petroleum-industry-billNigeria’s long-awaited oil legislation remains stuck in parliamentary limbo and is unlikely to be passed until after elections in 2015 as the country becomes engulfed in a political crisis, analysts say.

For the first time since coming to power 14 years ago, the Peoples’ Democratic Party (PDP) has been split into two groups, sparking a crisis that has deeply fractured the governing party.

The new group which is made up of seven governors and one former vice-president, Atiku Abubakar, is demanding president Goodluck Jonathan a southern Christian, does not seek re-election in 2015.

Many northerners says Jonathan’s running again would violate an unwritten agreement within the PDP that power should rotate between the largely Muslim north and mostly Christian south every two terms.

Rotimi Amaechi, from the southern Rivers state and who has been embroiled in a long-running feud with Jonathan, has joined the breakaway faction along with six governors from the north.

Jonathan has held talks with the so-called new PDP but they ended without resolution and experts believe the internal squabbles could run on for months possibly until elections.

Analysts say the spat could erode the political will to push through vital reforms including the long delayed Petroleum Industry Bill (PIB) that could unlock billions of dollars of oil and gas investment.

Nigerian oil output has followed a volatile course in recent months, with a series of disruptions to vital pipelines and crude oil theft accounting for losses estimated at 100,000 b/d in the first quarter of 2013 from its onshore operations alone.

Uncertainty over when the PIB will be passed, as well as the form it will take, will continue to push back investment decisions, and some projects could be cancelled until the financial terms have been clarified.

The proposed legislation, aimed at overhauling the country’s oil and gas industry, which has been in the works for 15 years, is now in its fifth year of deliberations by lawmakers. Oil companies say higher taxes and an increase in royalties as proposed in the bill will create one of the world’s harshest fiscal regimes, and make exploration “uneconomical.”

Northern governors have also criticized the proposed ultimate powers given to the oil minister in the awarding and revoking of licenses as well the propose 10% tax to benefit oil-producing states in the south.

Analysts suggest a watered-down version of the bill may be implemented in 2015, and while not perfect, it may put in place some guidelines that would guarantee a stable operational environment for operators and remove funding constraints.

“The Petroleum Industry Bill is not likely to happen this year but may be split up in more manageable bits or resuscitated after 2015,” Thomas Horn Hansen, senior analyst at Control Risks said. While it can hardly be disputed that Nigeria’s energy sector is ripe for a radical review, its failure to improve the investment climate will continue to stifle oil and gas industry’s growth.

Jonathan became Nigeria’s fourteenth post-independence head of state on May 6, 2010 following the death of president Umaru Yar’Adua.

He promised to end the country’s chronic power shortages, end long queues and price fluctuations at filling stations, and ensure the passage of the PIB.

But electricity shortages have worsened, with current generation at around 4,000 megawatts, well under the 16,000 MW Jonathan promised would be available by 2013.

And under his administration, Nigerians are paying more for their fuel following the partial removal of subsidies last year, and Africa’s largest oil producer still imports the vast majority of its petroleum products.

A splinter group that leads states with some of the highest voter turnout, determined to stop Jonathan running for another four-year term, has become the administration’s first major internal challenge.

“If Jonathan does not manage to quell the PDP rebellion, the fracturing of the party in the face of a stronger opposition may significantly weaken his chances in 2015,” said Hansen.

Information from Platts was used in this report.
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