Tinubu seeks improved investment climate for Nigeria’s oil & gas

*Aims to position Nigeria as investment destination   *Introduces fiscal incentives for gas operators   *Raises NNPC approval threshold above $10m   *Slashes contracts approval to 15 days   *Sets new agenda for NCDMB

Michael Eboh

Dublin, Ireland – With the new Executive Order on the petroleum sector by President Bola Tinubu, oil and gas industry experts are expectant on how the development would drive investment in the Nigerian oil and gas sector.

Some experts are enthusiastic of the prospect of the presidential directives, but others have expressed caution in the optimism.

There is agreement, however, that the nation’s oil and gas sector needed increased investment.

This is especially so considering what is described as a significant decline in investments in the Nigerian oil and gas industry over the years, which has seen the country attracting only five per cent of total oil and gas investments in Africa, despite holding 38 per cent of the continent’s hydrocarbon reserves

President Tinubu is aiming, through the Order issued in February in Abuja, to improve investment climate and position Nigeria as the preferred investment destination for the petroleum sector in Africa.

Specifically, the president, in the Executive Order, raised the contract approval threshold for the Nigerian National Petroleum Company, NNPC, to a minimum of $10 million or its equivalent in naira.

He also directed that the approval period for all contract stages should not exceed 15 days, while the duration for third-party contracts awarded under the production sharing contract, PSC, or Joint Operating Agreement, JOA, be increased to five years from the three years, with the option of additional two years renewal, thereafter.

He also outlined new fiscal incentives for gas companies operating in different segments of the country’s petroleum industry to grow output and reserves and a set a agenda for the Nigerian Content Development and Monitoring Board, NCDMB, to ensure that in its implementation of the Nigerian Oil and Gas Industry Content Development, NOGIC, Act, it does not discourage companies from investing in the country and does not hinder the cost competitiveness of oil and gas projects.

Contract approval cycle

A comparative analysis of global oil and gas sector operations showed that the contracting cycle within Nigeria’s petroleum sector exceeds global industry standards by four to six times and was adversely affecting the country’s ability to attract potential investors.

Tinubu said since the Federal Government was committed to improving the investment climate and positioning Nigeria as the preferred investment destination for the petroleum sector in Africa, his directives were aimed at shortening the procedure for getting approval for contracts, facilitate businesses, enhance the ease of doing business and reform the contracting process in the Nigerian petroleum industry.

The directives, he added, would also simplify and compress the contracting cycle to a period of not more than six months, in alignment with global industry practice; raise the contract approval thresholds to account for the rate of inflation among others.

To ensure this is enforced, Tinubu said: “The Ministry of Finance Incorporated (MOFI) and the Ministry of Petroleum Incorporated (MOPI) shall ensure that this threshold will be reviewed and adjusted in line with the rate of consumer inflation as disclosed by the National Bureau of Statistics on a yearly basis.

“NNPCL and Nigerian Upstream Investment Management Services Limited (NUIMS) shall, in collaboration with the Nigerian Content Development Monitoring Board (NCDMB) and industry stakeholders, simplify the contract approval process and adopt a single level of approval by NUIMS and NCDMB at each contract stage including prequalification, technical, commercial and final approval stages.

“The NNPCL and NUIMS shall ensure that all approvals or consents required to be given by it for contracts and procurement for each contract stage pursuant to the terms of PSCs or JOAs are issued within 15 days from the date of submission of application by the relevant party to the PSC or JOA.

“The NNPCL and NUIMS shall communicate its decision to the applicant within the time-frame stipulated under subparagraph (2) of this paragraph. Where the NNPCL and NUIMS fails to communicate its decision within the aforementioned timeline, the approval or consent shall be deemed granted.”

The president also directed the NCDMB to ensure it reviews any Nigerian Content Plan, NCP, submitted to it within the 10 days stipulated in the Nigerian Oil and Gas Industry Content Development, NOGICD, Act, adding that where no response is communicated to the applying company, the NCP shall be deemed approved.

He also stated that any application for expatriate quota in the petroleum industry shall be directed by the NCDMB to the Ministry of Interior or any other relevant Ministry, Department or Agency, MDA, within 10 working days, provided all supporting documents are in place.

“Where any matter requires the approval, satisfaction or consent of the NCDMB and no timeline is provided under the NOGICD Act, the NCDMB shall communicate its decision on such matter within 15 days of receiving a request to that effect, failing which the NCDMB shall be deemed to have approved, satisfied or consented to such matter,” he added.

Fiscal incentives for gas development

Also, the new fiscal incentives announced by the president as part of the Executive Order for gas companies operating in different segments of the country’s petroleum industry are expected to grow output and reserves.

In the executive order titled: ‘Oil and Gas Companies (Tax Incentives, Exemption, Remission, Etc) Order, 2024’, President Tinubu said the incentives would transcend non-associated gas, NAG, greenfield development, the midstream gas sector and deepwater oil and gas projects.

He said the guidelines for the implementation of the directives would be issued by the Minister of Petroleum Resources in collaboration with the Federal Inland Revenue Service, FIRS; Nigerian Upstream Petroleum Regulatory Commission, NUPRC; Nigerian Midstream and Downstream Petroleum Regulatory Authority, NMDPRA; and any other relevant stakeholder.

For Non-Associated Gas projects in greenfield developments in onshore and shallow water locations, with first gas production on or before the first day of 2029, Tinubu proposed a tax credit of $1 per 1,000 cubic feet of gas or 30 per cent of the fiscal gas price, whichever is lower, where the hydrocarbon Liquids, HCL, content does not exceed 30 barrels per million Standard Cubic Feet, SCF.

In a situation where the HCL exceeds 30 barrels per million SCF but does not exceed 1,000 barrels per million SCF, the president said there shall be a gas tax credit at the rate of US$0.50 per thousand cubic feet or 30 per cent of the fiscal gas price, whichever is lower.

He added that any other greenfield NAG project with first commercial production after January 1, 2029 shall be eligible for gas tax allowance at a rate of US$0.50 per thousand SCF or 30 per cent of the fiscal gas price, whichever is lower, provided that the Hydrocarbon Liquids content does not exceed 100 barrels per million SCF.

The president stated that the gas tax credit shall apply for a maximum of 10 years, after which it shall become a gas tax allowance claimable at the respective rates, adding, however, that the gas tax credit shall not exceed the companies income tax payable for that year by that company ; while the fiscal gas price for calculating the gas tax credit shall be the same price used for determining royalties under the Petroleum Industry Act, PIA.

In the midstream sector, Tinubu introduced the Midstream Capital and Gas Utilisation Investment Allowance, granting a gas company allowance on qualifying expenditure on plant and equipment incurred by the company in respect of any new and ongoing project in the midstream oil and gas industry.

He said the gas utilisation investment allowance shall be granted as an allowable deduction from the assessable profits of the eligible company from the year of purchase of the relevant plant and equipment and not be considered in ascertaining the residue of qualifying expenditure incurred on such plant and equipment.

He further stated that the rate of the gas utilisa!ion investment allowance to be allowed to a company shall be 25 per cent of the actual expenditure incurred on such plant and equipment purchased.

For deep water oil and gas projects, Tinubu said the government would introduce fiscal incentives to ensure that investments for deep water oil and gas projects achieve a competitive Internal Rate of Return, IRR.

Pending the introduction of the fiscal incentives, the president said the Ministry of Finance Incorporated and the Ministry of Petroleum Incorporated shall take steps to procure NNPC Limited to consider and implement commercial enablers for new brownfield and greenfield investments in the deep-water oil field segment.

Agenda for NCDMB

In a new agenda for the Nigerian Content Development and Monitoring Board, the president directed the agency to ensure that in its implementation of the Nigerian Oil and Gas Industry Content Development, NOGIC, Act, it does not discourage companies from investing in the country and does not hinder the cost competitiveness of oil and gas projects.

Tinubu, in the executive order, blamed the high-cost operating environment in Nigeria and excessive delays in project delivery schedule on the misapplication of the Nigerian content requirements for goods and services in the sector.

Tinubu said this order became necessary in light of the significant decline in investments in the Nigerian oil and gas industry, which has seen the country attracting only five per cent of total oil and gas investments in Africa, despite that the country holds 38 per cent of hydrocarbon reserves in Africa.

He affirmed that the NOGICD Act has brought significant benefits to the country and that immense success has been recorded in developing local content capacity in Nigeria.

He, however, stated that in series of engagements with stakeholders and regulators in the industry, it was revealed that the operating cost in the industry was very high, while delays in project delivery schedule in the country exceeded global standards.

The president noted that it had become imperative for the country to provide policy directives to tackle these challenges, with the primary objective of attracting investments into the oil and gas sector and restoring economic growth by facilitating conducive operating and investment environment.

To this end, he said: “The Nigerian Content Monitoring and Development Board in its implementation of the Nigerian Oil and Gas Industry Content Development Act, 2010 shall take into account 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.

“The Board shall not approve a Nigerian Content Plan (NCP) that contains intermediary entities lacking the essential capacity to perform the services. The NCDMB shall only approve an NCP that consists of contractors that meet the legal definition of Nigerian content and demonstrate genuine, substantial, and tangible capacity to independently execute projects within Nigeria.

“The approval of an NCP by the Board that contains entities acting solely as intermediaries, with no demonstrable capacity to execute the project or activity, shall be considered a violation of the local content requirements.

“The Board shall develop guidelines for assessing and verifying the capacity of companies seeking contracts for specified activities under the Act, in consultation with industry stakeholders. This Directive shall take effect immediately. The NCDMB shall work out the modalities for the implementation of this directive.”

NCDMB insiders argue that the Executive order issued by the president could erode the efforts of local manufacturers and services providers to grow capacity, further stating that the president may have been ill-advised. A source within the agency said that by throwing jobs open to all and sundry, without protecting the local companies, the local companies would be at a disadvantage, thereby affecting the whole idea of growing local capacity.

However, industry experts said the need to grow indigenous capacity cannot be done at the risk of impeding the productivity of the oil and gas industry.

“The Executive Order urges the NCDMB to operate within a stipulated time frame in the approval process, adding that after an approval is sought, the Board has a stipulated period within which it must respond by either granting or declining, and that if this doesn’t happen within the time frame, the approval would be deemed to have been granted. This is fair enough,” an industry expert asserted.