…experts raise observations
The Petroleum Industry Bill 2020 which is currently at the National Assembly aims to address issues in Oil and Gas Sector of the Nigerian Economy. It will also bring clarity to confusions and lack of direction affecting investments in the sector negatively as policy direction is currently lacking in the sector.
The design of the tax fiscal element in PIB 2020 is similar to the elements in NPFP 2017 and even PIFB 2018 shifting from a single tax system–the petroleum profit tax, to a dual tax system of hydrocarbon resource tax and corporate income tax, which is an acceptable practice in other regions.
Speaking on PIB 2020 Prospects for Attractive and Competitive Fiscal Regimes in Nigeria in a Stakeholders Forum in Lagos, Omowumi Iledare, a Professor of Petroleum Economics, who is also Professor Emeritus, LSU Energy Studies, Baton Rouge, Louisiana, USA; so also the Executive Director, Emmanuel Egbogah Foundation Abuja, Nigeria and Director, Africa Region and Society of Petroleum Engineers International, Dallas, made the above observation.
The Professor of Petroleum Economics also stated that royalty scheme fixed and flat rate by terrain and royalty tied to value show some degrees of fiscal progressivity similar to what is being practice in other jurisdictions as well.
He argued that the proposed incentives in PIB 2020 show a clear departure from traditional effort-based incentives, ITA/ITC, to the more modern output-based incentives in the form of production allowance, generous capital allowance and cost management.
“Worldwide, fiscal systems are designed to encourage substantial and progressive investment in the industry, while balancing rewards with risk and enhancing revenues to the host government, based on mutuality of interests”, he said.
According to him, the existing fiscal components and other fiscal laws in Nigeria may not necessarily attract investors, except the ongoing reforms in the PIB2020 fiscals are appropriately completed.
The Executive Director of Emmanuel Egbogah Foundation maintained that the proposed dual tax system may result in a lower effective tax rate than the existing single tax rate and may perhaps improve international perception of Nigeria fiscal competitiveness complimenting it’s highly geologic prospects.
“It would seem that the important fiscal regime levers, such as royalty, profit split, cost recovery limit and taxation mechanism in PIB 2020 are based on core principles of fiscal rules of general applications”.
Regrettably though, he said, when it comes to natural gas development, the fiscals has not disavow early revenue extraction with royalty charges on gas production irrespective of terrains.
Iledare further stated that a vital component of reforms to promote competitiveness and attractiveness for Nigeria’s fiscal regime has been noticeably complemented with clearly defined roles for institutional organs of government policy, commercial and regulatory.
Also speaking on Deregulation of Nigeria’s Downstream Petroleum Sector: A Framework for a Transparent, Competitive, Efficient, and Sustainably Liberalized Downstream Petroleum Sector in Nigeria, the CEO of Dankiri Farms and Commodities Limited, Bello Rabiu, who is also the former Group Executive Director and Chief Operating Officer, Upstream, Nigerian National Petroleum Corporation, NNPC, maintained that full Deregulation of Downstream Petroleum Sector was a critical National economic and strategic endeavor requiring the support and cooperation of all stakeholders to implement.
“All hands should therefore be on deck to ensure the attainment of transparent, competitive, efficient, and sustainable liberalized downstream petroleum sector in Nigeria”, he said.
Speaking on short term solution, he said, Central Bank of Nigeria, CBN, must provide access to foreign exchange at the official rates to the importers. So also that the regulators should allow the market to determine the price of Petroleum products and services in the medium to long term.
“Encourage competition PEF and NTA charges should be removed from the PPPRA template. In establishing the true cost of importation of products, PPPRA should resume the publication of key elements of its templates such as FOB Costs and FX rates. If NNPC remains a sole importer of PMS, the total cost of importing the product should be publicly disclosed and the imported product should be shared to all eligible wholesalers at cost. NPSC should be repositioned and adequately funded to operate as a neutral entity”, he added.
“To minimize actual cost of importation, government should carry out a benchmark audit on the current DSDP arrangement to determine if it is still cheaper than cost incurred by other Oil Marketing Companies, OMCs.
Speaking further on the Medium Term, he said expanding the port capacity to receive liquid fuels in greater quantities or increasing the speed of discharge, increasing fuel storage capacity, and enabling cheaper transport of petroleum products (by pipeline or rail rather than road transport) to lower landing costs and petroleum pump prices.
“Passing the PIB into law and ensuring it is not ambiguous and clearly states that the regulatory Authority has no power to set prices with respect to petroleum products and must distinguish this from the power of Authority to develop and enforce tariff methodologies for regulated activities”, he stressed.
“Repeal the PEF Act, PPPRA Act and the 2020 Regulations The regulator should no longer play a role in fixing prices and setting price ceilings. Under a deregulated regime, focus of the regulator, working with the Competition Regulator is to ensure that industry players are not involved in anti-competitive practices such as collusion and abuse of market share in establishing prices of petroleum products”.
On the long term, he said there should be effective operation of the network of pipelines and depots will depend on the continuous operations of the four refineries. He also stated that private sector investments into these critical infrastructures when reinforced with appropriate ownership and governance structures operating under a transparent and open access regulatory environment will guarantee sustainable development of a liberalized downstream petroleum sector.
“The decision to privatize or enter concessions with respect to the assets is a strategic one based on what the government perceives its future role in the sector to be and the market appetite for partnership with the Government. The recent pronouncement from National Assembly that Government Plans to engage Strategic investors this year with majority equity of 51 per cent is a welcome development. Strengthening of the Competition Commission by ensuring it includes close monitoring of market behavior and using the Competition Law framework to ensure fair competition within the deregulated industry”, he maintained.