Prof. Wumi Iledare
The Petroleum Industry Fiscal Bill (PIFB) which is an aspect of the bigger Petroleum Industry Bill (PIB) is structured to address fiscal issues in Nigeria’s oil industry. Although, it took almost a decade before the National Assembly brought innovative ideas on the bill. Professor Wumi Iledare, Director of Emerald Energy Institute (EEI) and Chairman, Nigeria Association of Energy Economics (NAEE), spoke with Nigeria’s Oil & Gas, on the sideline after a workshop on PIB organized by the Petroleum Club in Lagos. Prof. Iledare believed that the PIFB will give equitable shares to the government and investors. The upstream will not be diminished with too much tax while the midstream will also be given tax holidays in order to encourage investors. The bill will address rentier economy which has beclouded Nigeria’s oil industry in recent times.
You made a superb presentation on the fiscal aspect of the PIB known as PIFB, can you explain more about your perspective of the bill?
What the new fiscal bill is trying to do is to build a base without necessarily denying the government the revenue that it needs. The bill is also trying to send a signal to the investors that are willing to take some exposure and wait to derive additional benefit in case there is sudden increase in price. It allows investors to take equitable share and assure the government also to take its own equitable share from what is called windfall. Another aspect that was worked on the fiscal bill is to move away from regressive royalty scheme and have the progressive fiscal scale. This will create output base incentive without necessarily taking away reward for effort on tax incentive.
What is the difference between rentier and value economy that you emphasized?
Rentier economy is based on day to day living and transfer payment rather than creating value or adding value. The PIFB will address this issue and ensure optimization of value chain in terms of revenue earnings for the government. What it means is that you balance the profitability of the value chain, you don’t diminish the upstream with too much taxes and royalty to ensure tariff paid in the midstream is able to sustain a midstream business and generate taxes for the government. This is what is called taxing for value creation and also ensure that we have a tax holiday because of the level of activities in midstream gas. There is need to excite investors to be involved in midstream. There is a ten year tax holiday in the midstream and downstream gas to lure investors into that segment of the industry.
A rentier economy is based on the money that is earned on the upstream alone not minding what happened into the midstream and downstream. This is what Nigeria has been doing over years. Take for instance, look at Nigeria’s cocoa, the county export and buy beverages as import. The same thing is applicable to groundnut. This is a rentier economy, sharing mentality which is known as ‘bendeval’ lifestyle.
Some stakeholders have shown concern that the IOCs have been exploring oil in Nigeria without any bill. So, why the emphasis about PIB now?
Well, if you look at these multinational companies they are talking about, are they exploring or they are just producing the assets that are already in existence. People asking question about reserve replacement ratio in Nigeria is less than 100%. Do they know how many rigs are operating in Nigeria, looking for new resources? Do they realize that Nigerian government has not been able to get any western company to buy any lease in the recent lease sales? Do they understand that there is one thing to have a geologic prospectivity and it is another thing to be able to expand it? Nigeria’s reserve is stagnant and over the past few years we have 35 billion and we have only gone 37 billion reserve and our proven expansion is not because we found new reserve but because we are not producing at our potential. Nigeria’s oil industry is moribund, all the indicators to show that the industry is expanding are down. Production is down because of insecurity and there is no lease sales. No oil bloc allocation and no bidding process. Even the proportion we are getting from oil and gas industry is down. The contribution of the oil and gas industry to Gross Domestic Product is low. So, I don’t understand what these stakeholders are talking about.
There is one thing that has given Nigerians concern which is a key point that might put spanners in the works is the Petroleum Host Communities Bill (PHCB). Is there anything being done about this bill?
The three bills are ready. The PHCB has been presented to the Oil Producing Trade Section (OPTS) and it has been presented to private indigenous oil companies as well. The bill has been presented to the Minister of Petroleum, National Assembly and it has been presented seven to eight times. The structure of PHCB as being advocated is practiced in Nigeria. The bill is as ready as other bills and it is available on the website for people to see.
Will the four bills that make up the PIB solve the oil industry issues and challenges in Nigeria?
I don’t have a crystal ball but as a country we wouldn’t have invested so much in energy. For instance, the fiscal team has been on the road and I believe it is going to move us gradually to where we ought to be.
However, it is one thing to have an idea, it is another thing to implement the idea generated according to the intent of the vision. This is very unpredictable. We have developed a governance institution for the oil and gas industry that is similar to what we have with respect to CBN which is going to be independent of political process. There was supposed to be less political interference in the governance of the oil and gas industry when this bill is passed. This will in a way be able to make those running affairs in the industry to be efficient and effective in the running of governance of the industry. Nobody has the control of who is going to be appointed to be the implementor of some of these ideas. If we get the right people to manage the Commission as stated in the bill, the sky will be the limit. It is not that Nigeria don’t have competent people. Nigeria has competent people, it is the appointment process for the implementor that is going to be key whether this bill deliver what is set up but the objectives are well defined, debated and structured. Do we have a perfect bill? It depends on what comes out of the assembly because politicians are politicians all over the world. You can only do your best as a professional but the politicians tend to know what is it that will make the bill to see the light of the day. As long as you don’t step on the minds before the bill is passed, I think it can deliver but everything depends on the implementation.