The Petroleum Industry Act signed which became law in August has lowered oil companies taxes but the flight of investments into exploration and regulatory gaps could yet deter investors, experts say.
Industry experts and analysts at the American Business Council’s virtual conference on the Future of Energy in Nigeria and its Impact on the Economy said the PIA is to be considered as only the first step towards creating an atmosphere conducive for investment
“The PIA may have competitive rates but we have to look beyond the sub-region and consider what is happening in the world,” said Taiwo Oyedele, Fiscal Policy Partner and Africa Tax Leader at PwC.
The appetite for investment into the oil and gas sector is dwindling with fund managers saying they are no longer to fund oil and gas projects. Activists board members of oil majors are demanding they cut emissions and oil companies are taking a beating in courts around the world.
Oyedele argues that these events would have an impact on Nigeria’s ability to attract investments despite improved tax rates. He said Nigeria can succeed by optimising value from its hydrocarbons as energy transition beckons.
This will mean that Nigeria should refine her oil locally and become a hub for the sale of crude oil derivatives including petrol, diesel, aviation fuel, petrochemicals on the continent.
The PIA introduced a Hydrocarbon Tax (which excludes offshore operations and gas) of 15 – 30 percent on profits from crude oil production apart from Company Income Tax at 30 percent applicable to companies operating in the upstream industry.
These headline rates are lower when compared to the tax regime under The Petroleum Profit Tax Act which charged 85 percent.
Read also: Host community funds in PIA must be managed by experts – Agbeyi
The PIA also streamlines and reduces royalties payable. Royalties are payable at the rates of 15 percent for onshore areas, 12.5 percent for shallow water, and 7.5 percent for deep offshore and frontier basins, 2.5 – 5 percent for natural gas. The law however introduces a price-based royalty ranging from 0 percent – 10 percent which would be credited to the Nigerian Sovereign Investment Authority (NSIA).
David Williams, Co-Founder D’Carbon Africa said climate change is forcing investors to balk from oil sector investments and could get more challenging as new policies emerge to deal with its impacts
“Despite all the measures to attract investments, finding them will be difficult because pressure not to support hydrocarbon infrastructure development is rapidly growing,” he said.
With over 206 trillion cubic feet of gas reserves in a country where half the population lack access to grid-connected power, the analysts say gas provides Nigeria a viable option to profit from hydrocarbons in the short term.
Tengi George-Ikoli, Energy and Extractive Governance Consultant said Nigeria should leverage its gas resources to develop infrastructure that will serve the country.
“The key thing for Nigeria is as we trying to get revenues we should be planning for energy transition while looking for ways to use the proceeds to invest in renewables,”
Oyedele suggested that rather than a frontier fund to develop more oil, Nigeria will be better served with a Future Energy fund to renewables.
The PIA which suffered a 20-year delay may have brought clarity into the sector, the analysts said it has not removed administrative delays and regulatory overreach that characterise the administration of Nigeria’s energy sector.
It has not also removed the penchant to appoint politicians rather than technocrats into critical agencies, a factor that could derail the best-intended reforms, they said alluding to the appointment of Ifeanyi Ararume, a politician as the board chairman of the Nigerian National Petroleum Corporation.
