BREAKIN’ UP IS HARD TO DO

Nigeria 2016 | ENERGY | FOCUS: PETROLEUM INDUSTRY BILL

Stranded in legislative deadlock for six years, the Petroleum Industry Bill (PIB) is a compilation of around 16 separate reforms to Nigeria's oil and gas sector.

Vested interests in the National Assembly have taken issue with some of PIB's components, putting the legislation on hold for almost two decades. Among the bill's provisions is a breakup of the Nigerian National Petroleum Corporation (NNPC), the giant state-owned oil producer that most experts agree is in need of reform. The bill also includes clauses that would protect host communities, share the proceeds of oil and gas production, and mandate increased transparency in the sector.

More than its contents, the fact that it is lingering on lawmakers desks has been making investors nervous, causing them to withhold investment. It is thought that tens of billions of dollars have been put on hold by international oil companies in anticipation of reform. The risk of investing just before reforms is huge, as changes in the law might strip projects of their profits. These issues prevented investment before oil lost over 50% of its value on international markets, but are still complicating investments from abroad.

In June of 2015, after former president Jonathan lost his bid for re-election, the Senate, the upper body of Nigeria's National Assembly, passed the PIB in a session during that also saw the passage of 46 other bills in a matter of minutes. Political watchdogs and international commentators condemned the session as lacking due legislative process, and the Buhari administration has since taken the bill back to the drawing board and plans to re-introduce it.

Its passage will not be easy. Although the deadlock will cost Nigeria an estimated 470,000 jobs and $100 billion in investment by 2020, Nigeria's lawmakers are bitterly split along tribal and religious lines. Any reform in the oil industry will seek to stop the dire loss of revenues from NNPC and redistribute them among the population. However, exactly where this money goes is perhaps the most significant issue facing many legislators.

To add to this complexity, international oil companies are resisting increases in royalty payments, and the NNPC in particular resisted attempts to curb its power. The new administration has swept out almost all of the NNPC's former management and replaced them with reform-minded private sector trained administrators, which may lessen the NNPC's resistance to reform. Some commentators speculated that as long as the NNPC operated in parallel to the government and continued to absorb a vast percentage of oil revenues, no legislation could check its power

Although low oil prices make the lost revenue and jobs resulting from non-passage increasingly dire, they also offer a significant opportunity for reform. Low oil prices often call for action, as IOCs select investment destinations for their limited dollars more carefully. Nigeria has long been an expensive and risky place to do business, but reform could change that. One option being examined is to break up the PIB and attempt to pass each piece of the bill independently. Although this would be time consuming, little could take longer than the current approach alread has.

Earlier this year, an opposition senator from the PDP, which ruled Nigeria for the past sixteen years, was elected as senate president in an election that raised questions across the country. The election worsened relations between the parties and between factions within the APC. This may make it much more difficult to pass the bill in the near future.

Nigeria's oil production has stagnated at around 2.4 million bpd due to underinvestment. The country also has substantial reserves of natural gas that have not been exploited, even though the nation is woefully short on power. In the current atmosphere of reform, the PIB seems almost inevitable. However, only the complex politics of the National Assembly are impeding its passage.