Wednesday, 18 November 2009

The Oil War




China's quest to wrestle Nigeria's oil from the west has been linked to the current move to pass the Petroleum Industry Bill, PIB, but not without a fight from the multinationals

By Okechukwu Jombo

The bill has been generating furore in the National Assembly since it was sent to it by the executive. Members of the two chambers are sharply divided over its passage and each side of the divide has its reasons. For lawmakers from the south-south, the bill if passed into law will further pauperise the people of the region. And for their counterparts from the north, any obstacle on the passage of the bill is a calculated effort to frustrate President Umaru Musa Yar'Adua's government.

Before the commencement of the public hearing in June this year, the supporters of the bill, from both the House and the Senate, especially those from the North, led by the Senate chief whip, Senator Kanti Mahmud Bello, and Senator Kabi Gaya, former governor of Kano State agreed with the minister of petroleum resources, the initiator of the bill, Dr. Rilwan Lukman, that the bill is the best thing that will happen to the petroleum industry since Nigeria’s independence. On the other hand, some senators and House members from the south, led by the deputy senate leader, Senator Victor Ndoma-Egba and Senator Lee Meaba as well as Hon. Ita Enang and Igo Aguma, the House chairman, ad-hoc committee on the petroleum industry bill stood against the debate in both chambers of the National Assembly.

Two weeks into the public hearing, some group of House members, led by the minority leader, Ali Mohammed Ndume, ANPP, Borno State, and the AC leader, Hon. Femi Gbajamiabila, accused their colleagues of compromising their positions as members of the committee by receiving gratifications from the oil companies to play down the report of the committee. The group at a press conference accused the members of the Igo Aguma committee of receiving gratification from the oil multinational companies to the tune of N5.5 billion.
At the Senate, the Kanti Bello group also accused their southern counterparts of frustrating the passage of the bill. This is the controversy surrounding the Petroleum Industry Bill, PIB, pending before the National Assembly.
The bill seeks to promote Nigeria's home-grown energy companies and encourage foreign companies to invest in Nigeria's decrepit domestic refining capacity. But beyond these reasons is the struggle over the control of Nigerian oil by the east represented by China and the west represented by America and Britain.
Since the discovery of oil in the country in 1968, British and American companies have dominated the nation's oil exploration. Shell Petroleum Development Corporation, SPDC, Chevron Nigeria Limited, CNL, Texaco, Total, Exxon-Mobil, ELF and Agip are some of the multinational oil companies in oil exploration in Nigeria. But China is desirous to come in.

Chinese President, Hu Jintao recently undertook a tour to some African countries including Nigeria, Sudan and Angola. The purpose of this tour which also took him to Morocco was not hidden. He wants oil for his country's booming factories. He told the Nigerian government that China would build the country's ailing infrastructure and the railways for a share of the oil. This is good news for the Nigerian government. But there is a snag. The country's laws would not allow the leasing of oil wells to the Chinese because 16 prolific oil mining leases, OMLs, are still being held by some multinational oil firms – Shell, Chevron, Texaco, Total, ELF, Agip and Exxon-Mobil. These firms have held them for over 40years.

To change the situation, the nation needs to change its oil laws and replace them with very liberal ones. This was what brought about the introduction of the Petroleum Industry Bill, PIB. International oil companies, IOCs, operating in Nigeria have expressed reservations over the bill. They accuse the government of trying to create a monopoly for the national oil company in alliance with the Chinese.
Under the proposed reforms, the oil industry is to be substantially free from government control and run strictly as a business in a deregulated environment. Government is also aiming at deriving more revenue from petroleum resources which the Chinese promised by increasing royalties and taxes payable by oil companies, in addition to giving host communities stakes in the ventures. The outrage generated by the debate appears to have created a deep and widening divide in the nation's oil and gas industry between the ministry of petroleum resources and the multinational oil exploration and production companies.

The bill among other things, seeks to review existing laws in the petroleum sector such as the repeal of the Petroleum Act of 1969 (as amended), Petroleum Profit Tax Act (as amended), the Deep Offshore and Inland Basin Production Sharing Contracts Act of 1999 (as amended), the NNPC Act and PPPRA Act as well as the Oil Pipelines Act, Associated Gas Re-injection Act and Regulations, Petroleum Equalisation Fund Act and Petroleum Technology Development Fund Act among others. It will also create distinct agencies with clear demarcation of responsibilities; create a commercially viable national oil company and incorporate the existing joint ventures to structurally address long term funding challenges.
However, the multinational oil companies which have made their position known at various fora insist that the PIB, as proposed, will not achieve the objectives set out in the reform agenda but is an avenue to hand over the sector to the Chinese. They argued that the bill, if passed in its present form, will bring domestic gas production to a halt because most new gas projects will not be economically viable since according to them, the Chinese are not interested in the oil sector.
"Absence of further investments in gas projects will impede growth of power and will critically impact GDP multiplier aspirations," they noted. But the Chinese insist that a fair bill fiscal regime is capable of encouraging investments to match the type of growth and development taking place in Angola.

The PIB, which has gone through its third reading in both chambers of the National Assembly, is currently being delayed by the IOC lobbyist until next year to force the federal government to renew their leases under existing terms. The IOCs are concerned that the 16 oil blocs they have held since 1968 under joint venture contracts, JVCs, for which their leases expired between November and December last year and renewed for a year by the Yar'Adua administration, may form part of the 23 blocs currently being eyed by the Chinese National Offshore Oil Corporation, CNOOC.
The CNOOC recently made a $50 billion offer to the federal government to acquire a 49 percent stake, translating to six billion barrels in oil reserves in 23 of the oil leases held by the IOCs. In its quest to acquire six billion barrels of oil, the CNOOC, acting under the auspices of Sunrise Consortium, applied for 49 percent equity participation in OMLs 67, 68, and 71; OMLs 11 and 13; OMLs 71, 72, 74, 77, 79, 83, 85, 86, 88, 89, 90, 91, 95, 118, 127, 133, 139 and 140. All the blocs are held by the IOCs.

The request is being given consideration as instructions have gone out for the data on the bloc to be released to Sunrise by the Department of Petroleum Resources, DPR. A negotiating committee has been set up at the NNPC to handle discussions with the company. The committee is to consider the request and determine an optimum price for the reserves in the blocs against the backdrop of the offer made by CNOOC.
A breakdown of the 23 blocs shows that 18 are currently held under the joint venture arrangements while the remaining five are operated under the PSCs. Of the JV blocs, 16 expired late last year while two are due for renewal in 2019. Also, virtually all the expired blocs are located in the continental shelf except the two unexpired ones that are located onshore.

The PSCs were only recently converted to OMLs and are not due for renewal until 2020 at the earliest. Expectedly, all the PSC blocs are located in the deepwater and belong in the first set of deep offshore blocs awarded in the 1993 licensing round.
The oil companies had expected the automatic renewal of licences which expired last year. But the federal government stalled that move, preferring to renew them for only one year in order to take into account the realities of the present time with the passage of the PIB.

However, the IOCs are currently pushing hard to get the 16 expired leases renewed a second time under long-term leases that would carry similar terms and conditions as the subsisting JVC leases. But the government has rejected the idea of renewing the expired leases for longer periods because it is conscious that the PIB regime would usher in an entirely new regime that would require the incorporation of the JVCs and even change the terms for the existing production sharing contracts, PSCs, governing newer leases yet to expire.

A further analysis shows that seven of the oil blocs are held by Shell of which five expired in November 2008; four are held by Exxon-Mobil and three expired in December 2008; 10 are held by Chevron out of which eight have expired; one is held by Shell Nigeria Exploration and Production Company, SNEPCO,-Shell deep offshore subsidiary, and one is held by TotalfinaElf.
A delay in the passage of the bill would stall efforts by the federal government to give a stake in the existing oil leases to the oil communities in the Niger Delta. A clause in the proposed PIB provides for compensation to the oil communities from oil proceeds.

If the PIB is passed, it will not be business as usual because the IOCs will have less influence in the operations of the incorporated joint ventures, IJVs, which will now be restructured to reflect the new ownership structure, board composition and management of the leases.
For a long time, the general perception was that the federal government has not been getting the best possible deal under the JVCs because even though NNPC currently holds a majority stake of 57 percent across board and is supposed to provide its share of the funding in proportion of its equity share, in the contracts, it has long been suspected that the JVCs are entirely funded by the Nigerian government when the cash calls are paid.

With the passage of the PIB, Nigeria through NNPC will have a say in the day-to-day operations of the JVCs and be able to monitor how they are funded by all the partners in the agreement.
The PIB proposes to review several of the contract terms for the PSCs particularly those governing the older PSC signed in 1993, which conceded a zero percent royalties to the IOCs among other unfavourable terms.
High stake politics has since been playing in the industry with the Chinese lobbying to acquire substantial interests as well. They are said to be very adept at campaigning for a non-renewal of the licenses of oil majors.
The decision of most African countries to explore business opportunities with China is because of the west's legacy of oppression. But there is also the risk of a possible 'neo-colonial power.'

The newly emerging Asian superpower has a population of 1.3 billion people. Apart from her interest in the Nigerian oil, China has billion-dollar oil deals in Sudan and Angola, in addition to mineral mining and timber logging. China has been accused of exacerbating the genocidal war going on in the Darfur region of Sudan because of her interest in the country's oil and she has used her United Nations veto to block Western sanctions on Khartoum over the Darfur crisis.
Again, China engages in the importation of labour rather than making the use of labour in her host country. It engages in illegal logging of timber in Gabon, Central African Republic. According to Human Rights Watch, China has 10,000 workers in Sudan alone including Chinese prison labourers involved in building a $8 billion pipeline from Sudan to the Red Sea.

Chinese involvement in some African countries is believed to be beneficial to the host countries. For instance, Angola, the third major oil producing nation, got a US$3 billion oil-backed loan from Chinese state-owned Eximbank in 2005, a deal which occurred after Angola rejected IMF demands. China is also helping Uganda's anti-malaria efforts. It has cancelled Senegal and Liberia's debts while investing millions in their infrastructure. The country is building railways in Angola, roads and bridges in Rwanda, a dam in Ethiopia, and has helped Nigeria launch a communications and weather satellite into space. The Chinese approach contrasts with decades of neglect and marginalisation towards Africa from western governments and institutions. At the end of 2005, over 800 Chinese companies were operating in Africa and have invested $ 6 billion in the continent.

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