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PIB introduces new fiscal regime

The Federal government and oil and gas producing firms are set for a major collision should the new fiscal provision in the Petroleum Industry Bill (PIB) scale through two chambers of the National Assembly of Nigeria into an Act.

This is because government has introduced, for the first time, radical measures that will lead to higher revenue from royalties, rents, penalty and the rest.

This as a result of the clear fact government makes very little from taxes in the secor, as a result of the difficulty of calculating them in the first instance and collecting them.

But, the oil firms have protested this move during the last public hearings organised separately by the Senate and the House of Representatives. They argue that doing business in Nigeria is not only costlier than most part of the world, because of poor instradtucuer, but the issue of security has made the Nigerian Oil and Gas ventures the least attractive in the sub region. They insist that eroding their margins of profit with new laws may chase them out of  Nigeria.

But, Stakeholders representing Nigerian interest and government agencies were unanimous in calling off the bluff of the operators.
But, more all other forms of revenue in the proposed  fiscal measures, Royalty and Rents, received the most amendment. Here are some sections of the proposed legislation.

Royalty rates based on value.
438. (1) The royalty rates based on value shall be identical for the various geographical regions, including frontier acreages, and shall be based on the average value for the month from each PML (Petroleum Mining Lease)  for the petroleum production as determined pursuant to section 434 hereof and shall be determined separately for:

(a) crude oil plus condensates, and (b) natural gas.
(2) the royalty rates for crude oil plus condensates shall be:
(a) 0% for a value from US $ 0 per barrel and up to and including US $ 70 per barrel,
(b) over US $ 70 per barrel and up to and including US $ 110 per barrel the royalty rate shall increase by 0.4% royalty percentage for every US $ 1 increase in value over us $ 70 per barrel,

(c) over US $ 110 and up to and including US $ 140 per barrel the royalty rate shall be 16% plus 0.2% royalty percentage for every US $ 1 increase in value over US $ 110 per barrel,

(d) over US $ 140 and up to and including US $ 170 per barrel the royalty rate shall be 22% plus 0.1 % royalty percentage for every US $ 1 increase in value over US $ 140 per barrel, and

(e) over US $ 170 per barrel the rate shall be 25%.
(3) the royalty rates for natural gas shall be:

(a) 0% for a value from US $ 0 per million Btu up to and including US $ 2 per million Btu,
(b) over US $ 2 per million Btu and up to and including US $ 6 per million Btu the royalty rate shall increase by 0.3% royalty percentage for every US $ 0.10 per million Btu increase in value over US $ 2 per million Btu,

(c) over US $ 6 per million Btu and up to and including US $ 10 per million Btu the royalty rate shall be 12% plus 0.2% royalty percentage increase for every US $ 0.10 per million Btu increase in value over US $ 6 per million Btu, and  (d) over US $ 10 per million Btu and up to and including US $ 15 per million Btu the royalty rate shall be 20% plus 0.1 % royalty percentage increase for every US $ 0.10 per million Btu increase in value over US $ 10 per million Btu, and  (e) over US $ 15 per million Btu the rate shall be 25%.

(4) The oil price levels and the US $ 1 in subsection (2) hereof and the gas price levels and the US $ 0.10 in subsection (3) hereof shall be adjusted pursuant to section 431 hereof.

Rents for licenses and leases
433. (1) Every Petroleum Exploration License (“PEL”) shall be subject to a rent of US $ 10 per square kilometer included in the PEL upon the grant of the PEL and any anniversary thereof.

(2) Every Petroleum Prospecting License (“PPL”) shall be subject to a rent of:
(a) US $ 100 per square kilometer upon the grant of the PPL and the first and second anniversary thereof,
(b) US $ 300 per square kilometer on the third and fourth anniversary of the PPL, and (c) US $ 500 per square kilometer on the fifth anniversary and any further anniversaries of the PPL

(d) During any significant gas discovery retention period pursuant to subsection 277(10) hereof the rent shall be US $ 10,000 per square kilometer per annum and shall be paid on the declaration of a significant gas discovery and any anniversary thereof.
(3) Every Petroleum Mining License (“PML”) shall be subject to a rent of US $ 1000 per square kilometer upon the grant of the PML and any anniversary thereof

(4) A PEL, PPL or PML cannot be granted without prior payment of the applicable rent for the first year.
(5) Failure to pay the rent upon any anniversary of the PEL or PPL shall result in the application of an interest rate of LIBOR plus 2% to the outstanding payment in US $ and where the payment of the applicable rent is not made within three months, termination of such license pursuant to subsection 293(1)( d) hereof shall be initiated.

(6) The rents shall be adjusted pursuant to section 431 of this Act. (7) Any rents shall be verified and collected by the Inspectorate
“Everyone can calculate and verify on the back of an envelope how much royalties should be collected from each oil and gas field each month”, he said.

“If oil prices go up unexpectedly as happened in 2008, Nigeria will reap an instant benefit from such high prices, because royalties are levied every month”, he said.The proposed Royalty is hinged on daily oil and gas production and also on the prevailing prices.


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