beyondbrics

By Gordon Bottomley and Marina Grushin of Ergo

Africa’s top oil producer is squandering the chance to become a global energy heavyweight. For nearly three years, Nigeria’s oil and gas sector has been held hostage by debate over the Petroleum Industry Bill (PIB) – a huge piece of legislation intended to bring the country’s oil and gas production closer to reaching its tremendous potential.

But what was intended as a panacea for Nigeria’s chronically under-performing oil and gas sector has had the opposite effect. Three years of uncertainty over the bill’s future have all but dried out foreign investment – unwelcome news for a country dependent on oil revenues to cover the cost of running the federal government.

Originally introduced in 2008, the PIB (it was hoped) would usher in sweeping changes designed to increase the government’s share of oil revenues and separate the political, commercial, and regulatory aspects of the industry’s governance. Most significant, the perennially cashed-strapped Nigerian National Petroleum Company (NNPC) would be transformed into a private profit-driven powerhouse similar to Brazil’s Petrobras, able to seek financing on international capital markets.

A bill as comprehensive as the PIB was bound to divide opinion. Oil majors balked at increases in taxes and royalties, requirements to relinquish undeveloped acreage, and a provision for incorporated joint ventures that would dilute international oil companies’ decision-making authority. Frustrated officials and lawmakers argued that stricter fiscal terms would merely bring the industry in line with international norms. Nigeria’s more venal politicians jostled behind the scenes to shape debate over the bill to maximize personal gain. Fierce lobbying from all stakeholders led to an impasse.

Economic imperative appears to be driving a desire to resolve the uncertainty. While oil production is up (currently hovering at around 2.4 million bpd, compared with 1.9 million bpd at the end of 2009), it will plummet without revived investment from international oil companies. After dozens of iterations, legislators finally appear closer to agreement over some key concessions. They have ceded considerable ground to the international oil companies: plans for incorporated joint ventures have been scrapped and the fiscal and acreage relinquishment provisions watered down.

Today, the biggest hurdle to passage is the president himself. Goodluck Jonathan has consistently refused to throw his support behind the PIB, which would greatly increase its chances of passage. Indeed, he has done little more than pay lip service to the idea of industry reform.

Throughout the 2011 presidential campaign, Jonathan kept the bill at arm’s length, lest it become subject to horse-trading and make him politically vulnerable in the run-up to the election. Many hoped that, once in office, he would be more willing to champion the bill. Bringing in a new minister of petroleum to oversee passage would have demonstrated his commitment. Instead, Jonathan reappointed Diezani Alison-Madueke, who has shown neither the desire nor the credibility to enact meaningful reform.

Now faced with a distracting security situation, Jonathan is unlikely to change course on the PIB. Without the president’s active support, smooth passage of the bill is less likely. Nigeria’s legislators would be better served to push forward with industry reform on their own. Doing so would release billions of dollars of international investments that are currently sitting on the sidelines.

The grinding legislative process has worn patience thin. This improves the chances of the National Assembly coming to an agreement on the bill in the next eight to ten months – which we believe is the most likely scenario. But progress on the bill will continue in fits and starts without an earnest commitment from Nigeria’s legislators, who must stop subverting the legislative process for personal gain.

As it stands, the PIB is far from perfect. Current drafts remain rife with ambiguity, and numerous provisions could be amended to improve transparency. But any tightening of the bill’s content must be weighed against the dangers of continued debate.

The main issue at stake remains whether Nigeria’s energy sector will continue to be bogged down by legislative gridlock. While 2011 is likely a lost year for the PIB, 2012 does not have to be. Passing the bill will not resolve all the problems plaguing Nigeria’s oil and gas industry, but it will offer companies and investors a clear roadmap for the future. At this point, any bill may be better than no bill at all.

Ergo, a strategy consulting firm specializing in emerging markets and geopolitical intelligence, recently released its September update on the outlook for the PIB.

Related reading:
Guest post: Overbanked in Nigeria, beyondbrics
Nigeria: a microwave boom, beyondbrics
Africa: Ripe for reappraisal, FT