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Yar’Adua’s absence stalls Nigerian oil reforms

By Jacques Lhuillery

January 24 2010 at 10:01AM

Lagos – Long-awaited reforms to regulate Nigeria’s oil sector are among a raft of ambitious government projects which have been stalled by the protracted absence of ailing President Umaru Yar’Adua.

For over a year multinational oil giants and Nigerian officials have been locked in a standoff over the reforms contained in the petroleum industry bill (PIB), which will dictate where billions of investment dollars will be spent.

Objections by the oil companies, some of which have been operating in Nigeria for five decades, have forced changes to the bill. But these require Yar’Adua’s approval before they can be incorporated into the proposed law.

“My concern at this time is over the completion of that (legislative) process,” junior oil minister Odein Ajumogobia told AFP.

“I imagine that this would be (the oil firms’) primary concern too.”

Executive power in Nigeria is centred on the presidency.

But the president has been receiving treatment for a heart condition in a Saudi Arabian hospital for over two months and the government has been unable to say when he will be well enough to return.

His protracted absence has left potential investments hanging, experts say.

“IOCs (international oil companies) can take technical risks but hate commercial risks,” one expert told AFP on condition of anonymity.

“Nobody will invest, there will be no investment, not only Shell, but Total, Exxon, Chevron. The industry is totally aligned on this particular issue.”

The bill plans to transform existing joint ventures between international oil giants and the corruption-ridden state oil firm into autonomous entities in a bid to promote transparency and raise tax revenue from foreign oil majors.

The bill is currently in the second reading stage in the Senate and House of Representatives in two different forms. Once it goes through the third stages, the texts from the two chambers of parliament will have to be reconciled.

The government acknowledges there are differences still to be ironed out with the oil majors and one industry source told AFP the new law could be adopted “at the best” in February, and has to be approved before year end.

Delays in reforms to the crucial oil sector can only stall the economic growth prospects for the world’s eight biggest crude exporter, which relies on oil for more than 95 percent of its foreign exchange earnings.

Gbenga Famoriyo, a Lagos economist, said the absence of the president means “it will definitely suffer a lot of delay and inaction.”

The protracted uncertainty over the president’s health is also threatening to undo progress made during peace talks in the volatile and oil-rich Niger Delta region where Yar’Adua had launched peace overtures to rebels.

On the oil front, multinationals already operating in Nigeria are fearing the worst as Chinese companies try to get a foothold in the sector.

With the future taxation regime risking to slash by half capital investment levels over 10 years, they say the growth of oil operations will be curbed.

“The key determining factor will be: what does the Nigerian government do with its proposed legislation changes,” said an industry executive.

“As long as there is commercial uncertainty, our willingness to invest will be curtailed,” the executive said.

For now it is a wait-and-see game in the high stakes sector.

“The money we’re planning to invest worldwide will go to the best opportunity. If Nigeria is a good opportunity because it’s fiscally sound, we will invest here,” said the chief executive of an oil major.

In the current confusion, there have been rumours that British-Dutch oil giant Shell may be planning to pull out of some onshore operations in Nigeria.

While stressing Nigeria’s importance, Shell chief executive Peter Voser earlier this month played down its significance to the company’s global activities.

“Nigeria is still a heartland for Shell, but we no longer depend on it for our growth aspirations. This gives us more flexibility in deciding when and how to develop oil and gas resources in Nigeria,” he said. – Sapa-AFP

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