Less than six months after a saga with telecoms giant, MTN, caused panic in the economy, Africa biggest oil producing country has ordered International Oil Companies (IOCs) to pay nearly $20 billion in taxes owed to local states.
Although the intention of the tax demands is currently unclear, the move seems similar to another scenario that caused serious panic for investors when the Federal Government ordered MTN to pay $2 billion tax demand which came two weeks after the Central Bank of Nigeria (CBN) directed the telecoms firm to refund $8 billion over alleged illegal repatriation of shareholders’ dividend.
State-owned Nigerian National Petroleum Corporation (NNPC) earlier this year sent a letter to IOCs quoting what it called outstanding royalties and taxes for oil and gas production.
“It is essential that the government does not place undue reliance on the imposition of multiple taxes and levies on companies engaged in oil and gas activities as the principal way of boosting their internally generated revenues,” Adebowale Adeniyi and Tolulope Adebowale, tax experts at Anderson Tax, said in a publication.
These multiple taxes would increase the IOCs’ cost of conducting business in Nigeria and may lead to a wave of divestments from the Nigerian oil and gas industry, the tax experts said.
“The government should aim at increasing its tax revenues through increased participation of foreign and local investors in the oil and gas industry. This can be achieved through eliminating fiscal uncertainties and generally improving the ease of doing business in Nigeria,” the experts said.
Sources who were briefed concerning the letter by NNPC confirm that Royal Dutch Shell, Chevron, Exxon Mobil, Eni, Total and Equinor were each asked to pay the Federal Government between $2.5 billion and $5 billion.
Norway’s Equinor, which produced around 45,000 barrels per day (bpd) of oil in Nigeria in 2017, confirmed the request.
“Several operators have received similar claims in a case between the authorities in Nigeria and local authorities in parts of the country,” an Equinor spokesman told Reuters. “Equinor sees no merit to the case.”
America multinational Exxon “is currently reviewing the matter”, a spokeswoman for the US company said.
Nigerian government declined commenting on the matter. Other IOCs including British-Dutch Shell, French oil multinational Total, Italian major Eni and America’s international Chevron have also declined to comment.
“This looks like an internal dispute between the federal and local governments. The central government is simply trying to shift to the IOCs (international oil companies) money it owes,” a source at another company said.
The accusation came after the federal and state governments settled a dispute over the distribution of revenue from hydrocarbon production. The sides agreed last year that Abuja would pay the states several billion dollars, three company and government sources said.
These new directives by the Nigerian government have been widely observed by industry experts and members of the foreign community as a shakedown by the government.
The concerns raised by stakeholders reflected in data from National Bureau of Statistics (NBS) which revealed FDI still accounts for miserable 7.11 percent or $1.19 billion of total capital imported in 2018, close to the same amount the government raised in a single Eurobond issue of $1 billion on February 9, 2017.
On many occasions, concerned stakeholders in the oil and gas industry have expressed worries that the rising operational costs in the industry, among other challenges, have been limiting capital importation as current tax demand adds a fresh challenge to energy companies investing in Nigeria.
NBS data also revealed foreign investment inflow into the Nigeria petroleum industry hit a three-year low of $133 million in 2018, which is also a sharp decline of 59.82 percent compared to $331 million recorded in the same period in 2017.
Capital importation into the oil and gas sector is yet to reach its 2016 peak of $720.15 million, which was lower compared to $331.36 million in 2017 as 2014 and 2015 figures stood at $208.18 million and $29.76 million, respectively.
Nigeria prides itself as one of the biggest economies in Africa but continues to fail in providing an environment conducive for businesses. Some of the companies that have withdrawn investments in Nigeria include Sun International and, recently, Etisalat UAE.
With its oil production hovering around 2 million bpd, Nigeria will this Saturday decide its next leader from among ruling President Muhammadu Buhari, his main challenger Atiku Abubakar, and other candidates.
DIPO OLADEHINDE & OLUWASEGUN OLAKOYENIKAN
Join BusinessDay whatsapp Channel, to stay up to date
Open In Whatsapp
