Nigeria’s oil reform bill is now with the National Assembly. Due to the political alignment of the legislature with the presidency, it has the best chance of passing into law in the 20-year history of reform efforts. Experts and international companies say it is crucial to Nigeria’s aim of attracting investment in an era of abundant oil and a shift toward greener fuels.
TAXES AND ROYALTIES
* The bill would amend contentious changes to the government’s take of deepwater oil made last year.
* For fields producing more than 15,000 barrels per day (bpd), it would cut the tax to 35%, from 50%, and leave royalties at 10%. For fields producing less, the royalty would be 7.5%.
* Ghana, in comparison, has a 5% royalty and 35% tax on its deepwater production.
* For onshore fields, it would cut the tax to 72.5%, from 85%, and cut the royalty to 18% from 20%.
* In comparison, the Permian in Texas has 21% tax and royalties that are in the mid to high single digits.
* It would also raise the oil price at which a sliding scale of higher royalties kick in to $50 per barrel.
NEW REGULATORS
* Oversight would be split into new entities covering upstream, midstream and downstream. An entity called the Commission would take over oil and gas licensing.
* The Commission would publish all contracts, licences and leases on its website.
* Nigeria’s oilfield licence awards have faced controversy; OPL 245’s award is the subject of multiple court cases alleging corruption.
* Countries such as Angola have established regulators outside the state oil company or oil ministry in an aim to take politics out of licence awards and make them transparent.
* The new downstream regulator, the Authority, would also be allowed to set fuel prices if it determines there is not enough competition.
CHANGES TO STATE OIL COMPANY
* The ministries of finance and petroleum would transfer the assets of state oil company NNPC into a limited liability corporation (LLC).
* The new LLC it would operate as a commercial entity without access to government funding. However the bill does not explicitly state that it would keep all its revenues.
* The bill does not outline a requirement for the government to sell shares to others, meaning it would not necessarily be “privatised”.
* Many state oil companies, including African oil companies such as Sonangol, have aspects of their operations that are incorporated in similar ways. If run properly, they can aid transparency and help them raise funds.
LOCAL COMMUNITIES
* Oil companies would have to set up host community development trusts, and pay 2.5% of annual operating expenditure in the given area toward them.
* Few other oil and gas producing countries face the scale and complications of community relations that they experience in Nigeria’s restive Delta region.
* The new requirement is in addition to fees that companies now pay to the Niger Delta Development Commission.
GAS
* The bill would bar companies from deducting gas flaring penalties from their taxes, firmly closing an avenue that some used to defray the costs of burning gas.
* Companies would also have to supply a set amount of gas, determined by the new regulator, to the domestic market or face penalties of $3.50 per 1 million British Thermal Units (mmbtu)
* Companies can avoid penalties in the case of a force majeure, or if they cannot transport the gas or find a suitable paying buyer.
* While Nigeria is eager to expand domestic gas use, few other nations mandate the amount of gas that must be sold locally.
– Reuters