VZCZCXRO6462
PP RUEHMA RUEHPA
DE RUEHUJA #1457/01 2181430
ZNR UUUUU ZZH
P 061430Z AUG 09
FM AMEMBASSY ABUJA
TO RUEHC/SECSTATE WASHDC PRIORITY 6775
INFO RUEHOS/AMCONSUL LAGOS 1794
RUEHJO/AMCONSUL JOHANNESBURG 0076
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 02 ABUJA 001457 
 
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: OMNIBUS LEGISLATION ON OIL & GAS REFORM GOES TO 
PUBLIC COMMENT 
 
ABUJA 00001457  001.2 OF 002 
 
REF: 
 ¶A. ABUJA 1400 
¶B. ABUJA 1328 
 ¶C. ABUJA 1209 
 ¶D. ABUJA 1109 
 ¶E. ABUJA 1096 
 ¶F. ABUJA 1050 
 ¶G. ABUJA 262 
 ¶H. LAGOS 287 
      ¶I. LAGOS 155 
 
SENSITIVE BUT UNCLASSIFIED; BUSINESS PROPRIETARY INFORMATION; NOT 
FOR DISSEMINATION OUTSIDE USG 
 
¶1. (SBU) Summary:  Oil majors and other stakeholders appeared in 
record numbers at the National Assembly for the five day public 
hearing of the Petroleum Industry Bill before the House and Senate 
Joint Committee on Gas and Oil.  In their testimonies, international 
and indigenous oil companies, and industry organizations voiced 
their concerns and warned that the bill as written threatens future 
production, exploration, and revenues.  They called for amendments 
in the bill to address their concerns with regard to, among other 
things, fiscal, taxation, and joint venture terms.  In addition, 
there is opposition to the bill from South-South governors and Niger 
Delta activists.  End Summary. 
 
PIB Intended to Streamline Law and Reduce Corruption 
--------------------------------------------- ------- 
 
¶2. (SBU) The Petroleum Industry Bill (PIB) is an omnibus legislation 
that will replace the existing 16 oil sector laws with one legal 
framework with clear rules, procedures, and institutions.  The 
stated objective of the new law is to bring about transparency, good 
governance, and reduce corruption (reftel A and G).  The oil 
companies in principle agree to these reform efforts; however, they 
have major objections to specific terms of the bill that threaten 
profit and future investment. 
 
Oil Majors have Objections to Provisions in the PIB 
--------------------------------------------- ------ 
 
¶3. (SBU)  Key industry players, including international oil 
companies with long experience in Nigeria in principle agree with 
GON'S reform efforts, but stated specific problems with the fiscal, 
tax, regulatory and other terms of the bill.  They believe that the 
proposed fiscal terms in the bill would have negative impact on 
future investment and production in the oil and gas sector.  A 
report commissioned by the Oil Producers Trade Section (OPTS), an 
industry supported 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.  (Note: industry contacts of Consulate Lagos were 
considerably more pessimistic in their assessment.  End note.) 
 
¶4. (SBU) ExxonMobil Managing Director for Nigeria Mark Ward said 
that ExxonMobil is prepared to invest an additional $60 billion over 
the next several years, increasing oil production as well as gas 
utilization and power generation, which are government priorities. 
However, he warned that this investment could be in jeopardy if the 
bill passes without significant amendments. 
 
¶5. (SBU) After hearing testimonies from stakeholders, the Joint 
Committee on PIB promised to take all the following concerns under 
consideration.  Those that were repeated by various stakeholders 
include: 
 
--Specific provisions in the bill are expected to affect the growth 
of Nigerian oil and gas industry and the overall economy, as it 
discourages investment. 
 
--Given the current fiscal provisions of PIB, it is anticipated that 
capital investment will be reduced over the next 10 years.  New oil 
and gas production will be reduced with a high proportion of new 
projects becoming unprofitable.  Government economic rents will 
decline in the long-term and overall economic growth will be 
affected. 
 
ABUJA 00001457  002.2 OF 002 
 
 
 
--Sustainable and profitable growth of the newly incorporated joint 
ventures (I-JVs) will be at risk and funding issues for the joint 
ventures will be an issue. Return on investment for the portfolio of 
new petroleum sharing contracts, at an oil price of $60/barrel, 
ranges from 10% to minus 14%. 
 
--Many PIB provisions are unclear and open to multiple 
interpretations, which increase investment risk.  Tighter language 
is needed. 
 
--The methods of taxation called for in the PIB may individually 
reflect global norms, but in aggregate are unacceptable. 
 
--The sanctity of contracts is a major issue as well.  IOCs have 
made significant long term investments tied to an agreed set of 
contractual fiscal terms and incentives.  Unilaterally changing 
those terms (PIB allows that) will deter future investors and fly on 
the face of sanctity of contract issues. 
 
--Under the PIB, regulatory agencies will have unilateral authority 
to resolve disputes at the request of either party.  The lack of 
independent dispute resolution processes is a significant impediment 
for investors.  Parties should have the right to use independent 
arbitration or dispute resolution mechanisms. 
 
PIB Faces Oppositions from South-South Governors and NGOs 
--------------------------------------------- ------ 
 
¶6. (SBU) The political scene at the hearing was charged by six 
South-South governors who demanded cancelation of the bill "because 
it does not protect the citizens of the oil producing states."  The 
governors also demanded the resignation of the Minister of Petroleum 
Resources Dr. Rilwanu Lukman, who is seen as the lead author of the 
bill.  (Note:  Consulate Lagos reports that, in addition to the six 
south-south governors, nongovernmental organizations (NGOs) and 
civic activists from the Niger Delta have voiced opposition to the 
bill comparing it to "slavery" and accusing the Federal Government 
of serving only "Northern" interests.  End note.).  Altogether, 
there was a parade of stakeholders over the five days who voiced 
opposition to the bill for various reasons.  After the hearing the 
National Assembly went on recess, but sub-committee work is expected 
to continue with joint recommendations from the House and the Senate 
in late September. 
 
¶7. (U) This cable was coordinated with ConGen Lagos. 
 
SANDERS