The dynamics of attracting investments in the exploration and production of petroleum in any oil province have gone beyond the ease of producing petroleum and geological constraints (Iledare 2010; Onwuka et al. 2012). It now depends mostly on the attractiveness of a Nation’s petroleum fiscal system (Iledare 2010; Onwuka et al. 2012; Dongkun and Na, 2010; Kazi Beyesa, 2018). The petroleum fiscal systems defines the relationship between the host government and the contractor, how contractor’s will earn revenues from investment and what percentage of revenues accrues to the host government (Echendu et al. 2015; Farimani et al. 2020; Ghandi and Cynthia Lin 2012; Iledare 2004; Johnston 1994; Johnston 2003; Johnston et al. 2008; Lawal, 2014; Ogolo et al. 2020). A progressive, stable and dynamic fiscal system will ensure the attractiveness of a fiscal regime (Iledare 2004).
For over a decade, Nigeria has been trying to reform her petroleum sector by taking actions to enact the petroleum industry bill (PIB) as an Act of the National Assembly but the bill has faced several setbacks. In 2008, the Oil and Gas Implementation Committee submitted a report that contains the legislation of the PIB to the government. The report was used to draft the PIB (Iledare 2010; Onwuka et al. 2012). The bill was sent to the National Assembly of the Federal Republic of Nigeria in 2009 by the then President of Nigeria (Iledare 2010). The bill stipulates operational strategies and guidelines for the promotion of Nigeria’s prominence in the global energy landscape. It was aimed also at increasing government’s revenue from petroleum investments (Iledare 2010). It also aligns the petroleum sector with global best practice, promoting transparency and good governance in the sector. The bill defines and distributes responsibilities to government institutions designed to regulate, make policy and manage the operational and commercial aspect of the industry (Iledare 2010). The bill is progressive and dynamic in nature.
Before the emergence of the PIB, in theory, there have been three different production sharing contracts (PSC) arrangements in Nigeria with unique fiscal terms (Echendu and Iledare 2014). There are the 1993 PSC, 2000 PSC and 2005 PSC. The 1993 PSC was more progressive in nature and it stipulates a cost recovery option of 100% and zero royalty payments for investment located beyond a water depth of 1000 m. The 2000 PSC had the introduction of VAT included as part of its fiscal terms and the 2005 PSC had a cost recovery option of 80% (Echendu and Iledare 2016). Though the PIB 2009 had a cost recovery option of 70% but it has a dynamic royalty instrument that slides based on the production capacity of a firm and oil price.
Iledare (2010) evaluated the economic impact of the PIB 2009 on the profitability of investments in the production of oil in the offshore region of Nigeria. He said that the government take statistics could be as high as 91%. The unit technical cost for the investment he considered was $24.29 per barrel. The investment had a contractor's and host government net present value of $92.29 MM and $937.83 MM. The cumulative oil produced from the field was 100 MMbbls. Oyekunle (2011) also investigated the impact of the PIB 2009 on deep water investment economics. He found out that the petroleum industry bill will increase government revenue from investments in the deep offshore region. Governments could have a 50% chance of having a take statistics between 88% and 91%.
Onwuka et al. (2012) evaluated the impact of depreciation methods and decline curve patterns on the economics of deep water investments in Nigeria using the fiscal terms in the 2005 PSC and PIB 2009. They observed that the exponential decline curve technique that is said to be reserved gave the highest net present value, internal rate of return, growth rate of return and contractor’s take statistics. This occurred because all the decline curve techniques used were subjected to the same time period. But they found that the unit of production technique of depreciation gave the most favourable profitability metrics for the PIB 2009 while the straight line depreciation technique gave the most favourable metrics for the 2005 PSC. The government take obtained from the PIB 2009 was higher than the government take obtained from the 2005 PSC.
Sadly, despite the advantages and benefits the PIB 2009 offered to the country, it was not passed as an Act after going through many public hearings by different committees of the National Assembly (Echendu and Iledare, 2016). In 2012, a new version of the bill emerged known as the authentic PIB (PIB 2012) (Echendu and Iledare 2016). The provisions in the PIB 2012 were drawn extensively from PIB 2009. In the PIB 2012, the payments of fees and royalties were made as a regulatory provision unlike the PIB 2009 that states that, there were to be determined legislatively (Echendu and Iledare 2016). Due to the desire to make the PIB problem focused and ease its passage as an Act, it was broken down into four different bills (Oyekunle 2011). The fiscal terms used in drafting the PIB were incorporated into a new bill called the Petroleum Industry Fiscal Bill (PIFB) with adjustment in some of the fiscal terms. The national hydrocarbon tax and corporate income tax that replaces the petroleum profit tax in the PIB 2009 and PIB 2012 were also adopted in the PIFB.
The emergence of the PIB as a means to reform the petroleum sector in Nigeria brought a sigh of hope to Nigerians and major stake holders of the petroleum industry. But the delay in passing the bill has a major impact in the conduct of activities and revenues generated from the industry. Many research efforts have been made towards evaluating the fiscal provisions in the PIB 2009 and subsequent modifications made to the bill. There has not been a research that considered the economic impact of the delay in passing the bill using the fiscal arrangements contained in the bill. This research therefore considers the economic modelling of the delay in passing the PIB and its impact on deep offshore investments and government take statistics.