This alert summarizes the main changes introduced in the fiscal framework of the bill. The bill proposes to replace the existing Oil Profits Tax (PPT) with the National Hydrocarbon Tax (NHT). Under clause 260(1) of the bill, the NHT should only be calculated for the production of oil, condensate and natural gas from associated gas in an oil field. Associated and unassociated natural gas is not subject to NHT. NHT rates are classified as follows: The Bill, which is intended to be a complete overhaul of Nigeria`s oil and gas sector, aims, among other things, to ensure a higher level of transparency and accountability in this sector by strengthening government institutions to attract investment capital through changes in the governance framework, administrative, regulatory and fiscal of the Nigerian oil and gas industry. In order to promote gas development for the domestic market, the Nigerian Gas Master Plan (NGMP) was launched with a focus on the following key strategic initiatives supported by a policy framework, as described below: It is important to mention that gas development in Nigeria is being stimulated at an early stage by the export market due to attractive pricing systems and frameworks fully mature commercial support the profitability of upstream investments. There is currently the N-LNG plant with gas supply from SPDC, TEPNG and NAOC and accounts for about 40% of the nations` daily gas production. Over time, the FGN`s guidelines on gas flaring have led producers to launch a significant number of related gas development projects. The commissioning of these projects has also made additional volumes available to the national gas market. NATIONAL GASAGENDA The country`s Gasagenda is robust. It balances the focus on two key levers of production capacity/income growth and the specific effort to connect industry to the national economy.
This puts gas in electricity at the center, but also envisions aggressive gas-based industrial growth, which in turn will boost growth in electricity demand. A strong program is underway focused on short-term availability and long-term sustainability. A comprehensive plan has been put in place to ensure that all existing gas supply agreements and the gas framework ensure long-term availability for further expansions. Routine gas flaring has been a problem since the drilling of the first oil well in 1956. This problem has existed in Nigeria for a long time due to the lack of laws and fiscal frameworks for the marketing of natural gas. Although the Petroleum Act of 1962 and Decree 51 require all licensees to submit a feasibility study for the use of natural gas, the majority of international oil companies (IOCs) did not conduct a gas development project because it was not commercially attractive. The following sections describe some of the most significant changes that have been made to the fiscal framework proposed in the bill. Efforts to commercialize and exploit gas began in earnest with the promulgation of the 1991 Associated Gas Framework Agreement. This agreement provided tax incentives to improve the economy of gas projects and aimed to reduce or eliminate flaring by allowing oil companies to offset their investments in gas projects from oil revenues. Separate tax regime for oil and gasThe nuclear power plant provides a new tax framework separating oil and gas.
Essentially, gas projects are developed according to their economic viability and are not dependent on or bound by oil taxation. Currently, the Associated Gas Framework Agreement (« AGFA ») allows associated gas (AG) and non-associated gas (NAG) costs from oil revenues to coincide by subsidizing oil projects with gas projects. This new tax framework aims to eliminate distortions in the AGFA by introducing a corrective and optimal tax system called tax rules of general application (« FRGA »). While the FRGA is good for the development of the gas sector and the oil industry as a whole, we note that the AGFA (which wants to repeal it) is codified in Sections 11 and 12 of the Petroleum Profits Tax Act. Therefore, the FRGA born by the nuclear power plant cannot take effect in the application of the desired separate oil and gas tax regimes until the PIRB or any other legislation implementing the FRGA has entered into force. .