*Want gas royalty removed
*Delay in PIB passage hindering oil exploration
By Obas Esiedesa
Energy experts have called for the elimination of royalty tax on gas production as part of a distinct fiscal regime for the development and production of Nigeria’s gas resources.
They urged the Federal Government to see gas resources as an economic enabler rather than a source of immediate revenue.
They spoke at a second webinar in the Energy Dialogue series with the theme: Leveraging fiscal regulations to attract Investments in the Petroleum sector, moderated by Professor Wunmi Iledare.
The President of Nigeria Gas Association (NGA), Audrey Joe-Ezigbo in her presentation, said significant investments are needed to develop Nigeria’s gas resources with most coming from abroad.
She noted that globally investment capital is under pressure and as such Nigeria needs a fiscal regime that would attract investors to its environment.
NGA boss pointed out that the country is in a situation where it has to use revenue from oil and gas resource to move away from oil and gas dependency.
According to her, “We are on a journey where we have to take Nigeria and move it into a value-adding nation, a nation that is able to produce goods and services locally for both domestic and export market. We have to move to a nation where we are able to generate sufficient foreign exchange through import substitution on hand and export proceeds on the other. And in doing this, creating multiplied employment opportunities across board”.
She stated these can only happened Nigeria effectively develops its resources.
Joe-Ezigbo explained that “significant investments will be required to fund this development and that money some of it may be available locally but the vast quantum of it is going to be coming from external investors.
“So when we are looking fiscals, it’s a conversation about how can we attract this level of investment in an increasing competitive world where investors are very savvy, very discerning but more importantly because of what has happened in the pandemic which has put global investment capital under significant pressure more than ever before to optimize yields and ensure sustainable returns”.
She stressed that Nigeria’s low ranking in the global competitive index puts it in a very disadvantaged position and needs a huge competiveness transformation.
Joe-Ezigbo noted that like Egypt did for its gas sector a few years ago, Nigeria needs to intentionally unlock its gas E&P sector by putting in place fiscal policies and incentives that would boost gas discoveries and production.
She warned that investment has stagnated in the sector with some investors even pulling away.
She said Nigeria needs to “look at gas as an enabler and not as a source of immediate tax revenue. We should focus on not trying to over tax gas but to incentivize it so that investment can come in to enable gas production and infrastructure to grow”.
She stressed that fiscal should target get gas as standalone resource and not part of oil production, advocating for long term tax holidays of 10-15 years. She called for the removal of royalty tax on gas production.
“Gas should have very dedicated fiscal terms itself that are reviewed as distinct from the oil fiscals”, she added.
In her presentation also, the President of Nigeria Association of Energy Economics (NAEE), Prof. Yinka Omorogbe stressed the need to have the Petroleum Industry Bill (PIB) passed and signed into law, noting that fiscal regimes are not considered in a vacuum.
She stated that the current laws governing the petroleum industry in Nigeria are obsolete and outdated.
“We have a legal regime that is obsolete and outdated that is not in alignment with international best practice, it is not in interest of Nigeria because if it was the industry will be adding far more value to the country than it is, we need to understand that.
“The law is what provides certainty, it is also what ensures that an industry moves in the way you want it. It is an instrument of change.
“Recognize that high taxes are disincentives, cumbersome processes are disincentive and will discourage activities in the industry”.
Prof Omorogbe pointed out that passing the PIB is not an end to reforming sector, but the beginning of the journey.
On his part, the Chairman of the Society of Petroleum Engineers Nigeria Council (SPE), Mr. Joseph Nwakwue noted that for the sector to attract the capital it needs to grow, its fiscals need to be attractive.
“For us, a competitive fiscal arrangement coupled with a very investor friendly business environment is what we need to grow this sector and that will not happen if don’t get those right”, he said.
Nwakwue stated that because Nigeria is not a very good business environment for investors, it has to make its fiscals attractive enough to entice the investors to overlook most of the infrastructural limitations that exist in the country.
He stressed that new fiscal regime must also focus on attracting investment into the mid and stream sector of the oil and gas industry, noting the fiscal arrangement should be “such that encourage the development of the midstream and the downstream. So that there will be value chain development.
“That way Nigeria can get more and be able to employ more people through diversification of the oil and gas sector”, he added.
On his part, the President, Nigerian Association of Petroleum Explorationists (NAPE) Mr Alex Tarka stressed that the delay in the passage of Petroleum Industry Bill (PIB) has negatively impacted exploration in the oil and gas sector.
Tarka explained that there was the need for policy that would help drive the expected investments and stimulus in the upstream oil and gas sector for employment generation and economic growth.
He said: “Due to lack of PIB, no exploration is currently going on in the country, only NNPC is the one operating; this is not good for the industry.
“The industry especially the upstream needs a lot of palliatives, waivers and stimulus to operate, to enable it sustain employment. We need policies in place to get thing done properly”, he noted.
Earlier in his keynote address, Chairman, Energy Institute Nigeria, Osten Olorunsola said the new fiscals should be simple and designed to fit Nigeria’s purpose.
“We must not kill new projects even before starting. 10 percent of something is different from 100 percent of nothing. We must ensure that incentives deliver on what they are meant for.
“This petroleum sector can only be enhanced with fiscal regulations, however, given the current landscape, for reasons of underlined issues Nigeria will certainly need to be more transformational in designing any fiscals towards attaining fiscal preferredness for sustained investments in the sector”, he added.
