The oil and gas industry has a significant impact on Nigeria’s economy. Though the industry contributes less than 10% to the country’s gross domestic product, it contributes about 90% of the foreign exchange earnings and 60% of total income.
For the past 20 years, there have been various attempts at reforming the industry. However, none of these efforts has yielded any tangible result until the introduction of the Petroleum Industry Bill (PIB) 2020.
The PIB 2020 is set to address all the issues that led to the failure of passage of the bill all these years to the extent possible.
The present administration has also demonstrated unparalleled commitment to passing the bill and it has tried to strike a balance between immediate revenue demands and the need to attract long-term investment for the industry.
One of the biggest concerns with the PIB is whether the fiscal provisions are competitive enough in terms of government take in relation to comparable jurisdictions.
The new PIB introduces the Hydrocarbon Tax (HT), which will be chargeable on the profits of upstream petroleum companies. The HT will be charged at varying rates depending on the terrain, contract type and whether it is a new or converted acreage.
The headline rates for the HT are lower than the current rates of 50% for Production Sharing Contracts and 85% for non-PSCs, and will apply on a company-wide rather than contract area basis.
In addition to production royalty, companies would be liable to additional royalty when crude oil, and condensate prices exceed specified benchmark prices and are payable to the Nigerian Sovereign Investment Authority. For fields in onshore, shallow water and deep offshore areas, the royalty rates will apply as follows: a. Below US$50 per barrel – 0% b. At US$100 per barrel – 5% c. Above US$150 per barrel – 10%.
Passage of the PIB is crucial as only 4% of the $70billion investments made in Africa’s oil and gas industry between 2015 and 2019 flowed to Nigeria even though it is the biggest producer and has the largest reserves on the continent.
According to the National Bureau of Statistics, only $53.5m or 0.55% of total invest-ment of $9.680billion in Nigeria in 2020 was made in the industry.
Chapter 3 of the Bill also introduces the Petroleum Host Community Development (PHCD) whose objectives include: to foster sustainable prosperity within host communities; and provide direct social and economic benefits from petroleum operations to host communities.
Chapter 4 of the Bill introduces the Petroleum Industry Fiscal Framework (PIFF), which has the following objectives: establishing a progressive fiscal framework that encourages investment in the Nigerian petroleum industry, balancing rewards with risk and enhancing revenues to the Federal Government (FG); providing a forward-looking fiscal framework that is based on core principles of clarity, dynamism and fiscal rules of general application; and establishing a fiscal framework that expands the revenue base of the FG, while ensuring a fair return for investors.
Therefore, the PIB must lead to a massive transformation of the industry and succeed in attracting the desired investment required to reposition the industry.
Nigeria’s oil production should be harnessed efficiently and to the utmost for the benefit of all, including those unborn, in the small 20 year window or so that remains before a transition away from fossil fuels.