FG’s import, tax waivers help gas companies cut cost

The Federal Government’s import and tax waivers on gas assets in Nigeria are helping companies cut over a quarter of their costs, helping them to grow their profits, but inadequate pipeline infrastructure still constrains the sector.

Gasco Marine, which recently launched a N2 billion Compressed Natural Gas (CNG) plant in Oke-Sokori, Abeokuta, Ogun State, for example, said it has been able to cut 40 percent of its costs by applying these waivers while importing gas infrastructure to build its plant.

“The waivers have been a big help to our business and through it we were able to save up to 40 percent of the cost in waivers and tax exemptions,” said Bukola Badejo-Okusanya, the company’s managing director, in an interview with BusinessDay.

The company succeeded in completing the project 15 months after it broke soil which was months ahead of schedule.

These waivers, however, are yet to spur the kind of growth required in making gas an enabler to the Nigerian economy. Over a decade after the Nigerian Gas Master Plan was enacted to jumpstart domestic consumption of natural gas, local demand remains slightly above 1 billion standard cubic feet per day (bcf/d).

“The problem is that these waivers have not been backed by enabling environment which should spur gas utilisation locally,” Ayodele Oni, energy lawyer and partner at Bloomfield law firm, said.
Oni said that the waivers ought to be supported by the backbone infrastructure including pipelines to transport gas from the Niger Delta to areas where they are required.

He also said the inability of power plants (who demand over half of the gas molecules used locally) to pay due to poor collections further constrains the sector.

Badejo-Okusanya also called on the government to take advantage of the opportunities in the gas sector to stimulate the economy by encouraging private investments in providing power in economic clusters.

Fiscal incentives in the gas sub-sector are embedded in the Petroleum Profit Tax Act (PPTA), Companies Income Tax Act (CITA) and the national gas policy. Gas transmission and distribution companies are charged Company Income Tax at the rate of 30 percent instead of the Petroleum Profit Tax (PPT) rate of 85 percent while a PPT of 45 percent is applicable to LNG projects.

Gas companies enjoy Investment Tax Credit of 5 percent in the first two phases and 10 percent for LNG project. Royalty rate of 7 percent is applied to onshore operations and 5 percent for offshore operations for all phases.

The Federal Government also grants Value Added Tax exemptions on plants, machinery and equipment purchased for gas utilisation.

Nigeria has a proven gas reserve of over 200 Trillion Cubic Feet (TCF), which ranks it the ninth highest in the world. Nigeria is also among the world’s biggest Liquefied Natural Gas (LNG) exporting countries but the challenge has always been using more of the commodity at home.

According to the latest Nigerian National Petroleum Corporation (NNPC) monthly financial and operations report, Africa’s biggest economy produced a total of 223.73 billion cubic feet (BCF) of natural gas in the month of May 2019, translating to an average daily production of 7,430.96 million standard cubic feet per day (mmscfd).

According to the NNPC report, “56.69 percent of the average daily gas produced was commercialised while the balance of 43.31 percent was re-injected, used as upstream fuel gas or flared.”

Private investments in mini LNG plants, including Greenville plant and Compressed Natural Gas (CNG) like the one operated by Gasco Marine, appear as Nigeria’s opportunity to ramp local consumption of natural gas.

ISAAC ANYAOGU