No Backtracking On Petroleum Industry Bill, Says Nigerian President

by Lorys Charalambous, Tax-News.com, Cyprus

09 November 2009

Nigeria’s President, Umaru Musa Yar’Adua, has said that there can be no retreat from a full deregulation of the downstream oil and gas industry, and the consequent cessation of subsidies, as contained in the Petroleum Industry Bill (PIB).

The PIB, currently going through parliament, provides a legal and regulatory framework for the industry as a whole. One of its main objectives is to simplify the collection of taxes and increase royalties, particularly from oil fields in deep offshore waters.

The President confirmed that negotiations on the PIB’s fiscal details were still continuing with the international oil companies operating in those waters.

Another aim of the PIB, however, is a full deregulation of the downstream oil sector, thereby doing away completely with the subsidy on downstream petroleum products.

Whilst being a substantial crude oil exporter, Nigeria’s lack of refining capacity has meant that it has had to import the great majority of its refined fuel products, which are then subsidized by the government to reduce prices to the final consumer.

The federal government has previously said that the annual subsidy on those products, which reached about USD4.5bn last year, could not be sustained in the long term.

The President therefore also confirmed that, although the government realised that the PIB would cause a certain amount of short-term discomfort from price increases, any problems should be temporary, as the market adjusts.

It is hoped that the government’s deregulation will eventually lower prices by liberalizing the market, reducing inefficiencies and encouraging investment by the private sector in “midstream” storage and oil refining and “downstream” marketing. The PIB would establish two new authorities to oversee those areas, and provide a legal and regulatory framework for comprehensive reform.

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