18 TH NIGERIAN ECONOMIC SUMMIT, ABUJA – DECEMBER 4, 2012

1. THE PIB & THE FUTURE OF NIGERIA’S OIL INDUSTRY O. A. Avuru,fnape Managing Director/CEO Petroleum Development Company Limited 18TH NIGERIAN ECONOMIC SUMMIT, ABUJA – DECEMBER 4, 2012

2. BROAD OUTLINE • PIB AND THE OIL & GAS SECTORIAL REFORM AGENDA • PIB AND FISCAL PROVISIONS • PIB AND THE FUTURE OF THE OIL & GAS INDUSTRY

3. PIB AND THE OIL & GAS SECTORIAL REFORM AGENDA • The PIB was meant to be the result of an elaborate institutional reform process for the Oil & Gas Sector, initiated in 2000. • Similar Sectoral Reforms in: • Telecoms • Strong Regulator (NCC) • Private Sector as focus of new investments (MTN, AIRTEL, GLO & Etisalat) • Government Telco to compete in a free Market Environment (died in the process)

4. PIB AND THE OIL & GAS … (cont’d) • Power • Strong Regulator (NERC) • Unbundling and Sale of State Monopoly • Huge, Private sector Capital Injection expected • Aviation • Liquidation of National Courier • Two Private Sector National carriers emerged • Private sector – led Infrastructure development envisaged • Process now in reverse gear

5. PIB AND THE OIL & GAS … (cont’d) • Ports • Port terminals concessioned • NPA now quasi Regulator • Port Infrastructure development now private sector led • Key Oil and Gas Reform deliverables were: • Strengthen Regulation • Strong, Independent Regulator • Entrench, transparent lease administration • Regulation driven by National Aspiration • Eliminate Cash Call Bottlenecks • Self-funding, commercial and listed NNPC

6. PIB AND THE OIL & GAS … (cont’d) iii. Un bundle, deregulate and privatise the downstream • Privatise the Refineries • Deregulate Products pricing • Spin off and sell the distribution package (Depots & Pipelines) • Attract fresh investments in the Downstream • Permanently solve the twin problems of Product scarcity and distribution nightmare. • Accelerate domestic gas supply for rapid Industrial growth • Gas Infrastructure development led by the Private sector • Deregulated Gas pricing • Equitable fiscal Regime to stimulate investments in the sector

7. PIB AND THE OIL & GAS … (cont’d) v. Rekindle investment in the Oil & Gas sector • Grow Oil production and reserves • Enhance linkage to the broader economy vi. Optimise Government Take • Balanced Fiscal Regime (attract investments and optimise government take) • Energise Indigenous Participation  THE DOTUN SULAIMON AND IDIKA KALU COMMITTEE REPORTS MEANT TO BE CRITICAL IMPUTS TO THIS PROCESS (Governance and Downstream reforms).

8. PIB AND FISCAL PROVISIONS  The entire PIB has been reduced to a debate about fiscal provisions. • A simple amendment to the PPT Act (1959) and Petroleum Act (1969) would have addressed this. • The Industry (OPTS) believes that the fiscal terms are not competitive

9. PIB AND FISCAL … (cont’d)

10. PIB AND FISCAL … (cont’d)

11. PIB AND FISCAL … (cont’d)

12. PIB AND FISCAL … (cont’d) • The Indies claim they are short changed • No access to Assets • Harsh Gas Fiscal Terms (doubling of gas taxes) • Harsh Tax and Royalty Rates for small fields (doubling of current rates) • Government insists it is time to claw back and increase take • PSC GT from 30% to 77% • Slight increase in JV GT (86 – 91%) • Gas GT from Negative to 60% • Main gaps between Industry and Government • Cost of doing business • Hostile Environment • High GT means very low company IRR

13. PIB THE FUTURE OF THE INDUSTRY • Sectoral Reforms completely unaddressed • Downstream problems will get worse • Refineries not even mentioned • More uncertainties created in the Midstream (Gas processing and Distribution) • Regulation much more weakened • Cash Call Issues not addressed It is very much about strengthening failed institutions and excluding private capital!!

14. PIB THE FUTURE OF THE INDUSTRY • Gap in Fiscal arguments must be bridged. • Ultimately the fiscals will self adjust (Investment inflow vs industry growth vs fiscals) • Too much short term damage if not properly addressed now. So…. Is the PIB an end or a means to an end??

15. THANK YOU