A Review of the Nigerian Energy Industry

Marginal field operators groan under harsh tax regimes

Marginal-fields01 April 2014, Lagos – Nigerian indigenous companies producing some of the 24 marginal fields awarded by the federal government in 2003 are groaning under harsh fiscal regimes imposed by the tax authorities, which was contrary to the agreement reached between the operators and the government at inception.

Of the 24 marginal fields recovered from the International Oil Companies (IOCs) and awarded to the indigenous companies, eight are already producing while 16 are at various stages of development.

To encourage the companies that benefitted from the awards, the government had in 2003 approved a flat tax rate of 55 per cent for the companies.

But some of the operators, who spoke to THISDAY at the just concluded oil and gas conference in Abuja, stated that the tax authorities had refused to assess them based on the 55 per cent approved by the government.

“Very few of us who are lucky to put our fields on production are not enjoying the tax incentives promised by the government. Some of us pay 85 per cent,” said one of the operators.

The Managing Director and Chief Executive Officer of Midwestern Oil and Gas Limited, Mr. Adams C. Okoene, confirmed the plight of the marginal field producers at a special session of the conference but pointed out that his company pays 65.7 per cent instead of the 55 per cent promised by the government.

“We have never been able to convince the tax authorities that we should pay 55 per cent. We are being assessed and being asked to pay 65.7 per cent because we were told that since that allowance was not gazetted, it could not be accepted by the tax people,” he said.

Okoene, whose company was awarded the Umusagede Field near Kwale in Delta State, said the federal government gave his company a written approval to pay tax rate of 55 per cent in 2003.

“When we were given the awards, we actually got a piece of paper that said that the tax we were going to pay was 55 per cent. We made our plans on the basis of 55 per cent,” he said.

But the Managing Director of Nigerian Petroleum Development Company (NPDC), a subsidiary of the Nigerian National Petroleum Corporation (NPDC), Mr. Victor Briggs, stated that under the existing tax regime, the indigenous producers pay 65.7 per cent for the first five years and thereafter moves to 85 per cent.

Briggs acknowledged that such tax regime is too harsh for small producers, adding that the proposed Petroleum Industry Bill (PIB) will create equity in the operating environment.

“Royalty is now based on production, starting from five per cent and increasing as production increases, so that small producers are not over-burdened. The PIB is also trying to harmonise the tax rate, trying to bring it down from 85 per cent to 80 per cent. In recognition of the small producers, the PIB introduces production allowances, which favour small producers more than the large producers,” he said.


– This Day

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