Nigeria takes Steps to Attract Investments into its Oil&Gas Sector
Africa’s largest oil and gas producer, Nigeria, has taken major steps towards making itself a destination for investments in the continent’s energy sector through executive orders on industry reforms.
Despite having about 37 billion barrels of proven crude oil reserves and about 209 trillion cubic feet of proven gas reserves, only $3.5 billion, representing 5 percent, came into Nigeria out of $70 billion worth of investments inflow into Africa’s gas sector between 2012 and 2022. This was disclosed by a former Minister of State for Petroleum Resources, Timipre Sylva.
“One of the biggest challenges the sector has is lack of investments. In the last 10 years, over $70 billion worth of investments came to Africa, but sadly less than four billion dollars came to Nigeria.
“Surprisingly, we are the biggest in Africa. If we cannot attract investments to Nigeria, you know where we are heading. You have been our long time friend. As of today, our gas reserve is one of the biggest in the world,” Sylva had said while addressing a section of EU Ambassadors to Nigeria.
In January, Commission Chief Executive of the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), Engr. Gbenga Komolafe, expressed worry over low crude oil production and declining investment in the country’s upstream sector.
According to Komolafe, the nation’s upstream sector is “facing severe pressures because of the low crude oil production and lack of investment in recent years.”
While stressing on the need for investor-friendly business environment, he emphasized on removal of entry barriers for investment.
“We must vacate entry barriers for investment. This is common logic when there is high competition. We need to work together to lower barriers and do everything possible to motivate investment,” a statement from the Nigerian Content Development and Monitoring Board (NCDMB) quoted Komolafe as saying.
Based on figures from the NUPRC, Nigeria’s oil reserves and gas reserves account for 30 percent and 34 percent of the Africa’s oil and gas reserves.
Although the actual national production currently averages 1.33 million barrels of oil per day and 256 thousand barrels of condensate per day, the national technical production potential currently stands at 2.26 million bpd, and the current OPEC quota is 1.5 million bopd.
The nation’s low production has been attributed to sundry issues ranging from regulatory uncertainty to insecurity, poor infrastructure, among others.
Policy directives
To improve the investment environment and make Nigeria attractive to would-be investors in the oil and gas sector, President Bola Tinubu, on Wednesday, executed some policy directives.
According to the Minister of Information and National Orientation, Mohammed Idris, Tinubu has initiated the amendment of primary legislation to create fiscal incentives for oil and gas projects in the country, reduce contracting costs and timelines, as well as promote cost efficiency in the course of implementing local content requirements.
“In keeping with his dedicated efforts to remove obstacles to investments in Nigeria, harness the nation’s resources and diversify the economy for the benefit of all Nigerians, His Excellency, President Bola Ahmed Tinubu has executed Policy Directives to improve the investment climate and position Nigeria as the preferred investment destination for the Oil & Gas sector in Africa.
”Following extensive engagements, analyses, and benchmarking with other jurisdictions, the President has initiated the amendment of primary legislation to introduce fiscal incentives for Oil & Gas projects, reduce contracting costs and timelines, and promote cost efficiency in local content requirements,” Idris disclosed in a statement.
Fiscal incentives for NAG
In 2021, former President Muhammadu Buhari declared the Decade of Gas initiative, which aims to make Nigeria a gas-powered economy by 2030.
The country has also adopted gas as its transition fuel amid calls for cleaner energy sources. Nigeria is targeting to achieve zero flare by 2030 and zero carbon emission by 2060,
In the last few years, there have been several commitments to deepen domestic utilisation of gas in Nigeria. These includes both public and private sector programmes. The Central Bank of Nigeria (CBN) launched a N250bn intervention facility In August 2020. This was followed by the launch of the National Gas Expansion Programme (NGEP) in December 2020.
Nigeria is projecting gas production to reach 12.2 billion cubic feet per day by 2030. However, to achieve this requires substantial investment in deepwater gas projects and infrastructure development.
To increase gas production in order to meet local demand and increase export for Foreign Exchange earnings, Tinubu has directed introduction of fiscal incentives for Non-Associated Gas (NAG), midstream and deepwater developments.
Despite the birth of the Petroleum Industry Act (PIA) in 2021, investment in gas production has not accelerated as producers have been clamouring for incentives for NAG.
“Gas tax credits shall apply to non-associated gas (NAG) greenfield developments in onshore and shallow water locations, where the hydrocarbon liquids fall between 0-100 barrels per million standard cubic feet of gas,” Idris stated.
The Minister informed that “A 25 percent gas utilization investment allowance shall apply on qualifying expenditure on plant and equipment incurred by a gas utilization company in respect of any new and ongoing project in the midstream oil and gas industry.”
Also, the president has directed “Implementation of commercial enablers for new brownfield and greenfield to incentivize investments for oil and gas projects in the deep water.”
The Federal Government believes that these incentives would address lack of differentiation between NAG fields in PIA, and eliminate value for ongoing gas-related projects.
“These incentives address the lack of differentiation between NAG fields in PIA, yield competitive returns and prevent value erosion for ongoing gas utilization projects, including NLNG Train 7 due to changes introduced by sections 6 and 9 of the 2023 Finance Act,” Idris said.
“It is anticipated that these investments will have a multiplier effect by catalyzing economic activity around these projects. The anticipated impact of these investments extends beyond energy security. The projects are expected to relaunch economic activity and job creation in the sector, as well as stimulate activity in ancillary SMEs within local communities.”
Contracting costs, timelines
Tinubu has directed streamlining of contracting processes, procedures, and timelines. In this regard, the Ministry of Finance Incorporated and the Ministry of Petroleum Incorporated have been directed “to take steps to procure the Nigerian National Petroleum Company Limited to raise the contract approval thresholds for Production Sharing Contracts (PSCs) and Joint Operating Agreements to not less than $10 million or the Naira equivalent.”
Similarly, the Nigerian Upstream Investment Management Services Limited (NUIMS) has been directed to work together with NCDMB and industry stakeholders, to simplify the contract approval process.
By this, the Federal Government is aiming to reduce the contracting cycle to between four and six months.
“The duration period for third-party contracts awarded pursuant to a PSC or JOA is increased from three to five years with the option of renewal for an additional two years after the expiration of the initial three years,” Idris revealed.
“These directives are aimed at compressing the contracting cycle to 4-6 months, ultimately reducing project schedules, expediting the delivery of oil and gas products to the market, and increasing value to the country.”
Local content practice
Nigerian content in the oil and gas industry reached 54 percent in 2022, according to NCDMB. It, however, maintained this level in 2023 – a development which possibly suggests stagnation and possible decline in local content level in the country’s oil and gas industry.
Tinubu has directed the NCDMB to ensure that in the course of implementing the Nigerian Oil and Gas Content Development (NOGICD) Act, it does not create impediment to investments or the cost competitiveness of oil and gas projects.
Through flexible implementation of the Act, the Federal Government posits that local operators would be encouraged to increase their capacity.
“Pending legislative review of certain reform propositions, the President has directed that the Nigerian Content Development and Monitoring Board in its implementation of the Nigerian Oil and Gas Industry Content Development Act, 2010 (“Local Content Act”) shall consider the practical challenges of insufficient in-country capacity for certain services, and act in a manner that does not hinder investments or the cost competitiveness of oil and gas projects.
By providing flexibility with the application of the Local Content Act, local operators will be encouraged to increase their capacity, thereby creating additional business opportunities, upskilling of the workforce, and ultimately creating more jobs and boosting economic growth,” Idris pointed out.
The statement informed that Special Adviser to the President on Energy, Olu Verheijen, has been directed to coordinate stakeholders to ensure the implementation of the directives within a stipulated timeframe.
A collaborative effort of the Federal Ministry of Justice, Federal Ministry of Finance, Federal Ministry of Petroleum, Federal Ministry of Budget and Economic Planning, Federal Inland Revenue Service (FIRS), NNPC Limited, NUPRC, Nigerian Midstream and Downstream Petroleum Regulatory Commission (NMDPRA), and NCDMB, the incentives the government believes will drive growth in the country’s oil and gas industry.
According to the Special Adviser to the President (Media & Publicity), Ajuri Ngelale, details of the policy directives would be gazetted.
“The President strongly believes that private sector-led growth enabled by clear and inclusive government policies is the most enduring path to prosperity for all Nigerians. The President is committed to sustained engagement and collaboration with key investors to ensure we improve the ease of doing business in Nigeria,” the Minister added.
