By Dike Onwuamaeze
The Lagos Chamber of Commerce and Industry (LCCI) has declared support for the efforts to drive reform in Nigeria’s oil and gas industry through a new Petroleum Industry Bill (PIB).
The LCCI also urged the National Assembly to come up with a legislation that would promote effective and efficient governance, administration, host community development and fiscal framework for the petroleum industry.
It advised that the new legislation should help preserve the integrity of existing projects in the industry, while encouraging future growth of production in order to make Nigeria an investment destination of choice.
These were contained in a statement released yesterday by the Director General of the LCCI, Dr. Muda Yusuf.
He noted that the current bill marked a positive steps toward achieving the objectives of the PIB 2020 to reform the institutional and fiscal framework and develop Nigeria’s gas sector by creating a framework to support the development of host communities, foster sustainable prosperity and attract investments to grow the country’s production capacity.
Yusuf, however, observed that some of the sections in the current PIB habours some provisions that could adversely affect the growth of the industry and the overall economy.
He recommended that the PIB should seek to protect existing investments from value erosion as the assets and operations from these investments are the foundation upon which new projects could be built.
Yusuf said: “It is, therefore, crucial that projects already underway be able to maintain the conditions under which they were designed and approved. Doing so will incentivise the launching of new projects; grow production and revenue for government and stakeholders and thereby guaranteeing long term sustainability of our oil and gas industry.
“While the PIB enables companies to elect to either convert to the PIB or remain on existing terms, it does not provide clear assurances that projects whose leases will be renewed in the coming years will be able to retain the rights and benefits they have earned since the start of their operations. “In addition, the PIB provisions expect lease holders to relinquish (upon conversion or renewal) lease areas and zones, thereby potentially jeopardising future exploration/development and long-term contractual gas supply obligations.”
The LCCI argued that the bill should clarify acreage relinquishment requirements upon conversion in order to ensure the stability of projects and enable operators to maintain the structure of gas contracts and pricing agreed between parties prior to the PIB becoming law.
It also observed that the deep-water provisions in the PIB did not provide favourable environment for future investments and initiation of new projects and suggested that the PIB should grant new deep-water oil projects a full royalty relief during their first five years of production and should remove holding tax since companies will still be subject to Companies Income Tax Administration.
Yusuf said: “The bill omitted the inclusion of a grandfathering framework to ensure that assets developed based on integrated economics complete their lifecycle. A provision for the specific exemption of associated taxes where assets are required to be segregated should also be considered.”
It recommended that the PIB should seek to harmonise tax practices and ensure capital allowance and allowable deductions are consistent with existing tax legislations, adding that the PIB should include an exemption for existing export gas supply contracts and obligations to avoid breach of contracts that could be triggered by the prohibition of gas export in the new bill until Nigeria attains domestic gas sufficiency.