NNPC proposes hike in royalties, scrapping of incentives

By Michael Eboh

The Nigerian National Petroleum Corporation, NNPC, has called for an increase in royalties across all categories in the Deep Offshore and Inland Basin Production Sharing Contract (PSC) in the petroleum industry.
Mr. Bello Rabiu, Chief Operating Officer, Upstream of the NNPC, made the call 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.
He further proposed key amendments to the Act, which he claimed would enable the Federal Government optimize the collection of royalties and other revenue in deep water oil production activities and also increase government take.
The NNPC is also proposing the scrapping of incentives to oil companies in the areas of investment tax credit, investment tax allowance and associated cost uplift and capital allowances to PSC contractors.
“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 NNPC noted that the proposal for an increase in the royalty rate for terrains beyond 1,000 metres, from zero per cent to three per cent, is commendable adding that it is also necessary to make corresponding adjustments in other categories.
The NNPC explained that 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.
To this end, the NNPC said it is proposing a royalty tranche rate of 8.0 per cent for royalty based on production within a tranche of 50, 000 barrels of crude per day.
It said, “Under a production tranche of 50, 000 to 100, 000 barrels of oil per day (bopd), 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, we 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 vein, 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.
The NNPC also 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.