FACTBOX below story
* Ambitious oil bill gives Jonathan chance of legacy
* Parliament has tense relationship with president's team
* Bill is watered-down but would revive investment
* Industry expects law to finally pass next year
By Joe Brock
ABUJA, Aug 6 (Reuters) - Nigeria's landmark energy bill could revive Africa's biggest oil industry and improve President Goodluck Jonathan's reputation, but rebellious lawmakers will seriously test his resolve to push it through in its present form.
The Petroleum Industry Bill (PIB) would bring root and branch reform to an industry that produces 80 percent of government revenues but has been plagued by corruption and mismanagement for decades.
The bill has been stuck in parliament for more than five years, casting a cloud of regulatory uncertainty over the sector and driving billions of dollars of investment away to rival oil producing nations. If the uncertainty is left unresolved, oil revenues could soon start falling.
The wide-ranging bill would change working terms for oil majors like Shell and Exxon and partly privatise the national oil firm, but has been held up as government and oil firms argued over terms.
Nigeria is among the world's top ten oil exporters and a key supplier to the United States, China and Europe because its light, sweet crude is ideal for making motor fuel. It is home to the world's seventh-largest gas reserves and has more proven oil in the ground than the rest of sub-Saharan Africa combined.
If Jonathan can pass the bill, it could help restore a presidency battered by an Islamist insurgency in the north, an abortive attempt to remove a popular fuel subsidy and a raft of corruption scandals, since he won an election last year.
"As a president who came to power with a landmark reform agenda, the passage and implementation of the PIB will provide a key gauge of Jonathan's performance in office," said Roddy Barclay, West Africa analyst at Control Risks, a consultancy.
"Having suffered numerous damaging public setbacks in recent months, making headway on this key piece of legislation would go some way to restoring his international standing."
Jonathan's explicit endorsement of the bill gives it a better chance of passing than previous versions, but his increasingly tense relationship with parliament means he is likely to have to concede ground or face embarrassing delays.
Parliament returns from recess to debate the PIB in mid-September but several lawmakers have told Reuters that the PIB won't get an easy ride and they intend on making major changes.
"We will not be subjected to pressure to pass the PIB. It will not get a speedy passage but a thorough passage," Zakari Mohammed, spokesman for the lower house, told Reuters.
Jonathan's team had made it clear they are expecting a swift passage of a draft he has signed off on.
The president and his close ally Oil Minister Diezani Alison-Madueke will be given greater powers in the latest draft, which is likely to be a sticking point with many lawmakers who believe the executive arm of government is already too dominant.
"We've seen the powers given to the oil minister in the PIB and there is no way we're going to allow our heritage to be handed over to any individual," one member of the House of Representatives told Reuters, asking not to be named.
Relations between parliament and Jonathan's administration have soured this year, as rows flared up over the budget and several parliamentary probes into oil corruption.
"We want this to pass, and it will, but not just the way the president and the oil minister want. No way," the lawmaker said.
There is however always the possibility lawmakers could improve transparency in the bill, which analysts say falls far short of what was hoped.
Besides giving powers to the oil minister, Jonathan's committee also added a clause that would allow the president to give oil licenses out at his own discretion, a backward step parliament is likely to reverse.
"This unfavourable sentiment towards the president and oil minister may actually be positive towards giving Nigeria a reasonably acceptable PIB," Clement Nwankwo, director at the Policy and Legal Advocacy Centre in Abuja, said.
Nwankwo, who works closely with the national assembly, believes the PIB won't pass for around 9 months.
Whatever the bill ends up looking like, passing it would at least end the uncertainty which has prevented Nigeria from holding an oil licensing round for five years.
It may also attract investment into natural gas, helping end chronic power shortages. That would provide the kind of legacy Jonathan indicated he wanted before winning last year's vote.
FACTBOX-Nigeria's Petroleum Industry Bill
ABUJA, Aug 6 (Reuters) - Nigerian President Goodluck Jonathan has approved the latest draft of the Petroleum Industry Bill (PIB), which has been years in the making, and parliament will begin debating it in mid-September.
Here are some of the 223-page bill's main points:
* Enhance exploration and exploitation of oil and gas in Nigeria for the benefit of the people
* Optimise domestic gas supplies, particularly for power generation
* Establish a tax framework that encourages further investment in the petroleum industry while boosting revenues
* Make state-run oil and gas entities commercially oriented
* Deregulate and liberalise the sale of refined fuel
* Promote transparency
NATIONAL OIL COMPANY
* The state-owned Nigerian National Petroleum Corp (NNPC) will be divided up into three entities: the National Oil Company (NOC), the National Gas Company (NGC) and the National Petroleum Assets Management Corp.
* The NOC and NGC will be partly privatised within 6 years of the law passing. The asset management company will hold all the joint ventures with oil majors, which make up the majority of Nigeria's oil assets. It will remain government-owned, with the oil minister as chairman of the board.
* The three entities will be incorporated under the companies act. Within six years the government must divest up to 30 percent of the authorised shares of the NOC and up to 49 percent of the NGC to the public on the Nigerian Stock Exchange.
* Oil companies will pay the following tax rates on profits:
50 pct for onshore and shallow water areas
25 pct for frontier acreage and deep water areas. This is up from 20 pct in a May draft of the PIB
* Industry experts say the law will allow foreign oil companies such as Shell, Exxon, Chevron and Total to offset many of their costs and the terms in the PIB are much more favourable than previous versions.
* There is little clarity over royalty payments, which had been in previous versions of the PIB.
* There is no longer a provision to measure oil for royalties at the oil field, rather than at the export terminal, as there was in earlier drafts. This means widespread oil theft might become easier.
* The oil minister will supervise all the oil institutions, including the regulator, which used to be independent.
* Any person or company who fails to comply with an order made by, or on behalf of the minister is liable to a fine or jail sentence.
PETROLEUM HOST COMMUNITIES FUND
* Communities in the oil-producing Niger Delta have long wanted a better deal from the oil and gas wealth in their area.
* Oil companies will contribute 10 percent of net profits from their Nigerian operations to the fund for Niger Delta communities, less royalties, deductions and allowances, hydrocarbon tax and income tax.
* There is little clarity on how the money will be paid or whether the communities will receive it directly or via the government, which opens the possibility of political interference.
* The host fund will cover the cost of repairs to any oil facilities damaged by vandalism, sabotage and civil unrest. This is currently paid for by oil companies.
OTHER MAIN POINTS
* The pricing of petroleum products in the downstream product sector will be deregulated to ensure market pricing and removal of economic distortions.
* The president will have the power to grant oil licences, something industry experts see as a bad for transparency.
* Gas flaring, a major issue for local communities, will be banned at a date to be decided by the oil minister. It was to be banned by the end of this year in an earlier version.