax.”
However under the current regime, all producing and gas processing companies operating onshore and offshore in the Niger-Delta area are required to contribute 3% of their total annual budget to the Niger-Delta Development Commission Fund (NDDC Fund) pursuant to the Niger-Delta Development Commission (Establishment) Act (NDDC Act).
Since the NDDC Act is not one of the statutes listed for repeal under the PIB ,Companies will to contribute to the PHC Fund and the NDDC Fund. Contributions made by a company to the PHCF are to be set off against its ‘total fiscal rent obligations’. Fiscal rent is the aggregate of royalty, Nigerian Hydrocarbon Tax and Companies Income Tax obligations arising from upstream petroleum operations.
2012 PIB: Fiscal Framework Cont’d
Penalty for Gas Flaring (Sections 275 – 283):
The PIB prohibits the flaring of natural gas after a ‘flare-out date’ to be specified by the Minister via regulations. Based on section 306(k) of the PIB, gas flaring penalty will not qualify as a tax deductible expense, as is currently the case.
Payment of Renewal Bonus (Section 185):
Section 185(2) requires lessees under a PML arrangement to pay “a renewal bonus of an amount specified in the lease” at the time of renewing the PML. Based on section 306(l) of the PIB, renewal bonuses are specifically disallowed for NHT purposes.
2012 PIB: Fiscal Framework Cont’d
Deductions Allowed: for tax purposes are:
expenses wholly, exclusively, necessarily and reasonably incurred for the purpose of upstream petroleum operations.
Sums ‘set aside in a fund’ as decommissioning and abandonment expenditure have now been explicitly specified as tax-deductible. This implies that only funded provisions would be allowable
Interest incurred on capital employed for upstream petroleum operations is tax deductible, except where the interest relates to operations under a Production Sharing Contract (PSC)
Contributions to the Petroleum Host Communities Fund are allowable Contributions to pension and other similar schemes/funds are tax-
deductible. The need to obtain approval for these contributions has been removed, as long as the scheme/fund is in line with the Pension Reform Act.
2012 PIB: Fiscal Framework Cont’d
Deductions Disallowed deductions include: all general, administrative and overhead expenses incurred
outside Nigeria in excess of 1% of capital expenditure and 20% of any expenses incurred outside Nigeria except for goods or services not available domestically in the required quantity or quality.
legal and arbitration costs related to cases against the tax authorities or the Federal Government except awarded to the company during the legal or arbitration process .
Others include costs incurred in organising or managing any partnership, joint venture or other arrangement between or among companies, gas flaring charges, insurance costs payable to an affiliate of the company,
any signature or production bonuses costs of obtaining and maintenance of a performance bond
under a PSC Any cost arising from fraud, wilful misconduct or negligence on
the part of the company
2012 PIB: Fiscal Framework Cont’d
The requirement to pay CIT (in addition to the NHT) is not new in the taxation of petroleum companies in other jurisdictions. However,
The rates of the two tax types, together with other fiscal provisions of the PIB, will most likely result in an increase in the effective tax rate of many companies under the PIB regime. This is a contentious issue as the govt claim that the effective increase is just 1%. However the IOCs disagree and cite for instance that: PSC companies that currently pay PPT at a rate of 50% of chargeable
profits, will be liable to NHT and CIT at a combined rate of about 55% (i.e., 30% CIT plus 25% NHT). This is aside from the fact that the companies will give up the relatively more favourable Investment Tax Credit (ITC) /Investment Tax allowance (ITA) that currently applies, for Production Allowance (PA)and General Production Allowance (GPA)
JV companies that are yet to fully amortise their capitalised pre-production expenses are currently liable to PPT at a reduced rate of 65.75%; whereas they will be liable to NHT and CIT at a total rate of about 80% under the new regime.
JV companies that currently pay PPT at 85%, it would appear on the surface that they will pay lower corporate tax at a total rate of 80% under the PIB. However, considering that the companies will no longer enjoy PIA, will not be entitled to PAs and GPAs except for gas operations, and may have a significant proportion of their offshore expenses disallowed, the companies may well have a higher effective tax under the PIB.
2012 PIB: Fiscal Framework Cont’dOffshore/Onshore/Swamp/Shallow :Tax rates and other allowances Comparison
50
Current TermsTaxes/allowances
Proposed TermsTaxes/Allowances
Tax credits / Allowances replaced by production allowance under the proposed terms
Petroleum Profits Tax RatesDuring cost recovery (yr1 - yr5) 65.75%After cost recovery (yr6+) 85.00%Company income tax (on gas revenues) 30.00%
Investment (Initial) Allowance RatesOnshore 5.00%Offshore 10.00%
Capital (Annual) Allowance RatesYear 1 - year 4 20.00%Year 5 19.00%retention 1.00%
Tax Rates RatesHydrocarbon tax - oil & condensate 50.00%Company income Tax 30.00%
Capital (Annual) Allowance RatesYear 1 - year 4 20.00%Year 5 19.00%retention 1.00%
Production Allowance - crude oil & condensateOnshore:
0 - 10 MMBbls
10 - 75 MMBblsShallow offshore:
0 - 20 MMBbls
20 - 150 MMBbls
Lower of $30/bbl or 30% of OSP
Lower of $12/bbl or 30% of OSP
Lower of $30/bbl or 30% of OSP
Lower of $12/bbl or 30% of OSP
Source: Osten Olorunsola PIB Technical Sub Committee
2012 PIB: Fiscal Framework Cont’dOffshore/Onshore/Swamp/Shallow :Tax rates and other allowances Comparison - cont’d
51
Current TermsTaxes/allowances
Proposed TermsTaxes/Allowances
Production Allowance - natural gas
Onshore:
0 - 1,000 bcf
> 1,000 bcf
Shallow offshore:
0 - 2,000 bcf
> 2,000 bcf
Lower of $1.0 MMBtu or 30% of gas value
Lower of $0.3 MMBtu or 30% of gas value
Lower of $1.0 / MMBtu or 30% of gas value
Lower of $0.3 / MMBtu or 30% of gas value
Source: Osten Olorunsola PIB Technical Sub Committee
PIB….Fiscal Comparison – Deepwater PSCsTax rates and other allowances
52
Current TermsTaxes/allowances
Proposed TermsTaxes/Allowances
Tax credits / Allowances replaced by production allowance under the proposed terms
Taxes RatesPetroleum Profits Tax rate 50.00%
Investment (Initial) Allowance/Credit Rates1993 PSCs - Tax credits 50.00%Others - tax allowance 50.00%
Capital (Annual) Allowance Rates
Year 1 - year 4 20.00%
Year 5 19.00%
retention 1.00%
Source: Osten Olorunsola PIB Technical Sub Committee
0 - 200m 16.67%200 - 500m 12.00%500 - 800m 8.00%
800 - 1000m 4.00%> 1,000m 0.00%
Basis: Water Depth
Avg. Prod, BOPD Deepwater Avg. Prod, MMSCFD Deepwater
< 50,000 5.0% =< 500 MMSCFD 5.0%
50,001 - 100,000 12.5% > 500 MMSCFD 12.5%
> 100,000 18.5%
Avg. Prod, BOPD Deepwater
=< 50,000 BOPD 5.0%
> 50,000 BOPD 12.5%
Crude oil & Condensate Natural Gas
Condensate from natural gas
Tax Rates RatesHydrocarbon tax 25.00%Company income Tax 30.00%
Capital (Annual) Allowance Rates
Year 1 - year 4 20.00%
Year 5 19.00%
retention 1.00%
PIB….Fiscal Comparison – Deepwater PSCsTax rates and other allowances
53
Current TermsTaxes/allowances
Proposed TermsTaxes/Allowances
Production Allowance:
Crude oil & condensate:
Natural Gas:
0 - 3000 bcf
> 3000 bcfCondensate from Natural Gas:
0 - 300 MMBbls
> 300 MMBbls
Lower of $20/bbl or 30% of OSP
Lower of $3/bbl or 30% of OSP > 250 MMBbls
Lower of $0.50 MMBtu or 30% of gas value
Lower of $5/bbl or 30% of OSP
Lower of 30% of gas value or $1.0/MMBtu
Lower of $15/bbl or 30% of OSP 0 - 250 MMBbls
Source: Osten Olorunsola PIB Technical Sub Committee
54
OTHERS • Repeals• Issues and Main
Concerns
Existing laws that will be repealed upon passage of PIB into law: s.354
Associated Gas Re-injection Act, CAP A25, Laws of the Federation of Nigeria 2004
Motor Spirits (Returns) Act, CAP M20, Laws of the Federation of Nigeria 2004
Petroleum Act, CAP 10 Laws of the Federation of Nigeria 2004
Petroleum Products Pricing regulatory Agency (Establishment) Act, 2003
Petroleum Equalization Fund (Management Board, etc) Act, CAP P11 Laws of the Federation of Nigeria 2004
Petroleum (Special) Trust Fund Act, CAP P14 Laws of the Federation of Nigeria 2004
Petroleum Technology Development Fund Act, CAP P15 Laws of the Federation of Nigeria 2004
Deep Offshore and Inland Basin Production Sharing Act, CAP D3 Laws of the Federation of Nigeria 2004. Except for section 16 sub-sections 1 and 2
Petroleum Profits Tax Act, CAP P13 Laws of the Federation of Nigeria 2004
NB:The NNPC act, NNPC Projects Act and NNPC amendment act shall be deemed to be repealed on the date that the Minister signifies by legal notice in the gazette that the assets and liabilities of the NNPC are fully vested in successor entities. For Subsidiary legislations – see s.354(3)
Issues and major concerns:
TRANSFER OF STAFF: There is a fundamental difference in the transfer of staff for staff of DPR
and PPPRA , from that of NNPC. Subsection 3 PIB Provision: From the date of vesting of the assets and liabilities of NNPC
in the National Oil Company (NOC), staff performing functions relating to those assets and liabilities shall be regarded as having transferred services to the National Oil Company. Contrast this with that of DPR and PPPRA
All staff with duties relating to upstream operations of the DPR in the Ministry of Petroleum Resources shall be deemed to have transferred their services to the Upstream Petroleum Inspectorate (UPI) on terms and conditions no less favourable than those previously obtained
From the effective date, the staff of the Petroleum Products Pricing Regulatory Authority (PPPRA) shall be deemed to have transferred their services to the Downstream Petroleum Regulatory Agency (DPRA) on terms and conditions no less favourable than those previously obtained
From the date of vesting of the assets and liabilities of the NNPC (in the NOC, NGC, and the Management Company) the staff performing the functions relating to those assets and liabilities shall be regarded as having transferred their service
Any transfer of services by virtue of above provisions shall be regarded as continuous for the purpose of pension and gratuity
Issues and major concerns:
TRANSFER OF STAFF cont’d : Arising from our broad policy thrust and the fundamental difference in the
transfer of staff for staff of DPR and PPPRA , from that of NNPC. We demand that:
The bill only mentioned the staff of the NNPC, Department of Petroleum Resources and the Petroleum Products Pricing Regulatory Agency (PPPRA) but silent on the subsidiaries of the NNPC, such as NAPIMS, PPMC and the refineries among others. Subsections 1, 2 and 6 clearly captured pension and gratuity of the staff of DPR and PPPRA.
a. The bill should also take care of the issue of transfer of staff in NNPC subsidiaries, such as NAPIMS, PPMC and the refineries
b. None of the staff that transits shall be asked to leave service until a minimum of five (5) years after transition.
c. After the Five (5) years, the union must be involved in reorganisation/rightsizing cum negotiation of exiting staff
d. Staff, who transit, shall transit with their union status.
Issues and major concerns: cont’d
Powers of the Minister: The powers of the Minister under the PIB are excessive and capable of destroying the laudable objectives of the PIB. The wide powers given to the minister of petroleum to make regulations on practically all issues including (i) gas flaring (ii) distribution of the revenues from the Petroleum Host Communities Fund (iii)recommendations of all persons to be appointed into all boards in the PIB(iv) power to send persons into prison (v)determining royalties and rentals.
Equally worrisome is that this PIB grants the minister of petroleum the sole powers to reform NNPC and associated entities even when the Privatisation and Commercialisation Act (1999) gives the National Council on Privatisation and its secretariat, the Bureau of Public Enterprises, this responsibility. These powers include so many discretionary powers.
These wide powers run counter to the following objectives of the PIB: Create efficient and effective regulatory agencies; Promote transparency and openness in the administration of the
petroleum resources of Nigeria Create a conducive business environment for petroleum operations; Enhance exploration and exploitation of petroleum resources in Nigeria
for the benefit of the Nigerian people
Powers of the Minister cont’d:
Accordingly we demand that: The appointment and removal of the chief executives and Board members of the
Upstream Inspectorate, Downstream Petroleum Regulatory Agency, the National Oil Company, the Asset Management Corporation should follow the process of appointment for other regulatory agencies such as the National Electricity Regulatory Commission (NERC) or Nigerian Communications Commission (NCC) ;
The appointment and removal should be ratified by the Senate; The appointment must be for a specific term (of Four years) and renewable for another
term; The appointment must be through competitive process of selection and open to all
qualified Nigerians either home or abroad;
Appointment to all boards of institutions in the PIB should go through the same process as outlined above
Section 6 (2) PIB Provision: The minister may in writing delegate to any other person or institution any power or function conferred on him by or under the Act except the power to make orders and regulations . We think this subverts every other provision in Section 6 (1). We demand that if the Minister will delegate his/her power or function, such delegation must be subjected to the following: The person/delegate should have experience on any of his/her duty relating to the
institution; Duties not related to the functions of any of the institutions outlined in the Act/Bill
should be delegated to any officer not less than a director with sufficient knowledge about the subject matter of delegation.
Issues and major concerns: cont’d
Issues and major concerns: cont’d
Powers of the Minister cont’d :
Section 7 Right of Pre-Emption. Section 8. Regulations (5) PIB Provision: The Minister may not publish at the
same time or in the same manner the notice of all matters referred to in subsection (4) of this section;
(6). PIB Provision: Notwithstanding the provision of subsection(2) of this section, the Minister may, due to the exigency of the circumstances make any regulation without conducting an inquiry, where he deems it necessary to do so.
We demand that : a. Subsection 5 & 6 should be expunged from Act because of the tendency of their being subject to abuse and discretionary.
Section 13. Establishment of the Upstream Petroleum Inspectorate Subsection (4) PIB provision: The Inspectorate shall be structured into
departments, as its board, with the approval of the Minister, may from time to time deem appropriate for the effective discharge of functions under this Act.
We demand that: The phrase “with the approval of the Minister,” should be expunged from the paragraph. The board of the Inspectorate should be responsible for its actions and inactions without the Minister’s interference
Issues and major concerns: cont’d
Powers of the Minister cont’d :
Section 166 of the PIB Provide that: Prior to vesting of the assets and liabilities of the NNPC on the NGC Plc, the Minister may give to the Board of Directors of NNPC directions in writing and the BOD shall comply.
We demand that : This section should be expunged as it negates the whole essence of the Bill, as the Minister is given all power to do and undo.
Observation: The PIB does not state which assets and liabilities will be vested with the NOC, but it would seem likely that NPDC operated assets may be among them as well as the country’s refineries. In the PIB, there is no mention of the fate of Production Sharing Contracts, management of which currently sits with NAPIMS. We understand that these may be allocated to the new NOC, rather than NPAMC on the basis that NNPC is currently the concession holder on PSC blocks and the IOCs are the contractors. in section 166,
These matters may also include labour matters.
The End
There are so many other changes in the PIB such as the divestment of shares of the NOC, NGC, Presidential Power to Grant Licenses and Leases under section 191 (which inconsistent with the transparency objectives), power to accept gift by agencies in the PIB etc.
So , I urge you to obtain a copy of the PIB and read it for your self. Avoid reading the PIB through the opinion of others.
Nevertheless, PENGASSAN working with NUPENG and FORSTER/CPPA will be organising an interactive session on PIB on the 13th and 14th of November 2012. Please ensure that you attend and participate effectively.
Thank you for your attention!