Nigeria has softened the terms of a comprehensive oil reform bill to attract much-needed investment into its oil industry. This was shown by four people closely involved in the legislation and a letter from oil companies seen by Reuters.
The proposed changes signal a relocation of Africa’s largest oil producer and show the impact of an increasingly competitive environment in the energy business following the global drop in oil prices in 2020 and an expected shift to renewable energies.
Nigeria had accelerated a law to increase revenues from offshore oils in 2019. A move industry experts said could jeopardize billions in offshore oil investments at the time.
Now Nigeria has changed its stance to balance its immediate sales requirements with the need to secure long-term investments for its oil industry.
The reform bill has been in the works for two decades, but the controversial nature of the changes in Nigeria’s oil sector, which provides 90% of foreign exchange and nearly half of the state budget, has ruined previous versions.
In January, a fist fight broke out between local community leaders during one of the public hearings on the bill.
Given the political alignment between President Muhammadu Buhari and the National Assembly, the measure is expected to be passed this year, but likely not before the end of May, people said.
Major changes to the bill would reduce royalties for new production of deep-sea oil fields from 7.5% to 5% and raise production levels, which will trigger higher royalties from 15,000 barrels per day (bpd) to 50,000 bpd.
For oil fields on land and in shallow water, the hydrocarbon tax on converted leases would be reduced from 42.5% in the original calculation to 30%.
The changes would also guarantee that state-owned oil company NNPC’s assets and liabilities would be transferred to a limited liability company. This will help the oil companies collect the funds owed by NNPC.
The Ministry of Oil declined to comment. NNPC did not respond to a request for comment.
In the letter released by Reuters, oil industry executives urged further changes, particularly in relation to gas developments and “stability of budgetary conditions,” reassuring that there will be no unexpected changes in license fees and the tax system.
Executives said that “the conditions are not competitive enough to stimulate the new investments we want.”
Oil companies have found that Nigeria invested only 4% of the $ 70 billion in sanctioned projects in Africa between 2015 and 2019.
MUST ATTRACT INVESTMENT
Last year, oil industry analyst Wood Mackenzie said that without reform, Nigerian oil production could plummet.
Commenting on the changes to the bill, Gail Anderson, research director at consultancy Wood Mackenzie, said: “It shows that (the government) has listened. They recognize the need to attract investment in energy transition not just in the Nigerian context but around the world. ” Said Anderson.
“Competition is getting more intense and this is a step in the right direction to attract and attract investment.”
But Anderson also said that not all gas conditions in the bill are good enough to spur development, which Nigeria has announced for its “Decade of Gas”.
President Buhari originally sent the bill to the National Assembly in September. The legislature held two public hearings, but there were a number of private consultations with stakeholders, including oil companies and community leaders, that culminated in dozens of amendments.
During the Easter break, legislators worked on the amendments tabled by the executive branch in March.
A proposed change that would have introduced a mandatory review of tax conditions every seven years has been removed after a backlash from companies concerned about the stability of conditions for projects with decade-long investment cycles.
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