• Monday, May 27, 2024
businessday logo


Nigeria’s new oil bill proposes opening up petroleum contracts

Price differentials define sale of petrol in Akwa Ibom

The new Petroleum Industry Bill (PIB) under consideration by the National Assembly proposes that existing contracts, licence or lease and any amendment or side letter between oil companies and the state oil firm must be open, indicating a turn from years of secrecy.

It also mandates oil companies to disclose payments to governments whether they are taxes or royalties within six months.

The Bill passed the first reading at the Senate on Wednesday and the Senate president, Ahmed Lawan, directed that copies be made available to all senators by Thursday morning.

Sections 83 (3) and 83 (5) of the proposed law states that the text of any existing contract, licence, or lease and any amendment or side letter with NNPC shall not be confidential, must be published on the website of the regulator within one year after the effective date and must be made available to the regulator within one year after effective date.

Read also: Pressure mounts on Akwa Ibom government over oil-producing area development commission

Waziri Adio, executive secretary of the Nigerian Extractive Industries Transparency Initiative (NEITI), said the development is huge for contract transparency in the sector.

This is coming almost five years into the administration of President Muhammadu Buhari, who came to power vowing to end corruption. Publishing petroleum contracts is a critical requirement to make the oil and gas sector transparent and end corruption in the sector.

Petroleum contracts set out the legal framework for oil and gas projects. When they are published, it allows for public scrutiny, but previous governments have balked at disclosing them, claiming it could expose company secrets, giving undue advantage to the competition, and violate contract terms.

However, an analysis of 23 upstream and downstream contracts in Nigeria undertaken by analysts at the Natural Resource Governance Institute (NRGI), an extractive sector transparency non-profit, found that contracts in Nigeria contain several terms for which a strong public interest case can be made for disclosure.

NRGI analysts noted that fiscal terms contained within contracts can have an enormous impact on public finances. In the upstream sector, exploration and production contracts and associated agreements contain clauses that dictate the amount of money that the country receives in taxes and royalties and how much oil or gas the companies must share with the government.

Downstream, sales and swap agreements determine how much the country receives for the oil it sells. In 2015, for example, petroleum revenue from taxes, royalties, oil trading and other payments accounted for 53 percent of total government revenue. Of these revenue streams, oil sales made by NNPC alone accounted for 39 percent, said the NRGI analysts in a briefing published on its website last year.

The proposed bill also recommends sanctions for anyone who fails to comply.

“A contractor, licensee or lessee who does not or partially provides the Commission with the required information referred to in subsection (3) of this section, within the stipulated time contravenes the provisions of this Act

and is liable to an administrative penalty of the sum of US $10,000 for every day the default subsists,” the bill says.

“The text of any new licence, lease or contract or amendment to it shall not be confidential and shall be published by the Commission immediately following the granting or signing of such texts,” it says.

The bill further provides that a licensee or lessee shall for each petroleum prospecting licence or petroleum mining lease provide a yearly summary of royalties, fees, taxes, profit oil shares and other payments to government within six months after each calendar year to the Commission and the Accountant General of the Federation.