Godwin Okpene: New Strategy Needed For The Petroleum Industry Bill

By December this year, the Petroleum Industry Bill (PIB) would have clocked sixteen years and eight months in the making, and more than eight and half years since it was first presented to the National Assembly. That would have been two hundred months of several committees constituted for the purpose, of countless stakeholder consultations and engagements, of endless back and forth between the executive and the legislature.

By then, according to a Policy Brief recently published by the Nigeria Extractive Industries Transparency Initiative (NEITI), the PIB would have gone through four presidents, five presidential terms and five legislative tenures – without resulting in an overarching petroleum industry law.

Given the importance of the petroleum sector to Nigeria’s economy and the enormity of the problems that has plagued the country’s oil and gas industry over the years, there can be no justifiable excuse for the embarrassing impasse on the PIB. Add to these the fact that Nigeria’s oil industry does not exist in isolation but operates in a global environment that is constantly shifting in favour of countries with the most competitive instruments, it becomes obvious that the country has continued to wallow in the kind of luxury that it can ill afford, especially at a time like this.

The global market is changing rapidly, exacerbating old threats and creating new ones. The world’s largest consumers have become top producers and top importers have begun to export.

But the new threats do not however lie only in far away Alaska or the South China Sea. They are also showing up on our very door step. Two months ago, Ghana passed its Petroleum Production and Exploration law. According to Ghana’s energy minister, “the new law would create an attractive environment for potential investors by providing certainty and transparency in the ground rules for operations”.

If the pool of investment dollars was limitless, such development would hardly merit a glance. But it is not. According the NEITI Policy Brief (titled The Urgency of a New Petroleum Sector Law), international oil companies are increasingly channeling investment funds to “other viable oil and gas projects across Africa including Ghana Senegal, Mozambique, Kenya, Uganda and Tanzania etc.”

The sad tale around the PIB rigmarole is not just the sixteen years that it has languished in limbo. The real story is that every additional year of waffling on the bill compounds the losses and worsens the problems of the sector and Nigeria’s economy. NEITI estimates that more than $200 billion has been lost in planned investment and projected returns on investment in the last eight years of delay on the PIB, as well as thousands of jobs. These figures appear very conservative. Other estimates, including a recent study conducted by the Natural Resource Charter, a policy think tank, put the losses at more than twice the figure.

Whatever the numbers, there is no question that Nigeria’s current economic problems would have been avoided if the opportunities were taken in the relevant sectors of the economy, including (and especially) the oil and gas sector. Most estimates of loss of investment due to the delay in enacting a petroleum industry law relate to the upstream sector. But the volume of domestic economic activity lies in the downstream and midstream subsectors. According to OPEC data quoted by NEITI, Nigeria has the least contribution of oil to total GDP ratio among OPEC member countries. This corresponds with data on the country’s refining activity as a ratio of total crude production. Only 3% of Nigeria’s oil is refined domestically.

Appropriate legislation to incentivise midstream and downstream investment would have reversed this massive imbalance. The fact that legislation did not happen has produced huge consequences. In five years alone (2011 – 2015), Nigeria spent more than $26 billion importing refined products. The double effect of lost domestic production and acute import dependency forms a significant part of the explanation for the country’s current economic troubles.

Swift action on the PIB would undoubtedly catalyse Nigeria’s recovery. Continuing to delay the passage of the PIB not only robs the country of this important opportunity, it would ensure that the bleeding continues.

The comparative swiftness with which Ghana produced its petroleum industry legislation should serve as both reminder and a warning. In less than two years after the bill was presented to the Ghanaian parliament, it was signed into law. Ghana became an oil producing nation in 2010, one whole decade after Nigeria initiated the process that produced the PIB. Ghana may be a relatively less complicated case, but a petroleum industry law is not the genome project. It is simply a political process. Politics is supposed to be about negotiation and consensus, not about endless stalemate.

Nigeria’s weakening global competiveness and the current recession should provoke a sense of urgency and rouse the political actors to action. So far, it has not.

The lack of progress on the PIB has been attributed largely to differences over issues like the host community benefits, the powers of the minister, the fiscal provisions etc. But the fact that these disagreements have been allowed to weigh down the PIB is because there has been lack of political leadership to moderate these differences and to drive the bill from conception through legislation. Due to the absence of political leadership, the different political actors have engaged in a manifestly unproductive contest over control of the process. Rather than focus on the core objective of petroleum industry reforms, the actors have resorted to endless political gamesmanship to secure the greatest advantage for their respective constituencies.

These were never the objectives of petroleum industry reforms. In the end both the nation and its constituent parts have suffered the consequence of stalemate. The zero-sum approach has yielded no winners.

Current attempts to revive the PIB do not look promising. For one it is not clear who is leading the process, or even that the executive and legislature are working in concert, with several bills being mentioned. It is hard to see how this enhances the chance of success.

Fortunately, everyone agrees that the petroleum sector in is desperate need of reforms, and that the PIB is a crucial piece of legislation. But, experience has shown that this is not sufficient. A more important consensus at this point would be to agree on what should be done differently this time. According to the NEITI policy brief, all actors first need to remember that corruption, lack of transparency and accountability and general poor governance of the sector were the main reasons for reforms in the first place. Secondly, precious time is being needlessly expended on starting the process from the scratch every time a new regime decides to revive the process.

But most importantly, the president should take charge of the process, not just because his position confers on him the responsibility to do so, but because his political mandate, secured on the platform of transparency and accountability, stands him in good stead to rally stakeholders around the core objectives of the PIB. There can be little contention in this regard.

NEITI proposes a formal instrument for facilitating this consensus. The publication also called for a clear roadmap and a communication strategy.

But the strategy is not the only thing that needs to change. The process has to be conducted with greater haste. The costs are mounting, and the the impact increasingly more severe.

Price volatility in the oil market is an ever present reality. But this up-and-down swing need not always translate into a boom and bust cycle for the economy. A petroleum industry law, complemented with relevant reforms in the management of oil revenue, can and will help ensure that it does not.

And the law does not need to be perfect, or a panacea. It just needs to be passed, and with the urgency that it demands.

* Okpene is the SA to the Executive Secretary of NEITI