NIGERIA: OMNIBUS LEGISLATION ON OIL & GAS REFORM GOES TO

UNCLAS SECTION 01 OF 02 ABUJA 001457 SENSITIVE SIPDIS DEPT PASS AID AFR/SD FOR CURTIS, ATWOOD AND SCHLAGENHAUF DEPT PASS TO USTDA-PAUL MARIN, EXIM-JRICHTER DEPT PASS TO USTR-AGAMA JOHANNESBURG FOR NAGY USDOE FOR GEORGE PERSON TREASURY FOR PETERS, SOLOMON AND RITTERHOFF DOC FOR 3317/ITA/OA/BURRESS AND 3130/USFC/OIO/ANESA/REED E.O. 12958: N/A TAGS: EPET EINV ENRG EAGR EAID ELTN NI 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