Experts advocate improved fiscal, governance outlook of PIB
Professor Emeritus in Petroleum Economics and Policy Research, Wumi Iledare and the President, Association for Energy Economics (NAEE), Prof. Yinka Omorogbe, have highlighted the fiscal, regulatory and the governance outlook of the embattled Petroleum Industry Bill (PIB)
Iledare, who is currently Petroleum Commerce Research Chair, University of Cape Coast Oil & Gas Studies, noted that the design of the tax fiscal element in PIB 2020, which provides for petroleum profit tax, to a dual tax system of hydrocarbon resource tax and corporate income tax, remains an acceptable practice in other regions.
According to him, the proposed royalty scheme–fixed and flat rate by terrain and royalty tied to value in the document, showed some degrees of fiscal progressivity similar to what is also being practiced in other jurisdictions.
Iledare, in a presentation made available to The Guardian, noted that the proposed incentives in PIB equally showed a clear departure from traditional effort-based incentives to a more modern output-based incentive in the form of production allowance, generous capital allowance and cost management.
“Worldwide, fiscal systems are designed to encourage substantial and progressive investment in the industry, while balancing rewards with risk and enhancing revenues to the host government, based on mutuality of interests.
“The existing fiscal components and other fiscal laws in Nigeria may not necessarily attract investors, except the ongoing reforms in the PIB 2020 fiscals are appropriated with effective, efficient, equitable and ethical governance structure,” Iledare said.
According to him, the proposed dual tax system may result in a lower effective tax rate significantly than the existing single tax rate and may perhaps improve international perception of Nigeria fiscal competitiveness complimenting its highly geologic prospects.
The professor noted that the important fiscal regime levers, such as royalty, profit split, cost recovery limit and taxation mechanism in PIB, appeared to be based on core principles of fiscal rules of general applications, stressing that with natural gas development, the fiscals may have disavowed optimisation revenue extraction in favour of economic expansion.
“A vital component of reforms to promote competitiveness and attractiveness for Nigeria’s fiscal regime has been noticeably complemented with clearly defined roles for institutional organs of government— policy, commercial and regulatory.
“If PIB is to create value as intended and designed, the implementation strategy has to be holistic, inclusive, and patriotic in orientation towards national development with zero tolerance for Esau’s syndromic mindset,” he noted.
Omorogbe had called for proper criticism of the bill, adding that the contentious aspect, which begs questions, should be carefully interrogated by leading industry experts instead of allowing sentiments to override the purpose of the proposed legislation.
Omorogbe, who was once the Chairperson of the Legal and Regulatory sub-committee of the Oil and Gas Sector Reform Implementation Committee that drafted and submitted the first PIB to the National Assembly in 2008, said there won’t be an alternative to a total reform of the Nigerian oil industry, if the country would ever realise the full potential of the industry.
“Whilst we have been stalling on petroleum industry reform, several new producers have emerged. A notable example is Ghana, which began producing oil in 2010 and is now producing nearly 200,00 barrels in 2021.
“We cannot be the country that remains frozen in debilitating discussions on whether or not a Bill that will provide a new legal framework for the petroleum industry must pass or not because of controversial clauses that can be amended,” she noted.
Omorogbe urged the country to focus on the actual contents of the bill and not on interpretations that were not always supported by fact.
Omorogbe noted that there were so many questions which needed to be dealt with in any serious discussions on the PIB, stressing that all discussions must be premised on the knowledge that the country must commence reform of the sector.