NNPC Proposes Increase in Oil Royalty, Scraping of Investment Tax Credit in PSC

The Nigerian National Petroleum Corporation, NNPC, on Thursday proposed some NNPC Proposes Increase in Oil Royalty, Scraping of Investment Tax Credit in PSC key amendments to the Deep Offshore and Inland Basin Production Sharing Contract (PSC) Act to enable the Federal Government optimize the collection of royalties and other revenue in deep water oil production activities.

In a presentation to the Joint House of Representatives Committees on the amendment of the PSC Act and an Act to establish the National Oil and Gas Museum and Research Centre in Oloibiri, Malam Bello Rabiu, NNPC Chief Operating Officer, Upstream, noted that it was imperative to effect increment in royalties across all categories to increase government take.

“It is our opinion that the proposal to increase the royalty rate for terrains beyond 1000 metres, from zero per cent to three per cent, is commendable but it is necessary to also make corresponding adjustments in other categories,’’ he said.

Under the proposed PSC royalty regime, the calculation of what is due to government shall be based on production and price to guarantee fairness and balance between PSC contractors and Government.

For Royalty based on production within a tranche of 50, 000 barrels of crude per day, the NNPC is proposing a royalty tranche rate of 8.0 per cent.

Under a production tranche of 50, 000 to 100, 000bopd, the royalty tranche rate would increase to 15.5 per cent and would escalate to 28.0 per cent once the production surpasses the 100, 000 bopd mark.

To calculate royalty based on price, NNPC proposed that under a $ 50 per barrel price regime, the tranche incremental royalty rate shall be zero per cent but the rate would increase to 0.30 per cent if the price hovers between the $50 to $100 mark. In the same vain, a price regime of $100-$130 would attract royalty of 0.20 per cent while an increase of price between $130 -$170 translate to royalty rate of 0.10 per cent.  A price regime of $170 and above would attract zero per cent royalty payment.

The NNPC argued that in the alternative, the graduated royalty scale as provided in the Act should be removed while the Honorable Minister of Petroleum Resources should be empowered to intermittently set royalties payable for acreages located in deep offshore and inland basin production sharing contracts through regulations based on established economic parameters.

On the provision of investment tax credit, investment tax allowance and associated cost uplift and capital allowances to PSC contractors, the NNPC proposed an outright scrapping of the incentives.

“It is our opinion that these incentives have outlived their usefulness and are now impediments to the Federal Government’s revenue collection efforts. The use of such incentives can be terminated by an amendment of section 4 of the Act,’’ the Corporation noted.

The Corporation called on the National Assembly to seek relevant input from the Federal Inland Revenue Service, to resolve the divergent opinions regarding the methodology for the computation of the taxes which would arise as a result of the proposed royalty regime.

On the Act to establish the National Oil and Gas Museum and Research Centre in Oloibiri, the Corporation recommended the establishment of the Museum alone with clear budgetary allocation from the Federal Government under the control and management of the National Commission for Museum and Monuments.

“It is better to refine and upgrade the capacity of the Petroleum Training Institute, in Warri and the National College of Petroleum Studies, Kaduna, in order to avoid duplication of functions and more importantly ensure optimal utilization of funds,’’ NNPC stated.