S/CIEA GOLDWYN DISCUSSES PETROLEUM INDUSTRY BILL WITH

C O N F I D E N T I A L SECTION 01 OF 04 ABUJA 002104

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SUBJECT: S/CIEA GOLDWYN DISCUSSES PETROLEUM INDUSTRY BILL WITH
WESTERN AMBASSADORS AND IOC REPRESENTATIVES


A. ABUJA 2063

B. ABUJA 1400

Classified By: Ambassador Robin R. Sanders for reasons 1.4. (b
& d).

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SUMMARY
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1. (C) Coordinator for International Energy Affairs (S/CIEA) David
Goldwyn and Ambassador Sanders met with the Dutch, French, and
Italian ambassadors and the U.K. Deputy High Commissioner (DHC) to
discuss the status of the GON's Petroleum Industry Bill (PIB) on
November 10. The Dutch Ambassador described Shell International
Chief Executive Officer (CEO) Peter Voser's crucial October 24
meeting with Nigerian President Umaru Musa Yar'Adua which set the
stage for constructive meetings with the IOCs and resolution of
differences over the future of petroleum contracts. Goldwyn and
Ambassador Sanders subsequently met with Chevron and Shell executives
to discuss the PIB on November 11. Shell said concern remained over
the size of the future exploration blocks, a shorter relinquishment
period, and a lack of movement on taxes and international
arbitration. Chevron said that the key outstanding issues involved
triple taxation and the grandfathering of project savings provisions.
The IMF has identified gas as a major concern in the tax regime and
believes the bill has gone too far in changing the tax regime for
off-shore oil production. END SUMMARY.

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SHELL CEO PETER VOSER'S VISIT
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2. (C) Coordinator for International Energy Affairs (S/CIEA) David
Goldwyn and Ambassador Sanders met with the Dutch, French, and
Italian Ambassadors and the U.K. Deputy High Commissioner (DHC) to
discuss the status of the GON's Petroleum Industry Bill (PIB) at a
dinner meeting on November 10. The Dutch Ambassador began discussion
of the PIB by referring to Shell International CEO Peter Voser's
"crucial meeting" with President Umaru Musa Yar'Adua and Minister of
Petroleum Resources Rilwanu Lukman on October 24. The Dutch
Ambassador said that Minister Lukman tried his best to derail the
visit and that this indicated a struggle within the GON regarding how
to deal with the international oil companies (IOCs). Voser was happy
with the visit because he was able to present the IOCs' views and
found "a listening ear" in Yar'Adua. Yar'Adua confirmed that his
agenda did not include nationalization and a search for other
partners (i.e., the Chinese National Oil Company). Yar'Adua also
said he wanted to hear the IOCs' views and was "shocked" about the
criticism of the PIB.


3. (C) The Dutch Ambassador continued that constructive meetings
occurred with Shell and the other IOCs immediately after the Voser
visit. These meetings "almost concluded" the resolution of
differences over the future of on-shore petroleum contracts in the
PIB. The meetings also came to closure on some key areas regarding
off-shore petroleum contracts but a few areas of differences
remained, such as who will explore where, but both sides agreed that
Qremained, such as who will explore where, but both sides agreed that
the IOCs cannot leave large areas idle for long periods of time.
They did not discuss tax issues in detail. The Dutch Ambassador
concluded that Shell got more than they had expected but they still
have "a long road ahead." He also noted that the Shell International
headquarters in The Hague was "slightly less positive" than Shell
Nigeria and that some changes had occurred in the PIB since the IOC
meetings.

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A CHANGE IN TENOR
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4. (C) The U.K. DHC observed that the IOCs had had "a lack of access"
to the GON "at the highest level" over the last nine months.
Yar'Adua is now trying to be transparent and reassuring on the
investment climate and fiscal issues. The U.K. DHC said that his
High Commission had heard the same thing from Nigerian National

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Petroleum Company (NNPC) General Managing Director Dr. Mohammed
Barkindo, but now the same message is being delivered by Yar'Adua.
Now that Yar'Adua has spoken, the whole tenor has changed and the
IOCs have access "all the way down to the lowest levels." The IOCs
remain unclear about where the PIB is going, but they are less
fearful than before.


5. (C) The Italian Ambassador reported that the Agip executives in
Lagos are in a positive mood, are committed to staying in Nigeria,
and are discussing further investment.

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LUKMAN'S RELATIONSHIP WITH YAR'ADUA
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6. (C) Ambassador Sanders asked the group if Lukman still has the
confidence of Yar'Adua after his now failed attempt to prevent the
IOCs from meeting with Yar'Adua. The Dutch Ambassador responded that
Lukman is still part of Yar'Adua's intimate circle. Nevertheless,
Lukman is "very tough" on the need for deregulation of the downstream
oil and gas sector and this is a political problem for Yar'Adua.
Lukman thinks he can leave a legacy on PIB and downstream
deregulation. Lukman may have overplayed his hand and might not
survive. (Reftel A)


7. (C) The Dutch Ambassador commented that Lukman is not a radical.
Lukman had gone so far as to tell the Dutch Ambassador that Yar'Adua
is a leftist and that he must be corrected. The Dutch Ambassador
described Lukman as very sound in his thinking. Nevertheless, the
Dutch Ambassador did not know Lukman's agenda nor why he suddenly had
become so intransigent.


8. (C) Ambassador Sanders responded that Lukman has a short-term
agenda and believes that if he is flexible, the PIB will not happen
this year. She also commented that Lukman might change if he
receives the same message from the World Bank when he travels to
Washington during the week of November 16 that Minister of Finance
Mansur Muhtar heard from the IMF in October. The key will be what
happens when he comes back from Washington.

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NO DECISION ON A JOINT DEMARCHE ON BEHALF OF THE IOCS
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9. (C) The Dutch Ambassador expressed concern that the U.S., U.K.,
Dutch, French, and Italian embassies had missed an opportunity to
come together to tell the GON what their respective governments and
the IOCs think about the PIB. The embassies have instead taken an
ad-hoc approach which has diluted the message. The embassies should
now consider a joint approach and not leave it to the IOCs to
approach the GON. The U.K. DHC responded that the U.S., U.K.,
French, and Dutch embassies had made a joint multi-lateral demarche
last July, to no effect. (Reftel B). The French Ambassador argued
that after the July demarche he thought it was better for the
embassies to approach the GON individually.


10. (C) Ambassador Sanders recalled that the embassies had asked the
Q10. (C) Ambassador Sanders recalled that the embassies had asked the
IOCs in January 2009 for a copy of their common paper for use when
they approached the GON. The IOCs never provided the paper and this
had impeded the embassies' ability to act in January on the points
the IOCs wanted action on. The embassies had also advised the IOCs
that they should begin lobbying the National Assembly as well as the
Executive Branch. The companies only acted on this advice when the
National Assembly held a public hearing on the PIB in July, when they
asked their respective embassies to make the joint demarche. The
IOCs have come a long way since that time and now recognized that
they have to develop constituencies outside the petroleum sector.

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CHEVRON AND SHELL EXECUTIVES DISCUSS THE PIB
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11. (C) Goldwyn and Ambassador Sanders subsequently met with Shell
Commercial Vice President Peter Robinson and Chevron Deepwater and
PCS Department Director Kenneth Sample to discuss the PIB on November

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11. Goldwyn asked Robinson to explain where the GON was with the
PIB, where it was going, and what was the end game. Robinson
explained that Voser's meeting with Yar'Adua on October 24 created an
opening, helped Yar'Adua see that concerns existed about the PIB, and
triggered an important meeting between Jonathan and the IOCs on
October 28. Jonathan said he would bring together a panel of
independent experts to put together a compromise and that was the
first stage of dialogue. This process also created space for
Minister of Finance Muhtar to express his concerns about the fiscal
implications of the PIB. There are also a series of "political
meetings" taking place.


12. (C) Robinson continued that the on-shore production issues had
been "solved" and progress had occurred with many off-shore issues as
a result of the meeting with Jonathan. He remained concerned about
the size of the future exploration blocks, a shorter relinquishment
period, and the lack of movement on taxes and international
arbitration. According to Robinson, the end game will take place on
November 18 after the House and Senate returned from their respective
legislative retreats and can begin to reconcile the House and Senate
versions of the bill. This has caused the IOCs' current focus to be
almost entirely on the National Assembly. Robinson does not think
the bill will pass before the end of the year because the National
Assembly goes into recess on December 15 but believes there is a good
chance that the bill will pass during the first quarter of 2010.
(COMMENT: Mobil Producing Nigeria Unlimited Commercial Manager Patty
Halladay, the Mobil point-person on the PIB, told Energy Officer on
November 18 that the House and Senate both awaited a GON interagency
report on the PIB before attempting to reconcile the House and Senate
versions of the bill. She added that the only real movement in the
fiscal area involved production allowances. No movement occurred on
key issues like royalty rights, taxation, deductions, enablers for
dry gas, etc. Finally, she reported that it was understood within
the interagency process that Yar'Adua wanted the bill passed before
the end of the year. END COMMENT.)


13. (C) Sample said that the key outstanding issues included triple
taxation and grandfathering of project savings provisions. Chevron
now thinks that one of two things could happen before the end of the
year. The first potential outcome is that the National Assembly
could pass the bill now, even though there are problems with the
text, and try to fix it later. The second is that the National
Assembly could take the time to work with the IOCs to correct the
bill now and pass it early next year.


14. (C) Goldwyn asked if the IMF's recent review of the PIB agreed
with IOCs concerns on the troublesome provisions of the PIB.
Robinson said they agreed in broad terms and the IMF has identified
gas a major concern in the tax regime. The IMF also thinks the bill
Qgas a major concern in the tax regime. The IMF also thinks the bill
has gone too far in changing the tax regime for off-shore oil
production. First, there will be implications for the new
Incorporated Joint Ventures (IJVs) on GON Control, the amount of
taxes paid to the Federation Account, and the bankability of future
projects. Second, the bill proposes very rapid implementation in
three months or one year. The bill proposes to move from six
unincorporated to six incorporated joint ventures in just one year.
As a result, more than $8-10 billion in bank debt will be needed in
the first year, just for oil projects, when the market currently
provides only $1 billion per year for this type of project.

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INTERNATIONAL AND DOMESTIC CONSULTANTS
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15. (C) Robinson added that three sets of consultants advised
different parts of the GON on the PIB. Dutch consultant Dr. Pedro
van Meurs worked with NNPC Group General Manager, Strategy Dr.
Timothy Okon; Nigerian legal firm Babalakin and Company worked with
the House PIB Committee; and Nigerian consulting firm Edingwe worked
with the Senate PIB Committee. Van Meurs is the only consultant
working on the first version of the PIB, which is the only one that
will be passed. The IOCs consider the Senate to be a "lost cause" as
far as protecting the interests of the IOC goes, so they are focusing
their lobbying efforts on the House and Yar'Adua.


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16. (C) Ambassador Sanders expressed concern that National Assembly
members were not informed enough about the oil and gas industry. The
question is how to educate the PIB committee members to bring them
along to pass an acceptable bill. Robinson doubted the likelihood of
this. He thought members in both houses would simply want the IOCs
to say they accept the bill and sign it. The IOCs must explain what
will not work. The situation is further complicated by the fact that
no one in the PIB committees in both houses can draft the necessary
clauses for the bill. That task may go to consultant van Meurs, but
that will not be good. Nigerian consultant Babalakin might also play
a role. (COMMENT: Van Meurs is the consultant who advised the
Venezuelan government on the most recent revisions of its petroleum
fiscal legislation. END COMMENT.)

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COMMENT
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17. (C) Shell CEO Voser's October 24 meeting with Yar'Adua
represented a turning point in the development of the PIB. Some of
the IOCs' concerns with the PIB have been resolved and the main
outstanding issues have to do with the level and structure of
taxation and the unrealistically short amount of time for putting the
PIB into place. These changes (although not enough) came just in
time, as the PIB appears to be headed for passage before the end of
this year or early next year. Delay in passage of the PIB beyond
early 2010 could allow political electioneering to distract
legislators from giving due attention to the bill.

SANDERS