November 2020 Edition

NAPE WEBINAR SERIES August Edition
Fiscal Regime Design, Government Revenues,
and Investors' Interest in Nigeria's Oil & Gas Sector
Timipre Sylva, Honorable Minister of State, Ministry of Petroleum Resources
when will we see legislation around it?
What are the big fiscal levers, what sort of
pricing applies, especially around the
issues of Naira/ dollar exchange rates?
Should the prices be linked to the naira or
the dollar?
Amodu: What is the summary of all these
contending issues?
Olorunsola: Let's wait for the stew that has
been cooked, I can smell it.
The honorable minister made his
appearance around 1: 15 pm, dressed in a
well-cut blue suit, white shirt and red tie.
He offered his apologies, and thanked
NAPE for the honour and opportunity
before delivering his 7-slide presentation.
Highlights of the Minister's presentation
are:
1. Global Outlook
Current global economic outlook,
occasioned by the COVID-19 pandemic is
predicted to create a recession which will,
according to the IMF, result in a decline of
4.9% of world GDP in 2020. Even if
acceptable vaccines are developed in
2021, it may take two or more years to
recover from this recession.
We might be grappling with low oil
demand and therefore low oil prices for
the rest of 2020 and afterwards. At the
same time, the oil and gas industry is
facing increased competition from
expanding and ever cheaper renewable
resources.
2. Nigeria and Oil & Gas Industry
Uncertainties
It is a wake-up call for Nigeria to increase
efforts to reduce her dependence on Oil.
We must re-jig our petroleum industry and
energy framework in order to chart a new
course.
The Petroleum Industry Bill that we
propose will, I believe, provide this new
framework. In order to secure the future
of the petroleum industry in Nigeria fiscal
and other terms must be based on a more
conservative economic outlook.
3. PIB and COVID-19
In the short term, the Government will
need maximum fiscal environment to deal
with the COVID-19 crisis. For this reason,
we are proposing grand fathering in the
new PIB. This, I believe will preserve
current government take while also
guaranteeing investors returns.
It also guarantees that Investors can
continue with existing operations while
earning favourable returns. The
proposed PIB framework shall be based
on core principles of clarity, dynamism,
neutrality, open access and fiscal rules of
general application.
4. Gas Production and The Domestic
Gas Market
Accelerating the growth of the Nigerian
economy cannot be done effectively
without connecting all Nigerians to
electricity. Nigeria has favourable
conditions to bring electricity to Nigerians
for modest costs compared to many other
nations. A large share of the massive gas
reserves of 203 Tcf can be produced at
reasonable cost. Therefore, a significant
network of additional gas pipelines need
to be constructed to connect all major
economic centres of Nigeria to natural
gas.
The initiation of the construction of the
AKK pipeline is the first important step in
this process. The development of an
optimal framework for electricity
generation based on natural gas, will
create a strong basis for providing
electricity to all Nigerians.
5. Gas Fiscal Terms, Pricing Structure
and Delivery Obligations
To encourage and promote the production
of natural gas, the proposed Bill
establishes an attractive fiscal framework
for associated and non-associated gas.
For gas production, the fiscal terms will
ensure low royalty and corporate income
tax and lower a variety of other small taxes
and levies.
Producers and customers can agree on
gas pricing on a willing buyer – willing
seller basis. However, special protections
are built in to ensure supplies to wholesale
customers of strategic sectors; which are
the power sector, gas-based industries
and the commercial sector with significant
off-take possibilities. The proposed Bill will
establish a gas-based price that is higher
than current levels to producers and this
base price will increase over time.
6. The National Gas Expansion
Programme (NGEP)
NGEP is conceived and designed to serve
as a catalyst for adding value to the vast
natural gas reserves Nigeria is endowed
with. Identification of existing policy, legal
and regulatory frameworks & commercial
instruments that are hindering the
development of the local gas sector.
Reforming and implementing the
promotion of a market structure in a
manner that will ensure the optimal
utilization of gas infrastructure, assets and
facilities on a common carrier and cosharing
basis.
Formulate strategies that will promote
cost effective distribution of the various
gas streams by marine, rail and road for
achieving a most affordable, available,
acceptable and accessible gas to
Nigerians.
7. Concluding Remarks
The COVID-19 pandemic has indeed
taken its toll on the global oil & gas
Industry with cascading impacts to other
sectors. The Petroleum Industry Bill will
provide a framework for increased
petroleum industry activities in terms of
developing gas for the domestic market
and increasing oil production under
competitive terms and support the goal of
a stronger non-oil economy for the benefit
of all Nigerians. Consequently, we are
developing strategic survival measures.
We have also designed fiscal terms in the
proposed PIB based on a conservative oil
prices outlook. We seriously believe that
a diversification plan to non-oil economy
has become a national imperative.
Once again, I wish to congratulate the
Leadership and entire members of NAPE
for this event and thank you for the honour
and opportunity accorded me to address
the professionals in the industry.
Chief Timipre Sylva, the Honorable
Minister of State for Petroleum Resources
took questions from the numerous and
diverse participants at the webinar.
Question: Given the importance of the
Oil and gas sector to the Nigerian
Economy, Is the Minister thinking
about some sort of palliatives for the
sector?
Answer: Government too is hard hit by
the adverse condition, so we are not really
in the best position to offer palliatives. The
easier way is to ensure a fiscal framework
but that too comes by way of legislation.
But more importantly, the passage of the
PIB will ensure that operators will get the
best terms. We will make sure the PIB is
competitive.
NAPENEWS | NOVEMBER 2020 | 53