VZCZCXRO7465
PP RUEHMA RUEHPA
DE RUEHUJA #1861/01 2831220
ZNR UUUUU ZZH
P 101220Z OCT 09
FM AMEMBASSY ABUJA
TO RUEHC/SECSTATE WASHDC PRIORITY 7189
INFO RUEHOS/AMCONSUL LAGOS 2071
RUEHJO/AMCONSUL JOHANNESBURG 0093
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 04 ABUJA 001861 
 
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:  U.S. MISSION'S ADVOCACY ON PIB: SOME PROGRESS MADE, MORE 
TO BE DONE 
 
ABUJA 00001861  001.2 OF 004 
 
 
¶1.  (SBU) SUMMARY: The Mission has supported Nigeria's oil and gas 
reform and has worked with both the GON and the international oil 
companies on issues of concern within the proposed Petroleum 
Industry Bill.  The bill has already had two readings in the 
National Assembly and public hearings were held July 27-31. 
Stakeholders were able to air their concerns during the hearings. 
The legislative Petroleum Industry Bill committees listened and took 
the issues for review.  Today, the gap between the GON and the IOCs 
on a variety of issues has narrowed.  These include greater support 
for the southern oil communities, positive movement on taxation, and 
deregulation of downstream production.  However, problems remain in 
the fiscal arena, the structure of the new incorporated joint 
ventures, and sanctity of contract.  Help is needed to make a better 
bill.  Advocacy that asks the GON to drop the bill totally at this 
point will likely be met with strong resistance, so we must continue 
to work to resolve the remaining problem areas, particularly the 
fiscal provisions. 
END SUMMARY. 
 
GON and Industry GAP 
-------------------- 
 
¶2.  (SBU) Outstanding concerns center on the following: 
 
--Fiscal provision issues: domestic gas pricing, new deep water 
production sharing contract projects, joint venture terms, and all 
shareholder funding of new incorporated joint ventures (IJV); 
 
--Major non-fiscal issues: licenses and leases, IJV provisions, 
benchmark-verify-approve (BVA) provision, discretionary powers of 
Minister/Agencies, dispute resolution, measurement point/midstream 
definition, penalties for failure to meet domestic gas supply 
obligations, community obligations, and the role of the National Oil 
Company (NOC). 
 
¶3.  (SBU) The Mission met with newly named Minister of Petroleum 
Resources Rilwanu Lukman in February 2009 to discuss the Petroleum 
Industry Bill (PIB).  Lukman provided a detailed briefing and 
explained that the restructuring would provide a forum for reform, 
bring things to an even keel, implement transparency, remove 
bottlenecks, and curb corruption.  He underscored that after the 
bill was introduced to the National Assembly he would not be 
involved again until it became law.  He explained that he did not 
want to taint the process and wanted full due process of the law. 
Lukman asked if the U.S. could help with consultants that could 
provide advice on the restructuring of the oil sector in a way that 
quality and efficiency would not be compromised. 
 
¶4.  (SBU) The Mission held a roundtable discussion with the IOCs in 
the summer of 2008 to better understand the issues with the PIB. 
The PIB was introduced into the National Assembly in January 2009 
after having been in the drafting stage for eleven years.  The 
Mission asked the IOCs and service companies to provide talking 
points so it could begin to advocate for the resolution of the 
controversial elements of the PIB.  The Mission encouraged the IOCs 
to effectively engage the GON by reaching out to ministers and 
officials other than those with pure energy or security portfolios. 
Qofficials other than those with pure energy or security portfolios. 
The Mission also recommended that the IOCs expand their advocacy 
with key ministries (such as Finance and Commerce) and the National 
Assembly, highlighting the negative impact the PIB would have on 
Nigeria's finances, rather than concentrating on the more narrow 
interests of the industry. 
 
¶5.  (SBU) IOC engagement with the GON heightened as the July 27-31 
public hearings approached.  The Mission organized a multi-country 
diplomatic delegation (French, UK, and Dutch) that met privately 
with NNPC Chief Dr. Mohammed Barkindo followed by a discussion with 
70 NNPC and Ministry managers and consultants to encourage more 
transparency in the oil and gas sector reform process and to raise 
concerns with controversial elements of the PIB.  The Mission also 
sent letters of support and offers of assistance to the Minister of 
Petroleum Resources, and the House and the Senate PIB Committees 
through Honorable Bassey Out and Senator Lee Maeba, respectively. 
These concerns include: 
 
 
ABUJA 00001861  002.2 OF 004 
 
 
--The fiscal provisions of PIB could make the access to money for 
capital investment difficult and expensive, which would reduce oil 
and gas production as new projects fail to meet return on investment 
criteria; 
 
--The methods of taxation called for in the PIB may reflect global 
norms individually, but are unacceptable in the aggregate; 
 
--Government revenues will decline if new projects are delayed; 
 
--Sustainable and profitable growth of the new IJVs will be at risk 
and funding issues for the joint ventures will be an issue; 
 
--Investment risk will increase because many PIB provisions are 
unclear and open to multiple interpretations; 
 
--The sanctity of contracts is a major issue; and 
 
-- The lack of independent dispute resolution is a significant 
impediment for investors.  New regulatory agencies will have 
unilateral authority to resolve disputes at the request of either 
party. 
 
GON Moves to Gain Consensus on Controversial Elements 
--------------------------------------------- -------- 
 
¶6.  (SBU) The Mission has continued to meet with the Ministry and 
has kept an open dialogue with the Minister's key advisor, 
maintaining information flow to and from the Minister.  The IOCs 
initially complained that the Minister would not work with them 
directly on the PIB.  This has changed and the key advisor and the 
Special Advisor to the President have started meeting with the IOCs 
to gain consensus on several matters including fiscal and non-fiscal 
issues.  The Minister found he was unable to stay away from the PIB 
due to its controversial elements.  He took up each area of concern, 
including those posed by the southern oil communities and their 
governors, and is actively moving them toward resolution.  Most 
recently, he has decided to bring a U.S. oil and gas expert to 
Nigeria to advise the tax authorities and the National Assembly 
Committee on the PIB on tax issues. 
 
¶7.  (SBU) The GON began to realize by late August that they should 
begin mitigation efforts to insure that the bill would pass before 
the end of the calendar year.  Negotiations with the southern oil 
communities and the resolution of the legal hurdles where the 
constitution would force changes in the PIB were a priority.  The 
Ministry of Finance increased communication with the NNPC as a 
result of his discussions with the IOCs on the fiscal implications 
of the PIB.  The Mission continued to take opportunities during this 
period to discuss taxation formulas, royalty issues, sanctity of 
contracts, and dispute resolution. 
 
 
U.S. Agencies Step Up 
--------------------- 
¶8.  (SBU) The U.S. Trade and Development Agency commissioned a 
consultant to identify project opportunities, provide 
recommendations, and develop scopes of work with budgets on October 
6, 2009.  The areas of work include: 
 
--The development of infrastructure for downstream deregulation to 
make natural gas available for domestic consumption; 
 
--The development of new gas processing, distribution, and storage 
infrastructure that would support gas powered vehicles; 
 
--The implementation of new gas-to-liquids processes that would 
Q--The implementation of new gas-to-liquids processes that would 
employ state-of-the-art technologies to make more efficient use of 
gas resources. 
 
--The rehabilitation of refineries that would create new jobs for 
local workers for whom advanced technical training would be required 
and provided. 
 
¶9.  (SBU) U.S. Agency for International Development initiated plans 
 
ABUJA 00001861  003.2 OF 004 
 
 
for meetings with the Ministry of Petroleum Resources on October 
14-23 to develop a work plan to reduce gas flaring and increase 
investments in the gas-to-power sector. 
 
¶7.  (SBU) Post has reported on the evolution of the PIB through the 
following cables: 
 
--ABUJA 1836-ExxonMobil Executive Discusses the Status of Nigeria's 
Proposed Petroleum Industry Bill.  The briefing on the industry's 
outreach to the GON was good news, but the gap between the industry 
and the GON is still too large; 
 
--ABUJA 1764-Update on the Status of the Petroleum Industry Bill. 
Dialogue with the Ministry on the issues of revenue, profit, 
taxation, and a common method of calculation was fruitful. 
Consideration on some sort of technical arbitration is possible if 
the gap between the IOCs and the GON remains stagnant; 
 
--ABUJA 1469-Action Request for Technical Assistance.  Minister of 
Petroleum Resources Rilwanu Lukman sent a letter to the Mission 
seeking USG assistance to reduce gas flaring and to set up a policy 
and two regulatory bodies called for in the PIB.  This provided 
USTDA and USAID with more clarity on the GON's needs; 
 
--ABUJA 1457-0mnibus Legislation on Oil & Gas Reform Goes to 
Public Comment.  The public hearing was informative.  The industry 
and others, with few exceptions, seemed united on their support of 
the reform.  There was large agreement on the areas of concern.  The 
Mission's presence deepened relationships with both the IOCs and the 
Minster of Petroleum Resources; 
 
--ABUJA 1400-Chief of Mission Delegation Meets Oil & Gas Chief 
Barkindo on Petroleum Industry Bill.  A diplomatic mission (U.S., 
French, U.K., and Dutch) met with NNPC Chief Dr. Mohammed Barkindo 
to discuss several points within the PIB.  Barkindo showed his 
willingness to work with the four Missions and admitted that there 
were areas within the PIB that could be reviewed.  The U.S. Mission 
offered technical assistance with the bill and its implementation; 
 
--ABUJA 1328-Minister Takes Action on Gas Flaring.  The Minister of 
Petroleum Resources held a technical meeting with engineers from the 
Ministry, the NNPC, and the U.S. firm SYNFUELS to discuss the 
gas-to-liquid (GTL) process to reduce gas flaring at the wellhead. 
The Minister followed up with a letter to the Mission to ask for 
technical assistance for this U.S. technology; 
 
--ABUJA 1209-USTDA Visit Elicits GON Assistance Requests for 
Petroleum Sector.  This meeting brought USTDA and the Minister 
together to discuss the Minister's desire for U.S. assistance.  The 
meeting was successful with USTDA promising to look at what they 
could offer; 
 
--ABUJA 1109-DAS Hengel Meets with GON Perm Sec for Petroleum 
Resources.  This meeting focused on the GON's reforms as described 
by the GON Permanent Secretary.  The meeting further confirmed the 
GON's desire to partner with the U.S. on developing Nigeria's oil 
and gas sector; 
 
--ABUJA 1050-U.S. Roundtable on Energy and Climate Change Sets Stage 
for Further Cooperation.  The roundtable provided an opportunity to 
engage the GON on a broader scale and opened the door to more 
Qengage the GON on a broader scale and opened the door to more 
decision makers/influencers like the President's Advisor on 
Petroleum Matters; 
 
--ABUJA 262-New Petroleum Minister Lukman Plans to Revamp Troubled 
Energy Sector.  The purpose of this meeting was to hear the GON's 
intent with the PIB, to open the door for continued dialogue, and to 
begin a U.S. advocacy role.  The open door continues to be fruitful 
for both the GON and the Mission; 
 
--LAGOS 155-Ambassador Encourages Oil Companies to Broaden their 
Political Base.  This meeting helped the Mission to hear individual 
and joint concerns about the PIB.  It also clarified that the IOCs 
could reach out to ministers outside the oil and security portfolio, 
governors, and the National Assembly to educate them on the 
 
ABUJA 00001861  004.2 OF 004 
 
 
industry's concerns and ask for guidance and suggested resolutions; 
 
--ABUJA 259-Shell Briefs Ambassador on Oil & Gas Issues.  This 
discussion between Shell executives and the Mission helped Post to 
understand the concerns about the new petroleum sector energy bill. 
Shell asked for the U.S., Dutch, and U.K. COMs to convey 
IOC-provided points on the bill to GON policymakers. 
 
--08LAGOS 505- Oil Exec Says GON Not Ready for Joint Venture 
Restructuring.  A Pan Ocean Oil Company executive explained that the 
proposed international (investor owned) joint ventures (IJV) would 
need to be structured and operate like the Nigerian Liquefied 
National Gas facility which has great control and transparency. 
This discussion helped the Mission speak with the GON about the 
seriousness of their intent. 
 
--08 ABUJA 1563-U/S Jeffery Holds Roundtable Meeting with Ministry 
of Energy Officials.  This meeting introduced the GON's intent to 
restructure the NNPC based on a report by the Oil and Gas Sector 
Reforms Implementation Committee (OGIC).  Subsequent conversations 
with IOC contacts suggested that the reform was not new. 
 
MCCULLOUGH