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Nigeria’s petroleum fiscal terms weak, discouraging investments — Report

 

THE fiscal terms of the Nigerian petroleum industry is weak, inflexible and unattractive to investors, according to a report by the Nigerian Natural Resource Charter, NNRC.

This was contained in the summary of findings from the 2017 Benchmarking Exercise Report in Abuja, as a prelude to the actual launch of the report next year. The findings were presented to newsmen by Mrs. Tengi George-Ikoli, Programme Coordinator, NNRC, and its partners from the Centre for Social Justice, CSJ; Social Action, SA; Centre for Public Policy Alternatives, CPPA; Centre for the Study of the Economies of Africa, CSEA and Civil Society Legislative Advocacy, CISLAC. George-Ikoli explained that the purpose of the report was to provide a benchmark for measuring progress in the country’s oil and gas sector against the 12 Charter precepts of the Natural Resource Charter..

The NNRC is a subset of a global initiative designed to help governments and societies effectively harness the opportunities created by natural resources. On the other hand, the petroleum fiscal regime of a country is a set of laws, regulations and agreements which governs the economical benefits derived from petroleum exploration and production.

The NNRC report noted that the petroleum industry fiscal regime is not strong enough to attract investors, as compared with other African countries especially in the area of deep sea exploration. It also added that the fiscal regime is not flexible enough to respond to dynamic levels of production and profitability, while it added that  the  limited disclosure of fiscal terms affects effective oversight responsibilities by legislature, and other responsible agencies. The report said, “The fiscal terms are constrained from being responsive to changing circumstances as reviews require amendments to laws or re-negotiation of contracts which can be time consuming.

“Oversight of the fiscal regime is not strong. The administration is routine and oversight by any external body is conducted only where an infraction is highlighted and huge revenue losses are reported.” It is useful to make fiscal regime very simple and accessible to the general public.”

However, the report recognizes efforts of the Federal Government to address this anomaly, noting that the proposed Petroleum Industry Bill, PIB, is seeking to establish a progressive fiscal framework that encourages further investment in the petroleum industry while optimizing revenue accruing to the Government. It also acknowledged that the Nigerian National Petroleum Corporation, NNPC, and the Minister of Petroleum Resources had made repeated commitment to re-negotiate and review contracts such as the deep off-shore agreements with oil companies.

Furthermore, the report disclosed that the Federal  Government does not have a clear policy governing the award of licenses, stating that the decisions are driven by the prevailing socio-political environment. Specifically, it explained that the  ‘7 Big Wins’ policy for growing the oil sector clearly set out a strategy for increasing Nigeria’s reserves and production by conducting new licensing rounds and timely lease renewals, noting however, that the pace and areas to be licensed were not stated in the document. “The licensing processes are usually delayed sometimes for as long as 36 months.

This is attributed largely to unscheduled tendering of a huge number of projects by both public and private sectors and manual evaluation of bids. Government should do better planning and adopt an automated bid evaluation method,” it advised.

The report also declared that the discretionary power of the Minister of Petroleum Resources, allows for conflict of interest, weakens the effectiveness of oversight institutions, making them respond reactively by seeking post-licensing information which are not disclosed, to assess the process of the bid round. In addition, the NNRC argued that oversight functions by the National Assembly appear to be reactionary and ineffective in some cases, adding that although investigation committees are set up to investigate irregularities in the sector, no sanctions with far reaching implications had been recorded where inconsistencies were found. vanguard

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