VZCZCXRO3555
PP RUEHMA RUEHPA
DE RUEHOS #0393/01 2921515
ZNR UUUUU ZZH
P 191515Z OCT 09
FM AMCONSUL LAGOS
TO RUEHC/SECSTATE WASHDC PRIORITY 0988
INFO RUEHZK/ECOWAS COLLECTIVE
RUEHUJA/AMEMBASSY ABUJA 0570
RUEHLO/AMEMBASSY LONDON 0813
RUEHTC/AMEMBASSY THE HAGUE 0665
RUEHVI/AMEMBASSY VIENNA 0079
RUEAIIA/CIA WASHINGTON DC
RHMFISS/HQ USAFRICOM STUTTGART GE
RHEFDIA/DIA WASHINGTON DC
RHMCSUU/DEPT OF ENERGY WASHINGTON DC
RUEKJCS/SECDEF WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 03 LAGOS 000393 
 
SENSITIVE 
SIPDIS 
 
COMMERCE FOR KBURRESS 
AFRICOM FOR CGAY 
TREASURY FOR DPETERS, RHALL, RABDULRAZAK 
STATE PASS USTR FOR LISER, AGAMA 
STATE PASS OPIC FOR ZHAN, MSTUCKART, JEDWARDS 
STATE PASS TDA FOR EEBONG, DSHUSTER 
STATE PASS EXIM FOR JRICHTER 
STATE PASS USAID FOR NFREEMAN, GBERTOLIN 
USDOC FOR 3130/USFC/OIO/ANESA/DHARRIS 
 
E.O. 12958: N/A 
TAGS: EPET ECON EFIN EINV PGOV NI
SUBJECT: EXPERTS ASSESS NIGERIAN PETROLEUM INDUSTRY BILL 
 
REF: A. ABUJA 1836 
     ¶B. ABUJA 1764 
 
SENSITIVE BUT UNCLASSIFIED -- PLEASE HANDLE ACCORDINGLY 
------- 
SUMMARY 
------- 
 
¶1.  (SBU) Industry experts continue to review the pros and 
cons of the proposed Petroleum Industry Bill (PIB). 
Increased GON revenue, and excluded credits for security, 
contracting, and finance costs remain key concern for oil 
companies.  The GON has retained the consulting services of 
an oil and gas expert to better understand the concerns of 
the oil companies and advise the GON on how to fine tune the 
PIB.  END SUMMARY. 
 
------------------------------------------ 
Many Facets of the Petroleum Industry Bill 
------------------------------------------ 
 
¶2.  (SBU)  A Lagos Business School roundtable on the Nigerian 
oil and gas industry on September 29 focused on the proposed 
PIB.  Energy and taxation law expert Adeoye Adefulu briefed 
on the PIB version submitted to the National Assembly in 
December 2008 and which is now back at the committee stage 
following its second reading.  Adefulu said there are now 
several versions of the bill due to the continued work on the 
PIB by the Ministry of Petroleum Resources and its 
interagency team.  He said a fourth version, significantly 
different from the original version, was later submitted to 
the National Assembly as a memorandum.  Adefulu concluded the 
latter version was an improvement in that it favored the 
Nigerian government and Nigerian oil companies. 
 
¶3.  (SBU) KPMG partner on tax and regulatory services Victor 
Onyekpa said the PIB aims to increase the 
government's take, energize the gas sector, and integrate oil 
and gas into the Nigerian and global economies, but fails to 
balance increased government take with sustained industry 
investment.  Onyekpa said a government take of 91 percent 
under the PIB is too high to allow for industry investment, 
and this could lead to a decline of GON revenue.  He also 
faulted the need for the Minister of Petroleum Resources to 
approve the articles of association and dividend payment of 
the Incorporated Joint Ventures (IJVs), as proposed in the 
PIB.  Onyekpa questioned why private IJVs should require a 
government official's approval to disburse dividends. 
 
------------------------------------------ 
How Nigerian Fiscal Terms Compare Globally 
------------------------------------------ 
 
¶4.  (SBU) Wood Mackenzie principal analyst Stewart Williams 
compared the current and proposed fiscal terms for upstream 
projects in Nigeria with those in the United States, Brazil, 
Canada, and Venezuela.  He concluded that the GON's share of 
over 90 percent is among the highest globally and is a 
disincentive to new investment under the existing JV regime 
in Nigeria.  Williams said Nigeria's share of the pre-take 
(project revenue, less costs) cash flow has remained high at 
92-97 percent over the years despite varied levels of 
profitability in the joint ventures.  He estimated the GON 
had also received $20.7 billion or 66 percent of pre-take 
cash flow from Production Sharing Contracts (PSC) projects 
between 2000 and 2009, as compared with the $10.5 billion in 
revenue retained by the companies. 
 
------------------------ 
Pros and Cons of the PIB 
 
LAGOS 00000393  002 OF 003 
 
 
------------------------ 
 
¶5.  (SBU) Williams continued that the PIB seeks to generate 
more revenue for the GON and restructure the Nigerian 
National Petroleum Corporation (NNPC).  It introduces 
flexibility in the government share, and enhances the 
economic viability of smaller (20 million barrel) fields, 
which are mostly operated by Nigerians, through a more 
progressive and generally lower GON share for such fields. 
Williams said the PIB should create a more transparent and 
accountable legal framework for procedures, contracts, and 
payments to modernize the NNPC and make it more able to fund 
projects. 
 
¶6.  (SBU) Williams said a high government take under the PIB 
fiscal terms is unfavorable for larger (100 million barrel) 
oil fields and renders deepwater (500 million barrel) oil 
fields uneconomic even at $90 per barrel.  As much as a third 
of costs may be disallowed as deductions for tax and fiscal 
administration of the terms will be more complex with the use 
of multiple collectors.  Williams opined that the PIB's 
emphasis on local content will likely result in higher costs 
and project delays in the short term, while gas projects will 
remain uneconomic even if the GON's share were zero. 
 
---------------------------------------- 
PIB May Kill Nigeria's Critical Industry 
---------------------------------------- 
 
¶7.  (SBU) Financial Derivatives Company Managing Director 
Bismarck Rewane called the PIB a "mixed blessing."  Rewane 
emphasized that Nigeria's non-oil earnings are not enough to 
fund its development plan and that Nigeria risks losing 
investments if the PIB is passed as is.  Rewane said the 
motives of the PIB were noble and nationalistic, but 
Nigeria's current bargaining power is much lower than it used 
to be given the prevalence of alternate investment 
destinations in the Gulf of Guinea.  He noted that the robust 
oil industries in Angola, Sao Tome and Principe, and now 
Ghana have eroded Nigeria's attraction to foreign 
investments, especially in light of Niger Delta unrest.  He 
observed that there were deep political undertones to the PIB 
but urged Nigeria to decide what it really wants from the oil 
sector (more revenue, better technology transfer, or better 
deals from multinational oil companies) and align this with 
current policies like local content and gas flare-out to get 
the critical balance required in the PIB. 
 
---------------------------- 
GON Moves to Engage Industry 
---------------------------- 
 
¶8.  (SBU) According to multiple industry contacts, the GON 
has retained oil and gas expert Pedro Vermeer to help 
fine-tune the PIB.  Vermeer is expected to consult with oil 
companies to understand their reservations about the bill and 
advise the GON on how to accommodate such concerns.  Onyekpa 
of KPMG cited this as progress since the GON had previously 
rebuffed dialogue with the oil companies under the aegis of 
the Oil Producer's Trade Section (OPTS).  Onyekpa also 
advised the oil companies to buy more media airtime to 
educate a broader audience on the shortfalls of the PIB. 
 
------- 
COMMENT 
------- 
 
¶9.  (SBU) The PIB's progress has slowed down in the National 
Assembly, as more outside experts weigh in on the plusses and 
minuses of the bill.  An IMF delegation that his been asked 
 
LAGOS 00000393  003 OF 003 
 
 
to look at the PIB is in Abuja now.  The Minister of 
Petroleum Resources has stated his intent to garner the 
support of the World Bank by year-end.  The Mission will 
report on the results of the IMF and World Bank review as 
soon as their reviews are available. 
 
¶10. (U) ConGen Lagos has coordinated this telegram with 
Embassy Abuja. 
WALSH