Adeyemi Akisanya and Other Experts Raise Concerns Over Local Content Law Amendment

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Industry experts have raised concerns over the Nigeria Oil and Gas Industry Content Development (Amendment) Bill 2020 seeking to double the amount operators contribute to the Nigerian Content Development Fund, among other proposals.

Currently, one per cent of the value of all contracts awarded in the upstream sector of the country’s oil and gas industry is deducted and remitted to the NCDF as stipulated by Section 104 of the Nigerian Oil and Gas Industry Content Development Act, which was enacted in 2010.

But an amendment bill, which scaled second reading in the Senate in May, is seeking to increase the contribution by operators to two per cent.

“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,” it said.

 The bill also said “all operators shall set aside annually and for the purpose of carrying out research and development activities in Nigeria a minimum 0.5 per cent of the gross revenue received by the operator.”

 The sponsor of the bill, Senator Teslim Folarin, had said the bill sought to amend 38 sections of the extant Act while introducing six new sections.

 He said the essence of the bill was to bring the provisions of the sections to be amended into congruence with industry best practice, adding that the amendments would boost local content development.

 An energy expert and former board member of the Nigerian National Petroleum Corporation, Alhaji Abdullahi Bukar, said the move to increase operators’ payment to the fund “at a time when our oilfields are old and production cost is very high” would be counterproductive.

 “It (the proposed increase) creates another operating cost, and you are actually making it very difficult for companies to operate,” he said.

 An energy expert, Mr Adeyemi Akisanya, told our correspondent that the oil sector was already overburdened in terms of taxation.

 Akisanya, who is the founder and principal of Adeyemi-Akisanya Associates, a Lagos-based firm of lawyers and mediators, said, “Increasing the contribution to the local content fund is good.

 “However, in an industry that is already subject to multiple taxes and miscellaneous imposts, another one per cent can quickly be effectively a heavy burden.

 “The rate of taxation in the upstream sector of the Nigerian oil and gas industry is already quite high at a maximum rate of 85 per cent, not counting all sorts of other levies.”

 He said although with reforms being proposed under the new Petroleum Industry Reform Bill, this maximum rate would come down to an effective 70 per cent.

 “However, even that is still high enough as it were, without the addition of any further burdens,” Akisanya added.

 Against the backdrop of the move by the NNPC to bring down the cost of producing oil in the country, he said this would be an excellent initiative, if achieved.

 He, however, asked, “How do you reduce production costs when you are introducing more cost items?”

 Akisanya said the NNPC should pursue a consolidation of the regime of multiple taxes and levies, adding that all levies other than direct taxes should be recognised as cost of business and so treated appropriately under the relevant tax laws.

  “I think it is already tough doing business in Nigeria with multiplicity of taxes and levies,” an energy law expert and partner, Bloomfied Law Practice, Dr Ayodele Oni, said.

 He said imposing additional levies on operators would make the industry less attractive and more expensive to operate in the industry.

Many stakeholders have noted that the country has seen a significant improvement in local participation in the industry over the past 10 years, with the NCDMB as the major driver of the growth.

 The Minister of State for Petroleum Resources, Chief Timipre Sylva, said recently that before 2010, only three per cent of marine vessels were Nigerian-owned.

 “But today, Nigerians control and own over 40 per cent of vessels that are used in the oil and gas industry. In the area of fabrication, Nigeria can handle fabrication of more than 60,000 tonnes per year, with its array of world-class fabrication yards.”

 An analyst who spoke on the condition of anonymity said the industry was still reeling from 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.

 He added that in this current environment of lower oil prices, OPEC production cut and the pervading macro-economic effects of the COVID 19 pandemic, the government was expected to support the industry to remain a viable partner for the economic development of Nigeria.

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