‘There is need to review Nigeria’s petroleum laws’
Patrick Osu is a partner at Ajumogobia & Okeke, a leading commercial law firm in Lagos, with offices also in Port Harcourt and Abuja. Osu has spent over 18 years doing commercial transactional work, litigation and arbitration. In this interview with Roseline Okere, he emphasizes the need to review Nigeria’s petroleum law. Excerpts.
The current Nigerian petroleum law is almost as old as the industry. How relevant is it to today’s oil and gas business?
The petroleum law has been in existence for quite a while and things have changed dynamically over the years. There is indeed a need to take a look at it again and make some changes that will address current industry trends. This is the reason why consideration is being given to the Petroleum Industry Bill (PIB), which is yet to be passed after several years. It is the gaps that you have in the current laws that have necessitated the proposal to pass the PIB. We have now realised that the laws have to be looked at again and enhanced to meet current realities, to enable government and investors benefit maximally.
The Minister of State for Petroleum is considering passing the bills in tranches. Don’t you think this will delay other important aspects of the bill?
Well, the issue of importance is relative. I mean, I’m not sure that passing the bill in tranches will make too much of a difference. It depends on what aspect of the bill will make an immediate impact on the sector. For instance, if the fiscal aspect of the bill is the one that is considered most important at this time and it is passed, then perhaps it may have an effect on the industry, and may deal with some of the immediate concerns.
No one knows precisely what part of the PIB the government wants to pass at the moment. So, we can’t judge that yet. Let us see the part of the PIB that the government proposes to pass and then one would either be able to say, ‘this is not the right one to deal with at this time because it doesn’t affect this or that, or it affects the other things that could come later’.
Some people have the notion that the Tax Tribunal is not really working in favour of the Federal Government in dealing with oil tax issues. For example, the IOCs have been accused of using the tribunal to avoid paying certain taxes. Do you think the tribunal has been effectively performing its obligations?
It cannot be correct that the IOCs are using the tax tribunal as a basis for avoiding the payment of taxes. If the laws do not provide them an avenue to avoid the payment of certain taxes, then they cannot avoid the payment of those taxes. Rather, I would say it is the matters that are taken to the tribunals that may be flawed. For instance, I am involved in a matter at the tax tribunal where the State is suing a company in the oil and gas sector for income tax for its staff that do not operate within the jurisdiction of the State. I am talking about staff working and living in places like Warri, Bayelsa, Cross River, Rivers State, Akwa Ibom State and Delta States – states where they are not carrying out any operations, and yet, asking the oil company to them to pay about N20 to N30 billion in taxes! If you have that kind of situation, and the tribunal finds in favour of the oil company, someone may say the oil companies are trying to use the tax tribunal to avoid paying tax. I think it is important to know if the cases that are brought before these tribunals can be sustained by the States/Federal Government before one rushes to the conclusion that the oil companies are using the tax tribunals as a tool to evade the payment of taxes. I would not consider that a fair statement.
Nigeria has with actual crude oil production. How does this affect economic growth?
The implication of this to the economy is that there will not be complete accountability for sure, and it would definitely affect the finances of the government! This is because if the country says it produces and exports say, two million barrels of oil daily, and what indeed gets to the market is less than what is supposedly produced, then we would definitely have an accounting problem, and this has always resulted in inaccuracy in the calculation of the actual revenue from oil and gas resources. Not knowing the actual production and sales of crude oil leaves room for inaccuracies and easy exploitation of the gap created by the inaccuracies. What that also means is that certain people would be able to capitalise on this for personal benefit.
Right now, there is this renewed vigour to negotiate with the militants to bring peace to the Niger Delta region. Which aspect of the laws can be brought into the negotiation so that we can have a lasting solution in the Niger Delta?
When we talk about negotiating with people, it is more effective if you negotiate with someone today regarding a specific matter and the issue is resolved once and for all. However, when you negotiate and agree something with people today, and you assume you have resolved their issues, and subsequently another set of the same people show up the next day with the same issues, it means your negotiation and resolution in the first instance was ineffective and you may have to negotiate again.
The Government put in place an amnesty program, which ordinarily involved training people and trying to pay them a salary for a certain period,as the case may be. However, my view is that that cannot be a lasting solution. Issues cannot be resolved by simply paying people under the amnesty program that apparently appears to have been hijacked. The original plan probably wasn’t followed, and if it wasn’t followed, it means the money is probably being paid to the people it shouldn’t have been paid to or the funds do not get to the intended people. Now, if those people begin to get agitated, we’ll have another crisis on our hands. So what we really should be focused on doing is identifying the problems of the people and the cause of their agitations in the first place. The second thing is, having identified why they are agitated, we must then focus on how to resolve their problems. If you haven’t answered those first-two basic questions, it will be difficult to resolve the crisis in the region.
I must state that it is not a matter of law. When you say what law could be put in place, it’s not a matter of law; it is a matter of finding a solution to the problem of the people.
Recently, the Vice President in his capacity as the Acting President visited the Niger Delta communities. He had meetings with stakeholders and various groups. The idea was to identify what the issues were so that the government can try and tackle them. I think that is a step in a right direction.I do not think the idea is to negotiate with them and at the end of the day give them money. Giving them money is not useful. It is like someone who comes to you every day to ask you for money and you do not find them a job or assist them earn a livelihood after a while. They would keep coming back to you to beg you for money. Therefore until we get to the point where we listen to the voice of the people, who are suffering from lack of infrastructure, no medical facilities, no social amenities, electricity, roads, and other social structures etc., the Niger Delta crises will remain. So it is indeed not about putting a law in place.
The other thing they complained about is a long contractual circle in the Nigerian oil and gas sector. As a lawyer who is sometimes involved in these matters, how is Nigeria’s case different from that of other countries?
I would say it’s just a matter of efficiency. Frankly, the way the people in the private sector deal with business is not the same way that people in government deal with business.So complaints such as this would only be natural. Government by nature has a bureaucratic attitude. The people who are complaining are people in the private sector. It’s just a general complaint about the government and its attitude to everything. In Nigeria, we take our time to do everything. That is the difference.
If you were in a position to suggest a policy that would attract more investors into the petroleum industry, what kind of law would you prescribe?
In my view, I would suggest an enhancement of the basic laws of investment in Nigeria, which would ensure a more friendly the investment climate in Nigeria. The country is in a recession, and so people are not quite interested in new investment at the moment, and that is a general problem. However, in order to make investing in Nigeria more appealing, we must ensure that our basic investment laws do not create a bottleneck for proposed investors. For instance, the period it takes to process licenses and permits for carrying out business can sometimes be daunting simply because of the varying requirements. This affects the time frame for conclusion of such processes and the requirements can sometimes be frustrating. If you want to incorporate a company it may sometimes take about three weeks and this kind of timing sometimes makes a lawyer look incompetent.When an international investor asks you to incorporate a company and it takes that long, you can be sure that it makes them wonder why a simple matter such as that should take that long.
Investors are also discouraged by the many agencies of government that they have to go through that offer the similar functions. There is the Nigerian Investment Promotion Council (NIPC), which is supposed to assist, but the NIPC still has to rely on the various parastatals to get things done. So all I am saying is that the processes must consistently be looked at and tweaked to ensure that investment in Nigeria becomes very friendly. Friendly doesn’t also mean that it is less taxable; it only means that there is flexibility and simplicity in starting business in Nigeria. The process should be quick, it should be short, and it should not be arduous. For me, those are the key things we need to worry about because every sector already has its own direct challenges.
Nigerian indigenous companies are really benefitting from the local content policy but there are still some aspects that are yet to be implemented. How do we see to the full implementation of the policy?
The local content law is not a bad law, because it has enhanced growth in the oil and gas industry. But we are not yet at full and strict implementation, and that is deliberate. It makes sense to gradually implement, as Government must still try to encourage the majors to continue to play a significant role to build capacity in the industry.The local businesses don’t have all the technical skills and financial strength to handle high capital projects yet, and Nigerian banks sometimes do not have the appetite for huge risks with the local players and may not be willing to lend to finance their projects. For instance, you want to drill a well and it will cost about $100 million, very few banks in Nigeria can give a local player $100 million. But when such local companies are in a joint venture with a known international player, it is easier for the banks to take the risk. Moreover, most international companies use a parent company or international bank finances, and their involvement still adds to the growth of the expertise of the local players. So while full implementation is desirable, there is indeed wisdom in the gradual implementation of the local content act by the regulators.
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