Policy & Regulation
Petroleum Industry Bill
The Petroleum Industry Bill (PIB), currently under consideration, will entail a complete revamp of the regulatory structure, both upstream and downstream.
There have been many versions of the bill, but the latest takes into account amendments made during last year’s debates on the subject. IOCs have been extremely wary about the tightening of fiscal terms since the bill was first floated in 2008, claiming the new tax will cut capital investment in the sector by half. Such worries should be appeased in the amended draft, as the taxes on foreign companies have been drastically reduced – from 85% to 50% on production from onshore fields and from 50% to 20% on frontier and deepwater fields.
The PIB also requires upstream companies to provide 10% of their net profits to fund local development and repairs in the event of sabotage. Alison-Madueke asserts it is a fair bill as taxes will be predicated on production as opposed to terrain and investment – as was the case previously – and there will be lower rates on condensate from large fields as well as ultra-deepwater fields.
The new tax regime is made up of the Corporate Income Tax, the Natural Hydrocarbon Tax and production bonus-based taxes. The royalty is a price-based tax with a self-adjusting rate based on the cost of crude oil and the gas price.
The bill has been submitted to the Nigerian parliament and had a second reading in March 2013. It has been referred for consideration to committees on upstream, downstream, judiciary and legal matters.
Gas master plan
The Nigerian gas master plan, introduced in 2009, was developed with the belief that effective use of gas within the economy could lead to a GDP increase of up to 10%. The key tenets of the policy are expanded infrastructure serving residential, commercial and industrial needs and a liberalised model of structure and pricing.
The scheme includes a domestic gas supply obligation to reduce flaring whereby each gas producer is obliged to set aside a predetermined amount of its output for the domestic market. A penalty scheme will enforce compliance.
The gas pricing policy is intended to be affordable and competitive. Domestic customers from residential to power generation are in tier 1; strategic industries that use gas as their key feedstock are in tier 2; and manufacturing industries are in tier 3. Each tier has a dedicated pricing regime – the first based on cost of supply with a 15% return for the supplier. The average across the three will be known as the aggregate domestic price, which the suppliers will be paid. A floor price will be established.
The plan is underway and the first step will be the expansion of pipelines and infrastructure. The expansion work on the Escravos-to-Lagos pipeline system will soon be complete. The gas aggregation company which will manage pricing and supply has been set up and is fully operational.
Fiscal incentives under the scheme include: capital allowances, to be deducted from the petroleum production tax (PPT) at a marginal rate of 85%; exemption from royalties and PPT on gas that is transferred to a downstream project; a 10-year tax holiday for LNG projects; and exemption from income tax for non-residents working on LNG projects, according to National Petroleum Investment Management Services.
Page updated: 22/08/2014