‘AN OIL COMPANY CAN TRANSFER ITS ASSETS IN ANY MANNER EVEN WHERE BIDDING IS UTILISED’

that requires specific technology which is not widely in use, the cost of producing shale oil is very high and thus its viability is dependent on the price of conventional oil. Indeed, development of shale oil requires very heavy investment and could potentially leave investors out-of-pocket due to its high vulnerability to decline in conventional oil prices, which potentially could lead to the production price of shale oil exceeding the possible sale price.

Thus, due to the seemingly volatile nature of conventional oil prices, it is unlikely that the production of shale oil on a commercial level will continue to be economically viable, causing the market to turn back to either crude oil or alternative sources for energy. The United States may have begun to refine its shale oil for local consumption, drastically affecting the market, but judging from the marginal increase in global oil prices, the world still seems confident that crude oil remains the better and greener source of fuel.

The price of crude oil has increased from its all-time low of $46.18 USD/bbl in January 2015 to $60.09 USD/bbl in March 2015. This increase has been predicted to continue by the International Energy Agency, given the rise in demand and hold on supply. Whilst this may give some temporary respite, the need to diversify the economy still stands germane.

Again, the nation is groaning under the negative impact of another petroleum products scarcity. How can this perennial problem be addressed permanently?

In discussing the methods that may be adopted in addressing the perennial problem of fuel scarcity, it is necessary to point out that positing a holistic solution would be of limited usefulness as one would need to consider a myriad of causative factors as the issue is multifaceted. Were one to take an analysis of the last five occasions of fuel scarcity, you would see that these have been rooted in different objectives, and caused by different factors. Not least of these causes are governmental policies e.g. increase in fuel prices, removal of subsidy, removal of petroleum tankers from a particular loading bay, non-payment of subsidy amounts, etc; insufficiency or unavailability of products due to industrial actions by trade unions within the sector such as the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN), or the Nigeria Union of Petroleum and Natural Gas Workers (NUPENG). Given the seemingly immense power these trade unions have over the industry, it would take a good measure of political will to prevent the constant crippling of the Nigerian economy due to perceived disputes between these trade unions and government or IOCs, resulting in industrial actions. The recent elections at NLC and the believed betrayal of the people’s insurgency against the removal of fuel subsidy for the wrong reasons are pointers as to the role of unions in the matter. Too many a time tools are downed for what many see as unjustifiable and the courts have on a number of occasions rightly restrained strikes. We may need a Margaret Thatcher treatment of the obstructive influence of Arthur Scargill!

Not to put the blame solely at the foot of the trade unions, the recent scarcity has been caused by the alleged non-payment of subsidy amounts by the Federal Government and the attendant refusal of banks to renew the LCs issued to the marketers. A number of marketers are in default on their credit lines, due to the depreciation in Naira and are thus unable to import further products. Proffering solutions would thus require an analysis of each individual root cause and its own unique solution.

But without the benefit of expertise in petroleum economics, but as, I hope, a critic of what I see as governments without institutional safeguards as to transparency and accountability and inclusion, we will continue to have failed policies. While I was at one of the forefronts of the last war against petrol price increases, given the lack of transparency and cogency of reasoning, other than that of the then CBN Governor, the fact is that subsidy in that industry is now a scam. Subsidy in itself is no crime, as the best of governments use it as a tool for boosting external trade and indeed as a measure of domestic social provision. But looking at the figures we tout; the “Abiku” or “Ogbanje” nature of the Lamido allegations resurrected by his predecessor, Soludo; the perceived failure and true unconstitutionality of SURE-P; the fraud appurtenant to Sovereign Debt Notes used to pay subsidy; the opacity we see in PPPRA; the waste the public puts to use of energy; and the fact that indeed Nigerians have demonstrated with the indirect removal of subsidy in use of telephone and power with their effective market driven nature; there is no rational reason for a government of courage and conviction that is transparent and true to addressing social and economic displacement of the people, not to remove subsidy and let market forces determine prices. The subsidy we see is a child of military flattening of a terrain of valleys and hills – a unitary system that cannot work and fails to take account of true cost recovery.

Given the prices of crude in the international market, it was expected that Nigeria could have reduced pump price of petroleum products, especially petrol to about N46. Would you say the reduction from 97 to 87 was realistic under the circumstances?

Let me go back to the sensitive issue of subsidy as it is allied to this subject. The problem has been that EFCC, the National Assembly and the Aig-Imokuede Committee have all pointed to the subsidy industry as one big scam. That has made its removal emotive especially when recurrent expenditure of both the executive and the legislature are more obscene than the corruption we see. It is stealing by law, as is alleged to be the case with some state governments. There are allegations of contracts in perpetuity for a limited one off service; and payment of pensions that have no seat in logic. If our legislators spend the way SLS CBN Governor demonstrated and later corroborated by the Economist we need to remove their subsidy first. But that said in truth subsidy removal in petroleum products is inevitable in a properly run deregulated market that frowns on antitrust practices and upholds consumer rights.

That said, without any doubt, the reduction in pump price of petroleum products by 10.38 per cent was significantly below expectations when compared with other African countries who have equally been affected by the recent fall in oil prices. Comparatively, non-oil producing countries like Tanzania, South Africa and Zambia reduced their pump price by 16 per cent, 25 per cent and 23 per cent respectively whilst oil producing countries like Venezuela, Saudi Arabia, Libya, Qatar, Kuwait and Algeria have equally implemented favourable pump price reduction schemes. This unrealistic reduction has majorly been attributed to the lack of holistic consideration of the prevailing economic situation in Nigeria vis; devaluation of the naira; exchange rate distortions, etc. In view of the problems highlighted above, it will be crucial in the next coming years for Nigeria to aggressively embark on a privatisation of the refineries and encouraging investments in that area in a bid to alleviate poverty, reduce foreign capital flight, increase the overall employment rate and ultimately reduce the high demand for foreign exchange in the country.

Despite the obvious advantages inherent in the Petroleum Industry Bill, far too many reasons have been given for the non-passage of the bill. While some see it from a political perspective, others see it from a legislative and legal angle, while some give it ethnic undertones. What is your considered view on the non-passage of the PIB and do you think it is a good law for this country and if so why?

Whilst I am unable to categorically state the reason for the delay in the passage of the PIB, it would appear to me that one of the underlying causes for the inordinate delay is the existence of varied and unaligned stakeholder interests. The apparent difficulty in aligning the interests of the government, legislators, International Oil companies (IOCs), host communities, indigenous oil and gas companies, etc. has occasioned a delay in the passage of the PIB by the legislature. In addition, it would seem that another contributor to the delay is the lack of political will amongst the legislature and the executive arm of government. In view of the overall legal and regulatory regime in the Nigerian Oil and Gas sphere, the PIB is long overdue and it is thus critical for the legislature to take a second look at the legal and regulatory landscape for the Petroleum Industry.

Generally speaking it can be said that the PIB is a right step in the right direction – but not a good law that is fully well thought out. It in part behaves as if it was made for a monarch. That said it does have great parts, worthy of praise. First, there is an urgent need to harmonise the existing overlapping laws and regulatory agencies with conflicting roles within the sector. It is also pertinent that the existing fiscal landscape for the oil and gas industry is reviewed especially the provisions of the PPTA and the legal framework for the ownership, exploitation and acquisition of petroleum assets in Nigeria need to be reviewed. A transparent, clear and robust legal and regulatory regime would open up new vistas in the oil and gas industry, and the Nigerian economy. In general, the speedy enactment of the PIB into law would most certainly be a welcome development.

Considering the Petroleum Industry Bill (PIB) still unpassed since its inception in 2007, what effect do you see the further delays to passing it having on the interests of Indigenous Oil and Gas Companies that it is supposed to protect and IOCs like Total, Royal Dutch Shell and Eni who are gradually divesting from Nigeria?

I must correct the seemingly erroneous impression that the PIB is for the protection of indigenous Oil & Gas companies. Indeed, the main object of the PIB is to maximise Nigeria’s benefit in its Oil and Gas assets, through the provision of an improved regulatory framework, as opposed to protecting the interests of Indigenous Oil and Gas Companies vis-à-vis IOCs.

In that regard, the main consequence of the prolonged delay in the passing of the PIB is the uncertainty and lack of clarity in the applicable regulatory regime in the Oil and Gas Sector within the medium to long term for new investors. This has thus resulted in a huge reduction in the influx of foreign investment into the sector. As a legal practitioner, my firm has had to advice a number of foreigners who are willing to invest in the sector but are hesitant as a result of the impending change in the legal, fiscal and regulatory landscape in the Oil and Gas Sector. It is instructive to point out that the concerns relating to the uncertainty in the current regime equally extends to indigenous Oil and Gas companies.

With just a few months before the end of this legislative tenure, It does appear that the Bill may not become law, do you however see a chance of the bill being passed soon?

I do agree with you that under the current dispensation, it is clear that the Petroleum Industry Bill is unlikely to be made law, as the focus of the National Assembly has been shifted to electioneering with just a couple of weeks to the next elections. Going by the antecedents of the past 8 years in relation to the various attempts to pass the PIB into law coupled with controversies around the versions, it is unlikely that the PIB will be passed soon.

Given the plummeting crude oil prices and the effect that this has had on the Nigerian economy, are investors likely to suffer possible fiscal challenges as a result?

There is no doubt that the plummeting crude oil prices have had a significant effect on the Nigerian economy, resulting in a depletion of the external reserves and the depreciation of the Naira. It has also directly impacted the expected returns on investments of investors in the oil and gas sector, leading to a reduction in investments and alleged redundancy of staff.

Another challenge being faced by investors currently is the Federal Government initiative to review existing incentive regime granted to investors in accordance with the Industrial Development (Income Tax Relief) Act especially pioneer status. Pioneer Status is a tax holiday granted to qualified (or eligible) industries anywhere in Nigeria and the grant is aimed at enabling such a company achieve significant capital expenditure and returns within its nascent years.

Contrary to the provisions of the Act which provide for the grant of tax holiday for a period of (3) years which may be extended at the end of the initial three (3) years for a period of one (1) year and thereafter for another period of one (1) year or for one period of two (2) years upon satisfactory compliance with certain conditions.

The practice over the last few years has been to grant a 5-year tax holiday at once as against the statutory provision which states that the grant should be for an initial period of 3 years and renewable for an additional (1) year and a final (1) year thereafter, subject to satisfactory performance. The review carried out by the NIPC has thus led to the Federal Inland Revenue Service (FIRS) raising additional assessments on relevant companies for the last 2 years of the 5-year pioneer status hitherto granted. The implication of this is that such companies are bound to pay the taxes due for the 2 year or a longer period for which they had previously been granted pioneer status in contravention of the law.

No doubt madam co-ordinating minister is hungry for money. I do not blame her, but let us cut recurrent expenditure, security vote and stealing, or if you prefer to so call it corruption, first.

What roles do the local content laws play in engineering and interface with construction contract in the oil and gas industry and how practicable is this?

The local content laws have gone a long way in ensuring that the services of indigenous companies are largely utilised in the oil and gas industry. It is important to mention that the Nigerian Content Development Act provides a minimum local content level for engineering and construction services and all contracts in the industry are required to adhere to this standard. Thus, companies submitting bids to render engineering services must demonstrate adequate compliance with the local content requirement under the Act. However, it would appear that notwithstanding the clear provisions of the law and the efforts being put up by the Nigerian Content Monitoring Board, companies still find a way to sidestep the provisions of the Act.

An example is the recent dispute which arose between Lagos Deep Offshore Logistics (LADOL) and Samsung Heavy Industries (SHI) Nigeria Limited. According to LADOL SHI upon obtaining a contract for the building of a Floating Production Storage Offshore (FPSO) in conjunction with LADOL, purported to proceed to manufacture the FPSO outside Nigeria and without the input of LADOL. Although, the court of law did not rule on the matter, as it was settled out of court, it is evident that adherence to the local content law is pertinent to the execution of engineering contracts.