“NEITI does not see the rationale for passing a bill that is designed to reduce government revenue from petroleum operations by a minimum of $3 billion annually through inappropriate and unfavourable adjustments to the fiscal provisions,” the agency said in a statement.

“Sadly, the House of Representatives Report establishes fiscal terms with a government share of oil revenues below internationally competitive levels and with a structure that will result in a rapid erosion of government petroleum revenues during the next 5 years.”

Here’s some background to the story.

This chart shows the split of revenues under Joint Venture oil agreements in Nigeria. Oil companies claim costs, (often at inflated rates) and cash flow (C/Flow), while the government claims Tax, Royalty and NNPC cashflow.

The PIB, presented to the National Assembly in2008,  is Nigeria’s attempt to re-structure its embattled oil industry, primarily to resolve long-standing funding issues and incorporate NNPC, the national oil company. However, the Bill has been subject to substantial mission creep, and could eventually affect a wide range of issues from fiscal terms, gas flaring to host community rights.

Earlier drafts of the PIB included a proposal to increase in the taxes and royalties due to the state, (known as state “take”). Oil companies such as Shell, Exxon Mobil and Chevron have fought long and hard to defeat such an increase in taxes. Anne Pickard, the top Shell executive in West Africa, boasted of infiltrating government ministries, and spoke of using the US Embassy as a “silver bullet” to kill off offending terms in the PIB. Companies argued that the increase in taxes would make Nigerian oil industry uncompetitive, and drive business elsewhere. Uncertainty over the new fiscal terms in the PIB was said to be blocking $60 billion in oil investment.

In a country dependent on oil for 85% of total government revenues, oil companies wield immense power and influence. Under such pressure, lawmakers at the House of Representatives are now proposing to downgrade Nigeria’s tax regime below internationally competitive rates. Far from increasing taxes on oil companies, they now plan to drop taxes even lower.

For those following the oil industry, it’s a familiar story. A host country attempts to change the rules governing its oil industry to increase the state share of profits from its natural resources. Deals signed under dictatorship or occupation, are seen in the cold light of day to be unfair and exploitative. But multinational companies unanimously oppose any changes. Heavy political  lobbying, scare tactics and histrionics follow, with companies claiming that even minor increases in the state’s take will lead to the industry crumbling and a massive exodus of foreign investors.

Ultimately, when the rules do change and the taxes on oil companies rise, everybody returns to business as usual and profits remain high. The exodus never seems to get off the ground so long as there’s crude oil beneath it.

The government estimates as many as 20,000 militants could participate in the programme… Under the plan, the screening of gunmen and collecting of weapons will begin on Aug. 6 at 15 amnesty camps located in Delta, Bayelsa, Rivers and other southern states in the Niger Delta. [President] Yar’Adua was expected to ask state governments in the Niger Delta, oil companies and international organisations to share the costs of the amnesty programme. It was not clear how much money was needed.

The cracks have already begun to show, and the unclarity of the government’s message was met with consternation by the Ijaw Elders and Leaders Forum. The Nigerian news service, NEXT, reported that:

Ijaw leaders have queried the offer of amnesty to Niger Delta militants, pointing attention to section 175 (1) (a) of the 1999 Constitution. According to them: “there has been no conviction against any of the alleged militants to warrant the granting of amnesty.”… The forum noted that that seven months after the submission of the report of the Technical Committee on Niger Delta, the Federal Government had taken no concrete step to implement any of its recommendations.

Despite the fact that the Nigerian army still occupies the region, militants have retaliated by blowing up pipelines and oil infrastructure belonging to Shell, Chevron, Agip and Exxon, a move which helped push the world oil price up to $69. Come 6th August, the government may be less optimistic that insurgents from the main militant group, the Movement for the Emancipation of the Niger Delta (MEND) will be getting in line to handover their weapons.

Urgent action is needed from all sides to halt the killing of innocent civilians. The conflict is exacerbated by the joint failure of multinational oil companies and the government to respect the rights of local communities, many of whom suffer the daily impacts of gas flaring and oil spills on their land and health. A better way to fight the cycle of violent conflict is to address people’s long-standing grievances: invest urgently in local development and povery alleviation, compensate communities for violations of their rights and enforce protection of the environment.