Opinion
By Mohammed Idris
IN keeping with his dedicated efforts to remove obstacles to investments in Nigeria, harness the nation’s resources and diversify the economy for the benefit of all Nigerians, His Excellency, President Bola Ahmed Tinubu has executed Policy Directives to improve the investment climate and position Nigeria as the preferred investment destination for the Oil & Gas sector in Africa.
Following extensive engagements, analyses, and benchmarking with other jurisdictions, the President has initiated the amendment of primary legislation to introduce fiscal incentives for Oil & Gas projects, reduce contracting costs and timelines, and promote cost efficiency in local content requirements. Recognizing the urgency to accelerate investments, the President has directed as follows:
(1) Fiscal Incentives for Non-Associated Gas (NAG), Midstream and Deepwater Developments:
– Gas tax credits shall apply to non-associated gas (NAG) greenfield developments in onshore and shallow water locations, where the hydrocarbon liquids fall between 0-100 barrels per million standard cubic feet of gas.
– A 25 percent gas utilization investment allowance shall apply on qualifying expenditure on plant and equipment incurred by a gas utilization company in respect of any new and ongoing project in the midstream oil and gas industry.
– Implementation of commercial enablers for new brownfield and greenfield to incentivize investments for oil and gas projects in the deep water.
These incentives address the lack of differentiation between NAG fields in PIA, yield competitive returns and prevent value erosion for ongoing gas utilization projects, including NLNG Train 7 due to changes introduced by sections 6 and 9 of the 2023 Finance Act. It is anticipated that these investments will have a multiplier effect by catalyzingeconomic activity around these projects. The anticipated impact of these investments extends beyond energy security. The projects are expected to relaunch economic activity and job creation in the sector, as well as stimulate activity in ancillary SMEs within local communities.
(2) Streamlining of Contracting Processes, Procedures, and Timelines:
– The President has directed the Ministry of Finance Incorporated (MOFI) and the Ministry of Petroleum Incorporated (MOPI) to take steps to procure the Nigerian National Petroleum Company Limited to raise the contract approval thresholds for Production Sharing Contracts (PSCs) and Joint Operating Agreements to not less than $10 million or the Naira equivalent.
– The President has directed that NNPC Limited and the Nigerian Upstream Investment Management Services Limited (NUIMS), in collaboration with the Nigerian Content Development and Monitoring Board (NCDMB) and industry stakeholders, simplify the contract approval process.
– The duration period for third-party contracts awarded pursuant to a PSC or JOA is increased from three to five years with the option of renewal for an additional two years after the expiration of the initial three years.
– These directives are aimed at compressing the contracting cycle to 4-6 months, ultimately reducing project schedules, expediting the delivery of oil and gas products to the market, and increasing value to the country.
(3) Local Content Practice Reform:
Pending legislative review of certain reform propositions, the President has directed that the Nigerian Content Development and Monitoring Board in its implementation of the Nigerian Oil and Gas Industry Content Development Act, 2010 (“Local Content Act”) shall consider the practical challenges of insufficient in-country capacity for certain services, and act in a manner that does not hinder investments or the cost competitiveness of oil and gas projects. By providing flexibility with the application of the Local Content Act, local operators will be encouraged to increase their capacity, thereby creating additional business opportunities, upskilling of the workforce, and ultimately creating more jobs and boosting economic growth.
These incentives were developed in collaboration with the Federal Ministry of Justice, Federal Ministry of Finance, Federal Ministry of Petroleum, Federal Ministry of Budget and Economic Planning, Federal Inland Revenue Service (FIRS), Nigerian National Petroleum Company Limited (NNPCL), Nigerian Upstream Petroleum Regulatory Commission (NUPRC), Nigerian Midstream and Downstream Petroleum Regulatory Commission (NMDPRA), and the Nigerian Content Development and Monitoring Board (NCDMB).
The Special Adviser to the President on Energy has been directed to continue coordinating the aforementioned stakeholders to ensure the implementation of these directives within a stipulated timeframe.
Some directives on previous structural reforms undertaken by the President to address the decline in investments include:
– Streamlining and clarifying the scope of regulators in the petroleum sector, with a view to providing certainty and clarity to investors and facilitating a conducive operating environment.
– Enhanced security measures across the Niger Delta that has grown production by 200kbbls per day and increased the availability of NLNG Trains 1-6 from 57% in 2023 to 70% today
– Introduction of fiscal incentives to deepen Compressed Natural Gas (CNG) and Liquified Petroleum Gas (LPG) penetration.
The President strongly believes that private sector-led growth enabled by clear and inclusive government policies is the most enduring path to prosperity for all Nigerians. The President is committed to sustained engagement and collaboration with key investors to ensure we improve the ease of doing business in Nigeria.
7th March, 2024.
C.E.
Tags: Mohammed Idris President Bola Tinubu
