NIGERIA: OMNIBUS LEGISLATION ON OIL & GAS REFORM GOES TO

UNCLAS SECTION 01 OF 02 ABUJA 001457

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SUBJECT: NIGERIA: OMNIBUS LEGISLATION ON OIL & GAS REFORM GOES TO
PUBLIC COMMENT

ABUJA 00001457 001.2 OF 002

REF:

A. ABUJA 1400

B. ABUJA 1328

C. ABUJA 1209

D. ABUJA 1109

E. ABUJA 1096

F. ABUJA 1050

G. ABUJA 262

H. LAGOS 287

I. LAGOS 155

SENSITIVE BUT UNCLASSIFIED; BUSINESS PROPRIETARY INFORMATION; NOT
FOR DISSEMINATION OUTSIDE USG


1. (SBU) Summary: Oil majors and other stakeholders appeared in
record numbers at the National Assembly for the five day public
hearing of the Petroleum Industry Bill before the House and Senate
Joint Committee on Gas and Oil. In their testimonies, international
and indigenous oil companies, and industry organizations voiced
their concerns and warned that the bill as written threatens future
production, exploration, and revenues. They called for amendments
in the bill to address their concerns with regard to, among other
things, fiscal, taxation, and joint venture terms. In addition,
there is opposition to the bill from South-South governors and Niger
Delta activists. End Summary.

PIB Intended to Streamline Law and Reduce Corruption
-------------- --------------


2. (SBU) The Petroleum Industry Bill (PIB) is an omnibus legislation
that will replace the existing 16 oil sector laws with one legal
framework with clear rules, procedures, and institutions. The
stated objective of the new law is to bring about transparency, good
governance, and reduce corruption (reftel A and G). The oil
companies in principle agree to these reform efforts; however, they
have major objections to specific terms of the bill that threaten
profit and future investment.

Oil Majors have Objections to Provisions in the PIB
-------------- --------------


3. (SBU) Key industry players, including international oil
companies with long experience in Nigeria in principle agree with
GON'S reform efforts, but stated specific problems with the fiscal,
tax, regulatory and other terms of the bill. They believe that the
proposed fiscal terms in the bill would have negative impact on
future investment and production in the oil and gas sector. A
report commissioned by the Oil Producers Trade Section (OPTS),an
industry supported organization, concluded that under the reform law
joint ventures may be expected to invest up to $165 billion between
2009-2020, of which $74 billion and its associated production growth
is deemed at risk. (Note: industry contacts of Consulate Lagos were
considerably more pessimistic in their assessment. End note.)


4. (SBU) ExxonMobil Managing Director for Nigeria Mark Ward said
that ExxonMobil is prepared to invest an additional $60 billion over
the next several years, increasing oil production as well as gas
utilization and power generation, which are government priorities.
However, he warned that this investment could be in jeopardy if the
bill passes without significant amendments.


5. (SBU) After hearing testimonies from stakeholders, the Joint
Committee on PIB promised to take all the following concerns under
consideration. Those that were repeated by various stakeholders
include:

--Specific provisions in the bill are expected to affect the growth
of Nigerian oil and gas industry and the overall economy, as it
discourages investment.

--Given the current fiscal provisions of PIB, it is anticipated that
capital investment will be reduced over the next 10 years. New oil
and gas production will be reduced with a high proportion of new
projects becoming unprofitable. Government economic rents will
decline in the long-term and overall economic growth will be
affected.

ABUJA 00001457 002.2 OF 002



--Sustainable and profitable growth of the newly incorporated joint
ventures (I-JVs) will be at risk and funding issues for the joint
ventures will be an issue. Return on investment for the portfolio of
new petroleum sharing contracts, at an oil price of $60/barrel,
ranges from 10% to minus 14%.

--Many PIB provisions are unclear and open to multiple
interpretations, which increase investment risk. Tighter language
is needed.

--The methods of taxation called for in the PIB may individually
reflect global norms, but in aggregate are unacceptable.

--The sanctity of contracts is a major issue as well. IOCs have
made significant long term investments tied to an agreed set of
contractual fiscal terms and incentives. Unilaterally changing
those terms (PIB allows that) will deter future investors and fly on
the face of sanctity of contract issues.

--Under the PIB, regulatory agencies will have unilateral authority
to resolve disputes at the request of either party. The lack of
independent dispute resolution processes is a significant impediment
for investors. Parties should have the right to use independent
arbitration or dispute resolution mechanisms.

PIB Faces Oppositions from South-South Governors and NGOs
-------------- --------------


6. (SBU) The political scene at the hearing was charged by six
South-South governors who demanded cancelation of the bill "because
it does not protect the citizens of the oil producing states." The
governors also demanded the resignation of the Minister of Petroleum
Resources Dr. Rilwanu Lukman, who is seen as the lead author of the
bill. (Note: Consulate Lagos reports that, in addition to the six
south-south governors, nongovernmental organizations (NGOs) and
civic activists from the Niger Delta have voiced opposition to the
bill comparing it to "slavery" and accusing the Federal Government
of serving only "Northern" interests. End note.). Altogether,
there was a parade of stakeholders over the five days who voiced
opposition to the bill for various reasons. After the hearing the
National Assembly went on recess, but sub-committee work is expected
to continue with joint recommendations from the House and the Senate
in late September.


7. (U) This cable was coordinated with ConGen Lagos.

SANDERS