Oil firms to plead their case on Nigeria reform bill

ABUJA (Reuters) - Foreign oil firms in Nigeria will get their first and, most likely, last chance this week to publicly criticize and question legislation that could make it much more expensive to operate there. Two parliamentary panels hold separate hearings this week on an oil reform bill that seeks to drastically transform the industry which provides more than 80 percent of federal revenue in sub-Saharan Africa’s second biggest economy.

“This is not just an ordinary bill. It is a bill that hopes to change the way things are done in the upstream, midstream and downstream,” said Osita Izunaso, co-chairman of the joint senate committee. “That is why we are devoting three days for its public hearing.”

The legislation aims to restructure state-run oil firm the Nigerian National Petroleum Corporation (NNPC) into a profit-driven national company similar to those in Brazil, Malaysia and Saudi Arabia.

The far-reaching bill, which has been in planning in some form for more than a decade, has been promoted by the presidency as the answer to problems like funding shortfalls, domestic gas shortages and budget-debilitating fuel subsidies.

But it has sparked considerable concern among foreign oil companies, chiefly Royal Dutch Shell RDSa.L, U.S. major Chevron CVX.N and French energy firm Total TOTF.PA, on the impact it may have on their operations.


The legislation, in its present draft, will allow the government to renegotiate old contracts, impose higher costs on oil companies, and retake acreage that firms have yet to explore.

“For deepwater operations, the bill includes much higher royalties ... as well as the new tax framework,” Petroleum Minister Rilwanu Lukman said this month.

“This will create a strong basis for renegotiations of the existing unfavorable contracts. The goal is to ensure a fair share to Nigeria,” he added.

Oil companies will also be forced to give back unused land from existing oil licenses to provide new investors an opportunity to operate in Africa’s most populous country.

Related Coverage

“Existing companies can keep all areas that are in production or will be developed in the near future,” Lukman said. “However, the acreage that companies are not using will have to be returned to Nigeria.”

Several local firms and foreign companies from China, Russia and India have targeted Nigeria and other African countries to help secure their energy supplies.

Sinopec, China's largest oil refiner, agreed last month to buy Swiss oil explorer Addax Petroleum Corp. AXC.TO, which has a large presence in West Africa.

Also in June, Russia's Gazprom GAZP.MM and NNPC agreed to invest at least $2.5 billion in a new joint venture to explore and develop Nigeria's oil and gas industry.


Under the new bill, NNPC will be transformed into a handful of autonomous units with a new profit-driven national oil company.

NNPC's main joint-ventures with Shell, Chevron, Total, ExxonMobil XOM.N, and Agip ENI.MI would also be restructured into independent firms with new management.

But the 225-page bill leaves much uncertainty on how the new companies will operate, who will manage them, and how profits will be used.

“Some of the provisions in the bill are still open to interpretation,” said Andrew Fawthrop, managing director of Chevron’s Nigerian unit. “It is very important that we clarify that before it is codified.”

One oil company has recommended more than 200 amendments to the bill, while others have privately pointed out dozens of concerns to the NNPC.

After this week’s public hearings, the two committees will decide whether to send the legislation or an amended version to parliament for a final vote.

Skeptics believe the committees will make major changes to the bill that will hold it up for months, if not longer.

“It’s too controversial and too many people have profited from the status quo,” said an oil industry official, who wished not to be named. “I don’t believe there is enough political will for it to pass anytime soon.”