VZCZCXRO6329
PP RUEHMA RUEHPA
DE RUEHUJA #1400/01 2121304
ZNR UUUUU ZZH
P 311304Z JUL 09 ZDK
FM AMEMBASSY ABUJA
TO RUEHC/SECSTATE WASHDC PRIORITY 6701
INFO RUEHOS/AMCONSUL LAGOS 1748
RUEHJO/AMCONSUL JOHANNESBURG 0071
RUEHZK/ECOWAS COLLECTIVE
RHEBAAA/DEPT OF ENERGY WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHRC/DEPT OF AGRICULTURE WASHDC

UNCLAS SECTION 01 OF 03 ABUJA 001400 
 
SENSITIVE 
SIPDIS 
 
DEPT PASS AID AFR/SD FOR CURTIS, ATWOOD AND SCHLAGENHAUF 
DEPT PASS TO USTDA-PAUL MARIN, EXIM-JRICHTER 
DEPT PASS TO USTR-AGAMA 
JOHANNESBURG FOR NAGY 
USDOE FOR GEORGE PERSON 
TREASURY FOR PETERS, SOLOMON AND RITTERHOFF 
DOC FOR 3317/ITA/OA/BURRESS AND 3130/USFC/OIO/ANESA/REED 
 
E.O. 12958:  N/A 
TAGS: EPET EINV ENRG EAGR EAID ELTN NI
SUBJECT: NIGERIA: CHIEF OF MISSION DELEGATION MEETS OIL & GAS CHIEF 
BARKINDO ON PETROLEUM INDUSTRY BILL 
 
ABUJA 00001400  001.4 OF 003 
 
REF: 
 ¶A. ABUJA 1328 
 ¶B. ABUJA 1209 
 ¶C. ABUJA 1050 
 ¶D. ABUJA 549 
 ¶E. ABUJA 262 
 
SENSITIVE BUT UNCLASSIFIED; BUSINESS PROPRIETARY INFORMATION; NOT 
FOR DISSEMINATION OUTSIDE USG 
 
¶1. (SBU) Summary: The Ambassador was part of a diplomatic delegation 
(French, UK, and Dutch) to meet with Nigerian National Petroleum 
Corporation (NNPC) Chief Dr. Mohammed Barkindo to encourage more 
transparency in the oil and gas sector reform process, raise 
concerns with problematic provisions of the draft reform legislation 
or Petroleum Industry Bill (PIB), and offer possible technical 
assistance in certain areas.  The Government of Nigeria (GON) asked 
for USG assistance in establishing three independent regulatory 
bodies and one policy agency to ensure conformity with global 
industry standards and practices.  On concerns with the legislation, 
Barkindo agreed that some areas might need work and welcomed input, 
but emphasized that the PIB provides for transparency and good 
governance and is designed to reduce corruption, noting that there 
will be a 12-18 month transition period after the PIB is passed for 
oil companies to negotiate their specific aspects on current and 
future investments.  End Summary. 
 
¶2. (SBU) On July 23, Ambassador was part of a Chief of Mission 
delegation to meet with Dr. Mohammed Barkindo, General Managing 
Director of the NNPC.  The delegation included the British and Dutch 
Charges' d'Affaires and the French ambassador.  EconOff attended as 
notetaker.  The purpose of the meeting was to discuss the landmark 
oil and gas industry reform legislation, PIB) before the National 
Assembly.  The reform was crafted by a public private committee 
known as the Oil and Gas Sector Reform Implementation Committee 
(OGIC) commissioned by President Yar'Adua in September 2007.  The 
OGIC mission was to take the oil and gas policy, developed by a 
former committee's report from 2000-2004, and craft it into a single 
omnibus legislation to reform and reshape the industry. 
 
¶3. (SBU) The PIB's aim is to replace the existing   16 oil sector 
laws into one legal framework through ominibus legislation with 
clear rules, procedures, and institutions for the Nigerian oil and 
gas industry.  The core objective is to transform the NNPC into a 
commercially viable oil company to compete with Shell, ExxonMobil, 
Total, Chevron/Texaco and other multi-national oil companies in oil 
block bidding, exploration, and development and production, both 
locally and internationally.  The new NNPC, according to the bill, 
would be called the Nigerian National Petroleum Company Limited and 
would operate like other government-owned but commercially viable 
national oil companies without relying on government funding. 
 
Private Meeting to Share Concerns 
--------------------------------- 
 
¶4. (SBU) The delegation met privately with Barkindo prior to a 
formal boardroom meeting.  The Ambassador led a substantive dialog 
on the issues and concerns of the international oil companies in 
regard to the PIB.  Barkindo said that that Nigeria sees the bill as 
a reform legislation and a framework for good governance in the 
petroleum industry that will lead to increased petroleum revenues 
for Nigeria and new opportunities for Nigerians to participate at 
every level of the sector as well as to take the secrecy out of the 
industry by allowing for full transparency on contracts, production, 
and income. 
 
¶5. (SBU) Barkindo said that the GON continues to look to the USG for 
technical assistance in setting up one policy body and three 
independent regulatory bodies separate from the commercial "for 
profit" organization.  The PIB provides for these organizations, but 
there is no current structure, experience, or human capacity for 
this type of regulation and policy.  Barkindo supported Minister 
Lukman's idea to establish a mentoring effort between Nigeria and 
related U.S. entities to address organizational structure, 
procedure, processes, and regulatory mechanisms in general (reftel B 
& E). In the PIB, the policy arm would be the Nigerian Petroleum 
 
ABUJA 00001400  002.2 OF 003 
 
 
Directorate (NPD) which will function as the secretariat of the 
minister, and formulate and develop strategies to implement industry 
policies.  The three regulatory agencies are: 
--National Petroleum Inspectorate (NPI), an autonomous stand-alone 
technical regulator to replace the Department of Petroleum Resources 
(DPR); 
--National Midstream Regulatory Agency (NAMIRA), responsible for all 
matters related to the midstream, covering pipeline transportation, 
storage, refining and liquefied natural gas; and 
--Petroleum Products Regulatory Authority (PPRA), to regulate the 
commercial aspects of the downstream sector, including petroleum 
products and natural gas distribution to the end-users. 
 
¶6. (SBU) Ambassador stated that the USG supports oil and gas reform, 
a point other members of the delegation endorsed.  She added that 
the USG wants to better understand how it can work with the NNPC, 
the Ministry of Petroleum Resources, the National Assembly and other 
stakeholders to ensure concerns are addressed as smoothly as 
possible.  The Ambassador underscored the following points: 
 
-- Key industry players, including international oil companies with 
long experience in Nigeria, believe that the proposed fiscal terms 
in the bill would have a negative impact on future investment in the 
oil and gas sector.  A report commissioned to McKinsey & Company on 
behalf of the Oil Producers Trade Section (OPTS), an industry 
organization, concluded that under the reform law joint ventures may 
be expected to invest up to $165 billion between 2009-2020, of which 
$74 billion and its associated production growth is deemed at risk; 
 
 
-- The new IJVs may fail to become self-funding, which is an 
important objective of the reform.  The industry believes that 
contrary to expectation, the proposed fiscal changes would severely 
undermine the ability of the IJVs to achieve self-funding.  There is 
a lack of clarity on how the transition from current legal and 
fiscal rules to the new ones would occur, such as the transfer of 
assets of the UJVs into IJVs which could create administrative risks 
for the transferring of licenses and property rights.  Also the lack 
of "grandfathering" of fiscal incentives creates a high degree of 
uncertainty for investment for both investors and shareholder 
alike. 
 
-- According to the industry, the combination of high development 
costs and PIB fiscal changes would have a negative impact on the 
development of the gas sector.  The proposed increase in taxation, 
the non-competitive government pricing for domestic gas, and the 
reduced investment incentives create significant problems.  The 
international oil companies report that under the PIB an estimated 
890 percent of new gas projects would become economically unviable. 
(Note: OPTS states that Nigeria has the third highest production 
cost in the world per unit of gas produced, after Brazil and Norway. 
 Current Nigeria JV terms already generate one of the highest 
government takes in the world 88% at $60/barrel (bbl), with an 
expected rise to 94% post PIB.  End Note). 
 
-- Uncertainties about independent arbitration and property rights 
in production sharing contracts and increased taxation would 
significantly reduce deepwater investments and future production.  A 
proposed new requirement that production sharing contracts (PSCs) 
should be renegotiated when commerciality is attained amounts to a 
unilateral change in the agreed terms and tenure of existing PSCs. 
This is of serious concern since the right to independent 
arbitration seems unattainable as written. 
 
¶7.  (SBU) Barkindo agreed that some areas of the PIB might need 
attention and welcomed assistance.  He added that the bill would 
have 12-18 months to transition once it became law, which the GON 
feels is adequate to make any necessary changes.  Barkindo opined 
that the new legislation would unlock conflicts in policy and 
regulation for the first time in 50 years, and said that the PSCs 
will be designed to meet the challenges of the current times and not 
those from the past.  The world, he said, has moved on and this 
legislation allows Nigeria to keep pace with the oil and gas 
industry globally and align economic rents to current world 
realities in a non-punitive manner. 
 
 
ABUJA 00001400  003.3 OF 003 
 
 
¶8. (SBU) Barkindo noted that each unincorporated joint venture (UJV) 
will be individually renegotiated as it moves to IJV.  The 
difference is that all contract terms would be public knowledge, and 
he underscored that good governance will eliminate secrecy, which 
aids corruption.  The PIB requires that all texts of all licenses, 
leases, and contracts, and any of the modifications or changes to 
such documents will no longer be confidential.  He added that 
payments to the GON would be public information.  All petroleum 
geological, geophysical, technical and well data would be accessible 
for all interested persons in a national data base. 
 
Boardroom Meeting Attracts Wide Attendance 
------------------------------------------ 
 
¶9. (SBU) NNPC executives made a thorough presentation of the PIB and 
offered supporting materials, including the most recent version of 
the bill.  The Ambassador thanked the NNPC and the Ministry of 
Petroleum Resources employees for their dedicated work on the PIB. 
She reiterated the key points she had made in the private meeting, 
stressing that there is room to tighten language in the PIB to 
reduce the risks to the GON's reform goals, to direct investment and 
revenues.  She added that the U.S. is a friend and partner to 
Nigeria and offered assistance to support the reform process.  The 
British Charge offered assistance with policy support and staffing. 
While the Dutch Charge stated that the Netherlands has been working 
closely with the NNPC on reform and underscored that the PIB needs 
more balance. 
 
¶10. (SBU) Comment:  The PIB is a major reform accomplishment if it 
becomes law.  The GON is sensitive that this legislation be a 
visibly Nigerian product, but the international oil companies fear 
that delays in securing support for key amendments, especially to 
the fiscal aspects, would severely damage their interests and the 
growth of the Nigerian oil and gas industry.  End Comment. 
 
¶11. (U) This cable was coordinated with ConGen Lagos. 
 
SANDERS