Timipre Sylva, minister of state for Petroleum Resources has said that the proposed Petroleum Industry Bill will signifcantly lower taxes for new investments and for existing operations when it becomes law.
In a speech at the 7th (Virtual) Joint International Energy Forum – International Gas Union (IEF-IGU) Ministerial Gas Forum, on Thursday, the minister said the government is aware that industry industry players view the current level of taxation on onshore and shallow water operations as excessive hence the proposed PIB should lower them.
“As a Government, we have identified major constraints that have delayed recent projects from reaching financial close or caused projects to be delayed and/or abandoned altogether.
“The Petroleum Industry Bill (PIB) before Nigeria’s legislative arm that we propose will, I believe, provide this new framework.
“To secure the future of the industry in Nigeria, fiscal and other terms must be based on a more conservative economic outlook,” Sylva said.
Sylva further said that a framework must be created for the Nigerian Petroleum Industry to grow and invest in additional petroleum production even under difficult economic conditions.
Read Also: We are committed to helping oil and gas stakeholders navigate complex global energy landscape
“For this reason, we are proposing grand fathering in the new PIB. The proposed PIB framework shall be based on core principles of clarity, dynamism, neutrality, open access and fiscal rules of general application,” Sylva said.
Industry operators have long argued that Nigeria’s fiscal framework which compels oil companies to pay taxes up to 85 percent on their profit including other levies have done little to encourage investments.
Last year Nigeria amended the Deep Offshore and Inland Basin Production Sharing Contract Act 2004, which regulates royalty payable on field basis.
It stipulates that oil companies will no longer pay graduated rates for deep offshore production sharing contracts but will now pay a flat rate of 10 percent for finds in fields deeper than 200meters.
The amended law also provides for review of royalty rates where crude oil and condensates price exceeds $20 per barrel using different rates according to price benchmarks. For example, when oil prices rise to $60 a royalty rate of 2.5 percent will be charged and above $150, oil companies will pay over 10 percent as royalty rate.
However, International oil Companies have kicked against the amended law saying it will constrain new investment. Industry group Oil Producers Trade Section (OPTS), which represents oil companies responsible for 90percent of Nigeria’s oil and gas production, said the law, could significantly undermine profitability for the projects, including large fields such as Shell-operated Bonga and Total’s Egina.
Expectedly, Nigeria’s oil sector fiscal framework have been unable to attract new investments. Rather other countries including Algeria and Mozambique have had better success attracting investment capital into their energy sectos.
Sylva said the Federal Government is trying to change this and pursuing programmes to grow gas economies through the development of industrial and transport gas markets, in juxtaposition with gas-to-power initiatives.
Therefore the government has commenced the implementation of carefully conceived initiatives to foster productivity and attract investments along the gas value chain.
This includes the promotion of natural gas usage in Nigeria thereby creating alternative fuel choices for Nigerians.
Substituting traditional white products with Gas will cushion the effects of deregulation and create enormous job opportunities for Nigerians.
It is expected that this will stimulate economic growth, further improve our energy mix, drive investments, and provide jobs in Nigeria, Sylva said.
Recall that the minsiter had declared 2020 as the year of gas in Nigeria, announcing a determining to grow the gas sector after years of treating it as an iirritant in the quest for oil by successive governments.
In January 2020, the minister inaugurated the FG’s flagship program tagged The National Gas Expansion Programme (NGEP) as the mechanism to boost domestic utilization of Natural Gas in Nigeria in the short and medium to long term.
The NGEP is designed to reinforce and expand domestic gas supply and stimulate demand in the country through the effective and efficient mobilization and utilisation of all available assets, resources, and infrastructure in the country.
“As you all know, our declaration of the year 2020 as “The Year of Gas”, has triggered a potential turning point in Nigeria.
And our proven gas reserves fits well with our push for industrial growth and the need for reliable electricity,” the minister said.
Sylva said that in terms of impact, the NGEP will create over 12 million direct and indirect jobs with approximately 2 million jobs annually and human capacity development nationwide.
The minsiter acknowledged that there were fundamental challenge around institutional or structural problems relating to the production, use, or regulation of gas.
“These challenges focus around opening the market through development of policy or regulation or frameworks for upstream and downstream developments, he said.
