The Minister of Petroleum Resources, Rilwanu Lukman, has solicited the World Bank’s assistance in providing the technical assistance needed for the successful implementation of the reforms in the oil and gas industry contained in the proposed Petroleum Industry bill. This is in anticipation of the passage of the bill still undergoing scrutiny by the National Assembly.
Receiving a World Bank delegation led by Charles McPherson, the IMF’s Adviser, Fiscal Affairs Department, on Friday, in Abuja, Mr. Lukman said, “We will work out a comprehensive work programme to ensure that once the bill becomes law, the implementation will be assiduously pursued. To assist us in this, we need support in capacity-building”. He said the transformation of the Nigerian oil and gas industry cannot be delayed, adding that all hands must be on deck to see it through.
IMF report on the bill
Sequel to this latest plea, the Ministry of Finance had requested the IMF’s Fiscal Affairs Department (FAD), headed by Mr. McPherson, to review the Petroleum Bill and provide input to the reform process.
The outcome of this was a confidential report titled, “Fiscal, Financial and Governance Assessment of the Petroleum Industry Bill,” which was submitted to both the Finance and Petroleum Resources ministries. The report raised concerns over proposed fiscal terms in the bill, warning that “near term investments could be expected to fall off sharply resulting in reduced medium to long term government revenues”.
This, the report attributed to government’s preference for the an easy way out in dealing with oil and gas tax and revenues, relying on the simpler revenue-based taxes which are easier to implement than more robust profit-based taxes.
Summary of recommendations
Some of the report’s key recommendations include the enhancement of the terms applicable to deep water Product Sharing Contract operations, particularly through royalty rate reductions towards the end of a field life. It also called for flexible National Hydrocarbon Tax rate that is responsive to actual profit based on the investor’s rate of return.
Furthermore, the report recommended “stress test” of the fiscal terms for existing and potential gas projects, and supplementing internal initiatives with professional external support as far as cost and tax audits are concerned.
Reaching a broad consensus
Speaking on the IMF’s report on the bill, Mr Lukman said; “We had engaged the various stakeholders who had expressed misgivings about aspects of the bill, with a view to addressing their concerns. “Several public hearings were conducted by the National Assembly and I am pleased to say that we have succeeded in reaching a broad consensus on most of the areas of concern.
“Our objective in the reform programme is to create the most conducive environment for the Nigerian oil and gas industry to strive in an increasingly challenging global energy scene. The global nature of our industry dictates that we should run it according to international best practices,” the minister said.
Mr. Lukman appealed to the Bank and other global credit providers not to discriminate against the National Oil Company that will be created by the Petroleum Bill. He noted that although it will be government-owned, the new company will be run as a profit-oriented business.
Responding, Mr. McPherson expressed the World Bank’s willingness to support the federal government with the expertise that would enable it transform the oil and gas industry in line with international best practices.