Do We (Finally) Have Lift-Off? Nigerian President Issues Policy Directives To Unlock Investments In The Nigerian Energy Sector – Oil, Gas & Electricity

The President of Nigeria, Bola Ahmed Tinubu (the
“President“), on 6 March 2024, signed
Executive Orders on oil and gas reform and issued three (3) policy
directives in a bid to enhance investments in the energy sector and
establish Nigeria as the preferred investment destination for the
energy industry in Africa.

This is a BIG ask, but we will get into that
later.

In this Client Alert, we discuss the key highlights of the
President’s directives.

According to the State House, the President, in recognising the
urgency to accelerate investments, has directed the:

1. introduction of fiscal incentives for non-associated gas
   projects, midstream and deepwater projects;




2. radical streamlining of contract approval processes and the
   adoption of “deemed approval” in as little as 15 days by
   relevant governmental authorities; and




3. application of local content requirements without hindering
   project delivery schedules or cost competitiveness

(together, the “Directives“).

1. The Oil and Gas Companies (Tax Incentives, Exemption,
   Remission, etc.) Order, 2024 (the “Fiscal Incentives
   Directive”)The Fiscal Incentives Directive seeks to fire up (pardon
   the pun) gas investments and development, and includes the
   following highlights:

   1. Gas Tax Credits (“GTC”) for Non-Associated
      Gas (“NAG”) greenfield developments: GTC shall
      apply to NAG greenfield developments, in onshore and shallow water
      areas, with first gas production on or before 1 January 2029.

      Specifically, where the hydrocarbon liquids content
      (“HCL“) of the gas does not exceed 30
      barrels per million standard cubic feet
      (“scf“), the GTC shall be US$1.00 per
      thousand cubic feet or 30% of the fiscal gas price, whichever is
      lower. If the HCL content exceeds 30 barrels per million scf, but
      does not exceed 100 barrels per million scf, the GTC shall be
      US$0.50 per thousand cubic feet or 30% of the fiscal gas price,
      whichever is lower. 

      For NAG greenfield projects starting production after 1
      January 2029, with HCL content not exceeding 100 barrels
      per million scf, a Gas Tax Allowance
      (“GTA“) shall apply at US$0.50 per
      thousand scf or 30% of the fiscal gas price, whichever is
      lower.

      Important to note that HCL content in a NAG field will be
      determined in guidelines issued by the Nigerian Upstream Petroleum
      Regulatory Commission (“NUPRC”).

      GTC for NAG projects shall apply for 10 years. Afterwards,
      they transition into a GTA at the rates detailed above. To prevent
      double dipping, the GTC for a company in a year must not exceed its
      income tax payable for that year, and the GTC must not be combined
      with incentives from the Associated Gas Framework Agreement
      (“AGFA“) for the same greenfield NAG
      project.

      Unused tax credits can be carried forward for up to 3 years. The
      fiscal gas price calculation will be based on the price used for
      determining royalties under the Petroleum Industry Act, 2021
      (“PIA“).

   
   

   2. Utilization Investment Allowance for any new and
      ongoing midstream project: Gas utilisation companies are
      eligible for this allowance when procuring plant and equipment
      related to new or ongoing projects within the midstream oil and gas
      sector.

      The gas utilisation investment allowance, which is 25% of the
      actual expenditure incurred on such plant and equipment procured,
      is implemented by allowing companies to deduct this investment
      allowance from their assessable profits, starting from the year of
      purchase of the relevant plant and equipment. The gas utilisation
      investment allowance will not be considered in the determination of
      the residue of the qualifying expenditure incurred on such plant
      and equipment.

      It is worth noting that midstream gas companies cannot enjoy or
      assert claims to the allowance incentive until the expiration of
      the tax-free period outlined in section 39(1) of the Companies
      Income Tax Act, as amended
      (“CITA“).

      Also, companies will be ineligible to claim the gas investment
      allowance on qualifying expenditures for plant and equipment within
      5 years from the expenditure date if the:

      1. company sells or transfers the equipment to a party acquiring
         it for a business unrelated to the seller’s business, or for
         scrap;

      
      

      2. procured plant or equipment is used for purposes other than gas
         utilization; or

      
      

      3. expenditure on equipment procurement is not a genuine business
         transaction or is considered artificial or fictitious.
         
          

Furthermore, if a gas utilization
allowance has been claimed for a specific plant or equipment, it
shall not be eligible for another gas utilization investment
allowance by the acquiring entity or subsequent purchaser.

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