Nigeria struggled to attract investments into the Oil, Gas industry over the years — LCCI

By Adenike Agunsoye

The Lagos Chamber of Commerce and Industry (LCCI), in recognition of the potential impact of the 2022 Finance Bill on the operations of members operating in various sectors of the economy, has reviewed that recent statistics reveal that Nigeria has struggled to attract investments into the Oil & Gas industry and that investments in the Nigerian oil and gas sector have declined significantly in the last seven years, and that the operations overheads of oil and gas companies remain above 40 per cent above the global benchmark.

This was contained in the statement signed by the Director-General of Lagos Chamber of Commerce & Industry, Dr. Chinyere Almona, FCA on Friday 6th January 2023.

The Chamber reviewed that in line with FGN priorities and ongoing initiatives to incentivise gas production, several sections of the PIA clearly show the determined efforts by the government to limit gas-flaring and contain very steep penalties.

Also, gas flare fees/costs are treated as a penalty and as such a non-tax-deductible item. And that oil and gas companies in Nigeria have reduced flaring by 70 per cent since 2000 while nearly doubling overall gas production and commercialised volumes in four-folds.

The Chamber opined that with the plan to exit some large enterprises from the Pioneer Status incentives, the Government can save about N6trillion tax expenditure (waivers, exemptions, incentives granted by the government), according to the Honourable Minister of Finance, Budget and National Planning in her 2023 Budget presentation.

“On the path of caution, we urge the government to tread conservatively in raising tax rates, since there are new ways of rescuing some tax expenditures to add up to government revenue in 2023. Leaving rates at their levels will not lead to a loss of revenue.”

They stated that  the oil sector’s contribution to Gross Domestic Product (GDP) through 2022 was just around 5 per cent but this sector accounts for over 85 per cent of foreign exchange earnings and about 50 per cent of total government revenue.

This suggests that this sector requires a sensitive regulatory environment to avoid disruptions to investments in the sector.

With the divestments by some IOCs from the oil and gas sector, LCCI agreed that there is a need to reposition the industry through a steeply implemented Petroleum Industry Act (PIA) to pave way for new investments and also encourage indigenous companies to reflate the sector with required investments.

Also, industry statistics revealed that indigenous companies contribute about 30 per cent of crude oil and 20 percent of the country’s gas production, as well as 40 per cent and 32 per cent of oil and gas reserves, respectively.

The Chamber, based on feedback from operators in the Oil & Gas sector and the wider business community, has recommended that the 30 per cent CIT for all oil and gas companies should be retained.

The Chamber suggests retention of the Tertiary Education Tax (TET) rate at 2.5 per cent, since it was just recently increased from 2 per cent to 2.5 per cent, and at the proposed rate of 3 per cent Nigeria’s corporate income tax rate would rise to about 36 per cent which is one of the highest rates in the world, according to available research.

LCCI opined that amending the Petroleum Profit Tax Act with the same provision in the PIA section 104 should be considered.

Also, Gas flares-out projects should be incentivised to ensure monetisation of the resource for the benefit of Nigeria.

And they also recommended that Finance Bills are presented for extensive stakeholders’ consultations before they are passed by the National Assembly.

The Chamber promised to continue to work towards mobilising the private sector to support the implementation of the 2023 Federal Budget.

“As regard achieving revenue targets for the budget, the MDAs and Government Owned Enterprises (GOEs) can intensify their revenue mobilisation efforts in an enabling environment where the private sector thrives.

“To achieve the laudable objectives of the 2023 Budget, we urge the government to sustain current efforts toward the realisation of crude oil production and export targets by creating an investment-friendly oil and gas industry. Public-Private Partnerships (PPPs) are the best models to fast-track the pace of our infrastructural development.”