18TH NIGERIAN ECONOMIC SUMMIT, ABUJA – DECEMBER 4, 2012

THE PIB

O. A. Avuru,fnapeManaging Director/CEO

Petroleum Development Company Limited

&THE FUTURE OF NIGERIA’S OIL INDUSTRY

BROAD OUTLINE

PIB AND THE OIL & GAS SECTORIAL REFORM

AGENDA

PIB AND FISCAL PROVISIONS

PIB AND THE FUTURE OF THE OIL & GAS INDUSTRY

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PIB AND THE OIL & GAS SECTORIAL REFORM AGENDA

The PIB was meant to be the result of an elaborate institutional reform

process for the Oil & Gas Sector, initiated in 2000.

Similar Sectoral Reforms in:

Telecoms

Strong Regulator (NCC)

Private Sector as focus of new investments (MTN, AIRTEL, GLO & Etisalat)

Government Telco to compete in a free Market Environment (died in the

process)

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PIB AND THE OIL & GAS … (cont’d)

Power

Strong Regulator (NERC)

Unbundling and Sale of State Monopoly

Huge, Private sector Capital Injection expected

Aviation

Liquidation of National Courier

Two Private Sector National carriers emerged

Private sector – led Infrastructure development envisaged

Process now in reverse gear

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PIB AND THE OIL & GAS … (cont’d)

Ports

Port terminals concessioned

NPA now quasi Regulator

Port Infrastructure development now private sector led

Key Oil and Gas Reform deliverables were:

i. Strengthen Regulation

Strong, Independent Regulator

Entrench, transparent lease administration

Regulation driven by National Aspiration

ii. Eliminate Cash Call Bottlenecks

Self-funding, commercial and listed NNPC

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PIB AND THE OIL & GAS … (cont’d)

iii. Un bundle, deregulate and privatise the downstream

Privatise the Refineries

Deregulate Products pricing

Spin off and sell the distribution package (Depots & Pipelines)

Attract fresh investments in the Downstream

Permanently solve the twin problems of Product scarcity and distribution nightmare.

iv.Accelerate domestic gas supply for rapid Industrial growth

Gas Infrastructure development led by the Private sector

Deregulated Gas pricing

Equitable fiscal Regime to stimulate investments in the sector

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PIB AND THE OIL & GAS … (cont’d)

v. Rekindle investment in the Oil & Gas sector

Grow Oil production and reserves

Enhance linkage to the broader economy

vi. Optimise Government Take

Balanced Fiscal Regime (attract investments and optimise government take)

Energise Indigenous Participation

THE DOTUN SULAIMON AND IDIKA KALU COMMITTEE REPORTS MEANT

TO BE CRITICAL IMPUTS TO THIS PROCESS (Governance and Downstream

reforms).

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PIB AND FISCAL PROVISIONS

The entire PIB has been reduced to a debate about

fiscal provisions.

A simple amendment to the PPT Act (1959) and

Petroleum Act (1969) would have addressed this.

The Industry (OPTS) believes that the fiscal terms are not

competitive

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PIB AND FISCAL … (cont’d)

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PIB AND FISCAL … (cont’d)

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PIB AND FISCAL … (cont’d)

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The Indies claim they are short changed No access to AssetsHarsh Gas Fiscal Terms (doubling of gas taxes)Harsh Tax and Royalty Rates for small fields (doubling of current rates)

Government insists it is time to claw back and increase takePSC GT from 30% to 77%Slight increase in JV GT (86 – 91%)Gas GT from Negative to 60%

Main gaps between Industry and Government Cost of doing businessHostile EnvironmentHigh GT means very low company IRR

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PIB AND FISCAL … (cont’d)

PIB THE FUTURE OF THE INDUSTRY

Sectoral Reforms completely unaddressed

Downstream problems will get worse

Refineries not even mentioned

More uncertainties created in the Midstream (Gas processing and

Distribution)

Regulation much more weakened

Cash Call Issues not addressed

It is very much about strengthening failed institutions and excluding private

capital!!

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PIB THE FUTURE OF THE INDUSTRY

Gap in Fiscal arguments must be bridged.

Ultimately the fiscals will self adjust (Investment inflow vs industry

growth vs fiscals)

Too much short term damage if not properly addressed now.

So….

Is the PIB an end or a means to an end??

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THANK YOU