Some experts in the oil and gas industry (the “Industry”) have raised concerns over the proposal under the Nigeria Oil and Gas Industry Content Development (Amendment) Bill 2020 (the “Bill”) to increase the amount operators are required to contribute to the Nigeria Content Development Fund (the “NCDF”).
Under Section 104 of the extant Nigerian Oil and Gas Industry Content Development Act, which was enacted in 2010, one per cent of the value of all contracts awarded in the upstream sector of the Industry is deducted and remitted to the NCDF.
One of the proposals under the Bill - which scaled second reading in the Senate in May - is to increase the operators contribution to the NCDF to two per cent.
The specific proposal in the Bill reads as follows:
“The sum of two per cent of every contract awarded to any operator, contractor, subcontractor, alliance partner or any other entity involved in any project, operation, activity or transaction in the upstream sector and designated midstream and downstream projects operation, activity or transaction in the Nigerian oil and gas industry shall be deducted at source and paid into the fund,”
Some energy experts have commented that this move, given the current environment of low oil prices, OPEC production cuts, the COVID-19 epidemic and the high cost of production in the country, could prove prohibitive to oil and gas development. Former board member of the Nigerian National Petroleum Corporation, Alhaji Abdullahi Bukar, was one such commentator who said the move to increase operators’ payment to the NCDF “at a time when our oilfields are old and production cost is very high” would be counterproductive.
The proposal under the Bill raises the concern that Industry may become overburdened with taxation if the current trend continues, given that the Industry is still adjusting to the financial impact of the Deepwater Offshore and Inland Basin Production Sharing Contract (Amendment) Act, the Finance Act, and Petroleum (Drilling and Production) Regulation amendments with their cost burdens.
The Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), Mallam Mele Kyari, spoke recently on the need to drive down production costs and outlined the vision of the NNPC to achieve a $10 per barrel industry production cost by 2021. This target may not be achieved if the operators in the Industry continue to be subjected to more cost items.
We will continue to monitor developments as they relate to both the reduction of oil production costs and the passage of the Bill and will bring you more information as it becomes available.
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