Nigeria reportedly revises PIB to cut tax, royalty rates

Nigeria’s government has reportedly agreed to revise provisions of the Petroleum Industry Bill (PIB), the oil and gas law now under discussion in the National Assembly.

Sources closely involved with the legislation told Reuters last week that Abuja had acceded to requests from international oil and gas companies (IOCs) for reductions in royalty and tax rates. As a result, the PIB is now slated to set the hydrocarbon tax rate for converted leases at 5%, instead of 7.5%, and will also fix the royalty rate for new production streams from deepwater oilfields at 30%, instead of 42.5%, they said.

Additionally, the sources reported, the changes the government has made to the PIB guarantee that all assets currently owned by Nigerian National Petroleum Corp. (NNPC) will be transferred to a limited liability company once the new law takes effect. The transfer is expected to help IOCs collect debts owed by NNPC, Reuters noted.

According to Reuters’ sources, officials in Abuja have decided to take these steps in the hope that more IOCs will invest in Nigeria’s oil and gas industry following the passage of the PIB. Foreign oil and gas operators have expressed a number of reservations about the current form of the bill, which the administration of President Muhammadu Buhari submitted to the National Assembly last August.

Some of their objections have focused on royalty and tax rates. As Obo Idornigie, vice-president of sub-Saharan African research for Welligence Energy Analytics, told AfrOil in March, investors want to see reform on this front, as they believe it will encourage development.

“From a fiscal perspective, improving the allowable deductions for tax purposes will be key,” he said. “The industry is also pushing for royalty to be based on cumulative production as opposed to the flat 10% plus link to oil prices. The high royalties and other front-loaded elements will discourage investment in marginal deepwater fields which have been lying fallow for decades. Nigeria holds over a billion barrels spread across several marginal deepwater fields, which could be developed under the appropriate cost structure and tax terms.”