PIA may reduce petroleum input to budget funding, say experts

• Oil producers meet FG over investment outlook
• Key in to Industry Act, Buhari urges sector players
• Ship owners accuse NNPC of aiding capital flight

Oil and gas industry experts believe that while the proportion of budget funded by the oil and gas sector directly is significant, Petroleum Industry Act (PIA) provisions in the fiscal framework with budget funding implications are quite glaring.

A professor of Petroleum Economics and Policy Research, Wumi Iledare, observed that the provisions are skewed more to output expansion and sustainable oil revenue than short to medium term revenue extraction from petroleum

He explained: “First, the royalty scheme in the PIA has become less regressive by terrain. In effect, the effective royalty rate is significantly lower with a cap at 15 per cent compared to the 20 per cent flat for onshore assets; meaningless revenue from JV assets in the shallow water and onshore.

“Yes, effective royalty in deep offshore assets would go up because PIA is charging royalty now at a max of 7.5 per cent. But, interestingly, the government surcharged itself with capping royalty design to just two tranches, 0 – 50MBD and > 50MBD instead of three tranches with a 10 per cent royalty cap beyond 100mbd. This is a design error that reduces government access to revenue, significantly in the short run.”

On his part, Lead Counsel at Commercial and Energy Law Practice and Director at Aspen Energy Nigeria (Energy Services and Consulting group), Israel Aye, said while it is still early to evaluate the functionalities of the PIA and its impacts on national budgets, unlocking funding through existing initiatives and better surveillance of the pipelines is how Nigeria can leverage its OPEC quota to generate more revenues in the short term.

This came as the Independent Petroleum Producers Group (IPPG), yesterday, met the Federal Government over passage of the PIA and security of investment in the sector.

Congratulating the government, Chairman of the group, Abdulrazaq Isa, said there are hopes that the development would address uncertainties clouding investment outlook in the nation’s oil and gas sector.

The group, which met Vice President Yemi Osinbajo, asked the government to do everything to protect oil and gas facilities from attacks, especially in the South East.

Isa insisted that the PIA could unlock investments, which have remained elusive in the industry over the last few years.

Commending the Vice President, the IPPG chairman said: “Your intervention helped in resolving the security situation that we faced in the Niger Delta region in 2016.”

Isa noted that incidences of crude theft are unprecedented and becoming unsustainable particularly on the eastern axis.

Meanwhile, President Muhammadu Buhari has urged operators in the petroleum industry to take advantage of the Petroleum Industry Act (PIA) to promote their investments.

Speaking at an audience with a team from ExxonMobil Corporation, led by Liam Mallon, its President on Upstream Oil and Gas, at State House Abuja, Buhari said: “I will expect the ExxonMobil companies in Nigeria to avail themselves of the opportunities created by the Petroleum Industry Act and invest in further development of the Nigerian assets in line with our national interest.

“It is our expectation that your company will also support our desire to deepen gas utilisation and monetisation aimed at reducing our carbon footprint and facilitating economic growth and development of our country.”

He also enjoined the ExxonMobil chief to collaborate on a bigger scale with the Nigerian National Petroleum Corporation (NNPC) to realise the full potentials of abundant gas resources in Nigeria.

The ExxonMobil boss commended Buhari on the way the country handled the COVID-19 pandemic and also for the passage into law of the PIA.

“We started work on the PIB about 20 years ago. You have now brought it to a closure. I know how much effort went into it. We are proud of your leadership,” he said.

In another development, Ship Owners Association of Nigeria (SOAN), yesterday, accused the NNPC of encouraging capital flight by awarding coastal contracts to foreign firms.

SOAN President, Dr M.K. George Onyung, who appeared before the House Committee on Nigerian Content Development and Monitoring investigative hearing on NNPC, Nigerian Maritime Administration and Safety Agency (NIMASA), Federal Inland Revenue Service (FIRS) and others regretted that the corporation’s policies are negatively affecting the nation’s employment opportunities.

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