…as Nigeria loses N3trn yearly to oil tax avoidance
Nigeria’s petroleum producers are pushing for a swift acceleration of divestment processes and unlocking of deepwater assets to deliver a long-awaited oil boom.
Speaking at the 23rd annual NOG Energy Week in Abuja, Abdulrazaq Isa, chairman of the Independent Petroleum Producers Group (IPPG), said that attracting the level of investment needed to fully optimise the country’s production base will require focus on some key priorities in the short to medium term.
“IPPG strongly advocates that our member companies – Seplat, the Renaissance Consortium and Oando – have the proven track record to successfully take over and manage these onshore and shallow water assets to realise incremental production in the region of 100,000 – 200,000 barrels of oil and over 1.5bcf of gas per day within 24 months and well over 500,000 barrels of oil per day in the long term,” Isa said.
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He noted that the timely approval of these international oil companies (IOC) divestment transactions will also be a clear signal capable of restoring global investor confidence in Nigeria in an era of competing global investment destinations in Africa and very limited access to capital.
Concerning deepwater development, Isa noted that untangling issues around deepwater development, particularly in terms of competitive fiscal regime being negotiated with Shell, Total Energies, ExxonMobil and Chevron, has the potential to unlock incremental production of 700,000 barrels per day from this terrain in the short to medium term.
“Enabling deepwater development will attract significant economic benefits as Nigeria has one of the world’s largest untapped deepwater resource base,” Isa said at the event.
He noted that Nigeria’s domestic crude oil refining and petrochemical capacity must be sustained primarily from domestic crude oil and gas production in order to transform the country into a net exporter of refined petroleum and petrochemical products that will lay a strong foundation for rapid industrialization of the Nigerian economy.
“Nigeria’s vast gas resources must be exploited with immediate focus placed on restoring production to existing installed LNG capacity and expanding production (FLNG). In addition, we must expand domestic gas utilization (Gas-to-Power; Gas-Based Industries) by investing heavily to address the gas infrastructure deficit facing us today,” Isa added.
Isa noted these priority areas provide the most realistic and sustainable pathway towards meeting Nigeria’s national long-term production aspiration of 4 million barrels of oil per day and 13 billion cubic feet of gas per day.
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Meanwhile, Olisa Agbakoba, senior partner at Olisa Agbakoba Legal, has alleged that the country is losing a staggering N3 trillion annually to tax avoidance practices within the oil and gas sector.
“Oil rig companies have formed a cartel for tax avoidance, with the Nigerian Maritime Administration and Safety Agency (NIMASA) confirming they do not collect tax from oil rigs. This represents a massive loss of potential government revenue,” Agbakoba said on Tuesday in a chat with journalists.
He noted that the revenue attributable from oil rigs is estimated at N3 trillion yearly, approximately 15 percent of Nigeria’s national budget estimated at $34 billion budget for 2024.
“The loss of this revenue significantly impacts the government’s ability to fund development projects and public services,” Agbakoba, who is also a Senior Advocate of Nigeria (SAN), said.
He noted that the practice of tax avoidance by companies creates an uneven playing field and discourages compliant companies.
Agbakoba alleged that corruption in the allocation of oil blocks, award of contracts, and distribution of oil revenues has eroded public trust.
“The opaque nature of some transactions has made it difficult to hold companies and government officials accountable,” Agbakoba further said.
He also raised red flags about Nigerian shipping companies not being engaged to ship crude oil products due to the absence of a legal framework for developing a national fleet of vessels, leading to significant loss of potential revenue and employment opportunities.
“Funds from crude oil production are often domiciled in foreign banks, sometimes held for months before remittance to the Central Bank of Nigeria, depriving Nigerian banks of substantial business and the economy of potential multiplier effects,” he noted.
To change the narrative, Agbakoba recommended strengthening of NIMASA’s capacity to collect taxes from oil rig companies through training, technology adoption, and increased resources.
“There is a need to implement stricter regulations and penalties for tax avoidance in the industry,” Agbakoba said.
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He also stressed the need to conduct a comprehensive audit of all oil rig operations in Nigerian waters to identify and address tax leakages.
“There is a need to establish a specialized task force within the Federal Inland Revenue Service (FIRS) focused on oil and gas taxation,” Agbakoba said.
He advised the federal government to complete the privatisation process of the Nigerian National Petroleum Company (NNPC) Limited to separate its regulatory and operational roles, a development expected to improve efficiency and transparency.
“Clarify the roles of different regulatory agencies to reduce overlap and improve efficiency. Establish a single, powerful regulatory body to oversee all aspects of the industry. Fully implement the Petroleum Industry Act (PIA) 2021,” Agbakoba said.
Agbakoba noted that Nigeria could increase its oil and gas revenue by 30-40 percent within five-10 years with improved efficiency, transparency, and local participation.
“This could translate to an additional $15-20 billion annually based on current production levels,” he added.
