Petroleum Industry Bill
The Nigerian government appears to be softening its stance in relation to planned royalty increases for production sharing contracts offshore, amid concerns voiced by international oil companies ("IOCs") such as Shell and ExxonMobil that if the planned increases are not reduced, 470,000 jobs and up to $100 billion in investment in Nigeria could be lost by 2020.
The proposed changes form part of the Petroleum Industry Bill ("PIB") which is the culmination of 12 years of effort by the Nigerian government to try and implement comprehensive reforms to the regulation of the country's oil sector. The lack of certainty, many say, has contributed to the reluctance of international oil companies in invest in new products in the country. Indeed, despite its vast oil reserves (which are still the largest in Africa), production is stagnant at around 2.4 million barrels per day, which is only around half of what was targeted by the government a decade ago. With other countries in sub-Saharan Africa (such as Ghana, Uganda and Kenya) working towards developing their respective oil and gas resources, it has become increasingly important for the PIB to be passed into law.
The key sticking point however remains the planned increase in royalties for the government. In a recent interview given to the Financial Times, the Nigerian Minister of Petroleum Resources, Mrs. Diezani Alison Adueke, claims that the terms on offer, which will increase the government's royalty by between 7 and 8%, are "equitable". Herself a former Shell employee who is seen as a controversial figure in Nigeria, she concedes though that the IOC's still believe there is some distance between them and the government. However, Mrs. Adueke's recent remarks that there is "room for compromise" and that the government believes it will reach a "median point" have renewed hope that this issue can be resolved imminently thereby paving the way for the PIB to be passed into law within the government's current timeline of the next "two to three months".
The long-held belief in Nigeria is that once the PIB is finally in place, participants in the sector will be able to plan for the future and make appropriate investment and divestment decisions. The hope is that this will re-invigorate the currently stagnant production operations in the country. Whether this comes true, and whether a resolution can be reached on the fiscal terms of the PIB, remains to be seen.