Bloomberg News

Nigeria’s Revised Oil Bill Reduces Taxes for Exploration

July 13, 2012

Nigeria’s revised oil industry bill reduced taxes to be paid by producers after energy companies including Royal Dutch Shell Plc (RDSA) opposed initial proposals as too high.

The Petroleum Industry Bill, which was approved by the Cabinet on July 11 for presentation to the Parliament, proposes 50 percent tax for onshore and shallow fields and 20 percent for deepwater fields, according to a copy of the bill obtained by Bloomberg. The original proposals were for 85 percent and 50 percent respectively.

A fiscal framework was “developed to make the industry more investment friendly and make it more profitable for investors,” Petroleum Minister Diezani Alison-Madueke said on July 11. At a time when more African countries are becoming oil producers, Nigeria needed to take measures to attract investors and remain competitive, she said.

The bill, which seeks to reform the way the oil industry of Africa’s top producer is regulated and funded, was first introduced to the parliament more than three years ago. Lawmakers were unable to pass it before the end of the last legislative session in May 2011. Energy companies including Shell, Chevron, Exxon Mobil Corp. (XOM:US), Total SA (FP) and Eni SpA (ENI) said in a joint presentation to lawmakers in 2009 that the proposed tax increases would make exploration “uneconomical.” They pump more than 90 percent of the country’s oil through ventures with state-owned Nigerian National Petroleum Corp.

Gas Flaring

The new draft includes plans to privatize the state oil company also known as NNPC, create an asset management company which will operate as a holding company, and set up a new gas company.

The proposed law would ban flaring of gas in the course of oil production in Nigeria after Dec. 31. The West African nation, which has the continent’s largest gas reserves of more than 180 trillion cubic feet, burns away most of the fuel it produces along with oil because it lacks the infrastructure to process it. The petroleum minister may grant exceptions of up to 100 days to companies for safety flaring, equipment failure or because a customer can’t receive it.

Energy companies will be required to remit 10 percent of their profits to a fund to help develop communities in the oil region and curb sabotage bred by resentment to ecological damage from oil activities.

Attacks by armed groups including the Movement for the Emancipation of the Niger Delta targeting Nigeria’s industry led to output losses of more than 28 percent from 2006 to 2009, according to data compiled by Bloomberg. The disruptions subsided after thousands of militants campaigning for more local control of the delta’s energy resources accepted a government amnesty and disarmed in 2009.

To contact the reporter on this story: Elisha Bala-Gbogbo in Abuja at ebalagbogbo@bloomberg.net

To contact the editor responsible for this story: Dulue Mbachu at dmbachu@bloomberg.net


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