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UNCLAS SECTION 01 OF 02 LAGOS 000253 
 
SIPDIS 
 
SENSITIVE BUT UNCLASSIFIED - HANDLE ACCORDINGLY 
SIPDIS 
 
DOE FOR GPERSON, CGAY 
TREASURY FOR ASEVERENS, SRENENDER, DFIELDS 
COMMERCE FOR KBURRESS 
STATE PASS USTR FOR ASST USTR FLISER 
STATE PASS TRANSPORTATION FOR MARAD 
STATE PASS OPIC FOR ZHAN AND MSTUCKART 
STATE PASS TDA FOR NCABOT 
STATE PASS EXIM FOR JRICHTER 
STATE PASS USAID FOR GWEYNAND AND SLAWAETZ 
 
E.O. 12958: N/A 
TAGS: ASEC EPET NI PTER ENERG
SUBJECT: PROGRESS ON OIL AND GAS-RELATED LEGISLATION HALTED 
BY RECESS 
 
REF: LAGOS 0097 
 
LAGOS 00000253  001.2 OF 002 
 
 
Sensitive But Unclassified;  Handle Accordingly 
 
¶1.  (SBU)  Before the five-week recess was called 
unexpectedly on March 21 by the National Assembly, observers 
predicted pending legislation of interest to the oil and gas 
industry would pass before the legislature adjourned sina die 
on May 29.  Now however, observers decline to predict what 
bills may be reached.  According to Victor Olaiya, Manager 
for Government and Business Relations, ExxonMobil, bills 
passed by one house carry over to the next session of the 
National Assembly, while legislation that has not passed 
either house lapese and must be reintroduced. Bills which 
have a direct impact on the industry are: 
 
--   Downstream Gas Act:  According to Olaiya, the industry, 
through the Oil Producers Trade Section (OPTS) of the Lagos 
Chamber of Commerce, has provided input to the House of 
Assembly and Senate Committees considering the legislation. 
The industry-advocated amendments urge independence for the 
downstream regulatory agency, and transparency throughout the 
downstream regulatory process.  ExxonMobil believes the 
amended legislation is acceptable to the industry.  Although 
both the House and the Senate have held hearings on and 
amended the bill, neither Committee has reported the bill for 
consideration by the full House or Senate. (Ref)  Olaiya 
believes that given the effort both houses have put into this 
bill, it is possible that at least one Committee may report 
the bill out in time for that house to take action before the 
May 29 adjournment. 
 
--  Fiscal Regime:  Two bills to amend the Petroleum Profits 
Tax Act and the Company Income Tax Act (CITA) have been under 
consideration by Committees of the National Assembly, 
according to Dr. Tim Okon, General Manager, Development 
Planning, ExxonMobil.  The bill drafted by the Federal Inland 
Revenue Service (FIRS) would grandfather the consolidation of 
gas costs against income received from oil for both projects 
on the ground and planned, and provides for a date by which 
grandfathering would end.  Current law does not allow the 
consolidation, as the National Petroleum Investment 
Management Services (NAPIMS) recently reminded international 
oil companies (IOCs), some of whom had been using the 
consolidation method of computing tax based on informal 
assurances from NAPIMS that the method was acceptable.  The 
FIRS bill would also allow a lower tax of 30 percent for gas 
projects.  The second bill, the Nigeria Associated Gas 
Federal Revenue Act (NAGFRA) provides for an "r-factor" tax 
rate computed by dividing cumulative revenue minus taxes paid 
by cumulative capital expenditures plus operating 
expenditures.  This bill, which was submitted by NNPC 
Managing Director Funsho Kupolokun and is supported by the 
President, would tax the income from add-on projects at a 
higher rate than the original project, creating a 
disincentive to produce gas.  The House of Assembly has 
passed the FIRS bill and OPTS members have been working with 
the Senate on the bill which is now on third reading. 
Because the FIRS bill has already passed the House of 
Assembly, it will carry over to the next session of the 
National Assembly whether or not the Senate takes action 
before adjournment; absent action by the House or Senate, the 
OPTS bill would have to be reintroduced for the new National 
Assembly to consider it. 
 
--  Local Content:  The industry worked hard to make changes 
 
LAGOS 00000253  002.2 OF 002 
 
 
in this legislation, which was not acceptable as originally 
drafted. Olaiya said "perhaps 95 percent" of the industry's 
suggestions have been incorporated into the draft. 
Importantly, the industry managed to have criminal sanctions 
for noncompliance with local content targets excised from the 
bill.  The Senate appointed an attorney as a consultant to 
the Committee considering the legislation, which allowed the 
Committee to complete consideration and vote the legislation 
out for consideration by the full Senate.  The House of 
Assembly has not yet considered the bill.  Unless the Senate 
acts before adjournment, this legislation will have to be 
reintroduced. 
 
¶2.  (SBU)  OPTS is watching a number of bills which also have 
an impact on the industry, including: 
 
--  Nigerian Extractive Industries Transparency Initiative 
(NEITI):  The legislation has been passed by both the House, 
and the Senate passed the legislation in mid-March following 
a final study tour to the United Kingdom in February. 
According to Dr. Bright Okogu, Executive Secretary of the 
NEITI Secretariat and Special Assistant to the Minister of 
Finance, the House and Senate bills must be reconciled by a 
conference committee, but according to Olaiya, the bill is 
"as good as passed."  Even if no action is taken prior to 
adjournment, the legislation will carry over for 
consideration by the newly elected National Assembly when it 
reconvenes.   Olaiya noted the industry has had an 
opportunity to provide input during the drafting of the 
legislation and is satisfied with the bills.  The Senate bill 
provides for penalties of not less than naira 30 million 
(approximately USD 238,000) for any extractive industry 
company which gives false information to the government 
regarding its production, sales or income. 
 
--  Fiscal Responsibility:  According to Olaiya, the industry 
is monitoring the progress of the legislation to forestall 
the possibility of any unintended negative impact, but 
believes that the legislation is a positive step toward 
fiscal responsibility for Nigeria.  The legislation clarifies 
inter-governmental fiscal relations and the role of the 
executive and legislative branches in the budgetary process, 
sets out transparency requirements, sanctions for 
non-compliance, guidelines for budgetary practices and a 
fiscal framework based on oil price.  Although the Senate has 
passed the legislation, the House of Assembly has not yet 
acted, according to press reports.  Because the bill has been 
passed by one house, the legislation will carry over for 
consideration by the subsequent National Assembly. 
 
¶3.  (SBU)  Even before the recess, members had been 
increasingly absent from National Assembly meetings as they 
engaged in election-related activities, making achieving a 
quorum in committee and in the full House and Senate 
increasingly difficult, both Tim Okun and Paul Foster, Gas 
and Power Commercial Manager for ExxonMobil, pointed out. 
According to Kingsley Onukwe, Special Assistant to the Senate 
President, similar scheduling difficulties are likely to 
plague the scant four week session between May 2 and May 29. 
 
 
BROWNE