Cablegate: U.S. Mission's Advocacy On Pib: Some Progress Made, More

DE RUEHUJA #1861/01 2831220
P 101220Z OCT 09




E.O. 12958: N/A


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.

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

--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

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

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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.


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