Fitch Ratings says the full implementation of the Petroleum Industry Bill (PIB) will encourage investment into the oil and gas sector and boost production.
The global rating agency, however, warned that bill is unlikely to have a significant near- to medium-term impact on Nigeria’s creditworthiness.
It added the PIB could have positive long-term effects on the country’s public finance, stressing that the positive impact would depend on Nigeria’s readiness to implement the law in full.
The PIB was passed by the National Assembly last month and is awaiting the President’s assent.
“If signed into law by the president, as we expect, the PIB could boost oil-sector investment, helping to stabilise the sector, which has long suffered from underinvestment and potentially reverse the downward trend in oil production.
“This would also be positive for fiscal revenues; fossil fuel tax receipts accounted for 41% of general government revenue in 2019. The new legislation would come after a decade in which oil output has trended lower”, Fitch said.
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The rating agency said the 30 percent of the Nigerian National Petroleum Corporation’s (NNPC) profit from petroleum sharing contracts’outcomes were uncertain in the near-term but could help raise production in the longer term.
It added, “The full impact will also depend on the details and implementation of the fiscal regime for international oil companies, as joint ventures between the NNPC and international oil companies account for the bulk of new exploration and production activity.
“If remitted revenues were lower, this would be credit negative for the sovereign in the near term, but we believe this would be unlikely to drive rating adjustments, all things being equal, particularly since Nigeria is also benefiting significantly from the recent sharp rise in international oil prices.
“Provisions in the PIB could also improve transparency in the petroleum sector, potentially lowering revenue losses due to inefficiencies and corruption. Nonetheless, there remains a risk that they may not be fully implemented, which would blunt this effect,” Fitch stated in the report.
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