The Lagos Chamber of Commerce and Industry has said the Petroleum Industry Bill should protect existing projects in the oil and gas industry.
The chamber stated this in on Sunday in its comments on the PIB.
The chamber worried that while the PIB enables companies to elect to either convert to PIB or remain on existing terms, it did not provide clear assurance that the projects whose leases will be remewed in the coming years will be able to retain the rights and benefits they had earned since the start of their operations.
Stating further, the chamber noted that the PIB provisions expected lease holders to relinquish, upon conversion or renewal, lease areas and zones, thereby potentially jeorpadising future exploration, development and long term contractual gas supply obligations.
The chamber, in the commentary signed by its Director General, Dr Muda Yusuf stated, “To ensure the stability of projects, operators should be able to maintain the structure of gas contracts and pricing agreed between parties prior to PIB becoming law.
“The Bill should clarify acreage relinquishment requirements upon conversion.”
LCCI opined that the assets and liabilities of the NNPC in terms of Joint Operating Agreement should be transfered to the same entity.
It explained that the PIB opened the possibility of separating liabilities from assets against which those liabilities can be settled (per existing Joint Operating Agreements), which created a significant risk to NNPC’s JV partners of non-payment of pre-existing commitments.
“We believe that both the assets and liabilities of NNPC should be transferred to the same entity,” it stated.
“To address these risks, companies should retain their right to contractual dispute resolution, stabilisation of historical legislative and regulatory changes, PSC/PSA tax benefits earned but not utilised by conversion date and AGFA based investments retain earned allowances in Upstream.”
On deepwater provisions in the bill, the chamber observed that they did not provide an environment for future investments and initiation of new projects.
LCCI recommended that in order to ensure investors are encouraged to finance deepwater projects, the PIB should grant new deepwater oil projects a full royalty relief during the first five years of production and should remove HT since companies will still be subject to CITA. “Deepwater non-associated gas resource development is particularly challenging and requires targeted measures to get projects off the ground. A full royalty relief during the first five years of production and a one per cent royalty for natural gas, natural gas liquids as well as the condensate/ liquids from such development would encourage investment in deepwater gas projects,” it recommended.
While observing that the PIB requires that companies operating consolidated upstream and midstream assets separate and incorporate their midstream assets as distinct legal entities, the chamber noted however, that the assets were commercially and technically designed to function as one.
It stated, “This framework may be applicable for new projects, however the Bill has omitted the inclusion of a grandfathering framework to ensure that assets developed based on integrated economics complete their lifecycle.
“The inclusion of a savings provision should be considered to allow post conversion continuity of activities undertaken by a single legal entity (instead of segregated as independent companies). A provision for the specific exemption of associated taxes where assets are required to be segregated should also be considered.”
The chamber sought review of the bill in the area of capital allowances and deductions as well as domestic gas sections and administrative burden of compliance.
The chamber then urged the National Assembly to put in place a law that will promote a more effective and efficient governance, administration, host community development and fiscal framework for the petroleum industry.
It maintained that a competitive Bill would help preserve the integrity of the existing projects, while also encouraging future growth of production and making Nigeria an investment destination of choice.