Recently introduced fiscal incentives by FG to enhance energy security-Verheijen

The Federal Government has said that the fiscal incentives it introduced recently will attract the much-needed investments to enhance energy security, catalyse economic activity, attract essential foreign exchange, and promote job creation.

The Special Adviser on energy to the  President, Mrs Olu Verheijen ,who stated this  the  during a media parley on the policy direction of government in Abuja, posited that 76% of the country’s gas reserves, remain undeveloped despite possessing one of the largest gas reserves globally.

“We lack sufficient gas to meet our domestic needs for industry, for power and for cooking. The fiscal incentives introduced will attract the much-needed investments to enhance energy security, catalyze economic activity, attract essential foreign exchange, and promote job creation’’.

She explained that deliberate effort are in place to streamline contracting processes, procedures and timelines which had been an impediment to attracting investment to the sector.

“The President has issued directives to reduce contracting timelines and project delivery. Benchmarking and analysis revealed that the contracting cycle takes up to 36 months. This Directive should have the effect of compressing this cycle to less than 6 month in line with global averages. This will expedite the delivery of oil and gas products to the market and enhance overall value for the country.

“This Directive seeks to ensure that local content requirements are implemented in a manner that does not impede investments or the cost competitiveness of oil and gas projects. This Directive aims to reduce the cost premium of operating in Nigeria, presently averaging at 40%. We anticipate significant benefits from this reform, including the development of local companies’ capacity, thereby generating additional business opportunities, job creation and boosting economic growth.”

Mrs. Verheijen reiterated government’s determination to take decisive steps to ensure to a conducive business climate and reposition Nigeria as a preferred investment destination for oil and gas sector.

“The President strongly believes that private sector-led growth enabled by clear and inclusive government policies is the most enduring path to prosperity for all Nigerians.We will sustain engagement and collaboration with key investors to ensure we attract capital and capabilities to this sector to catalyze job creation, productivity, income growth across multiple sectors. This administration is laser focused on enabling transformational economic opportunities to lift millions of hardworking Nigerians out of poverty.”

Some stakeholders were consulted and provided input to implement reforms. These are:The Minister of Finance/Co-ordinating Minister of the Economy will develop and propose amendments to introduce fiscal incentives for deep-water developments into legislation, the Federal Inland Revenue Service (FIRS) and the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) will issue guidelines on the implementation of the fiscal incentives, the MOFI, MOPI, Nigerian Content Monitoring and Development Board, NNPCL will be responsible for implementation and enforcement and the NCDMB is responsible for implementing the Directive and issuing supporting guidelines.

President Bola Ahmed Tinubu’s game changing reforms in the oil and gas sector: An excerpt from the speech delivered Friday 8 March at a press conference in Abuja by special adviser on energy Olu Arowolo Verheijen

Background

• Our ambitions to accelerate our economic growth and diversify the

economy for the benefit of all Nigerians require timely, credible, clear

and consistent policy.

• We are faced with a revenue crisis which is impacting all Nigerians.

To urgently address this, President Bola Tinubu is actively seeking

ways to grow revenue and forex to stabilize our economy and

currency. The Oil and Gas sector is critical to our ability to do so.

However, our current oil and gas production and investment levels

falls significantly short of our potential.

• Since 2016, Nigeria has only accounted for only four percent (4%) of

Africa’s total oil and gas investments, despite possessing thirty-eight

percent (38%) of the continent’s hydrocarbon reserves. A society is

not rich because of its resources but because of what it does with

those resources

• His Excellency, President Bola Ahmed Tinubu is determined to

reverse this trend and take decisive steps to ensure to a conducive

business climate and reposition Nigeria as a preferred investment

destination for oil and gas sector.

• To achieve these objectives, Mr President has:

– Issued a Presidential Directive to streamline and clarify the

scope of the two Regulators in the petroleum sector to provide

certainty and create a conducive business environment.

– Directed the NSA and Special Adviser on Energy to coordinate

enhanced security measures in the Niger Delta. Owing to this

Directive, the TNP pipeline which had been repeatedly

vandalized is now enjoying improved uptime; availability has

practically doubled since these directives were implemented.

This has translated to increased liquids of over 200,000

barrels/day being transported over the last 6 months. It has

increased the availability of NLNG Trains 1-6 from 57% in 2023

to 70% in Q1 2024.

– The President has also introduced fiscal incentives to deepen

Compressed Natural Gas (CNG) and Liquified Petroleum Gas

(LPG) penetration. These incentives were designed to:

o ease the impact of fuel subsidies on transportation cost

and enable the displacement of PMS/Diesel and;

o contribute to stabilizing the price of cooking gas in the

market and support the transition to clean cooking.

Following extensive engagements, analysis and benchmarking, with

industry operators and regulators, the President has taken further action

to address foundational issues identified in the course of these

engagements. Mr President has initiated amendment of primary

legislation to introduce fiscal incentives, reduce project execution

timelines and promote cost efficiency. However, recognising the urgency

to accelerate investments to stabilise the economy, His Excellency

executed these Policy Directives to clearly signal the policy direction of

this administration to both the market and regulators.

The Policy Directives are:

1. Fiscal Incentives for Non-Associated Gas (NAG), Midstream and

Deepwater Oil & Gas Developments:

This Directive aims to facilitate the monetization of Nigeria’s extensive

oil and gas resources. For Gas, 76% of our gas reserves, remain

undeveloped. This explains why, despite possessing one of the largest

gas reserves globally, we lack sufficient gas to meet our domestic

needs for industry, for power and for cooking. The fiscal incentives

introduced will attract the much-needed investments to enhance

energy security, catalyze economic activity, attract essential foreign

exchange, and promote job creation.

2. Streamlining of Contracting Processes, Procedures and Timelines: The

President has issued directives to reduce contracting timelines and

project delivery. Benchmarking and analysis revealed that the

contracting cycle takes up to 36 months. This Directive should have the

effect of compressing this cycle to less than 6 month in line with global

averages. This will expedite the delivery of oil and gas products to the

market and enhance overall value for the country.

3. Local Content Practice Reform: This Directive seeks to ensure that

local content requirements are implemented in a manner that does not

impede investments or the cost competitiveness of oil and gas projects.

This Directive aims to reduce the cost premium of operating in Nigeria,

presently averaging at 40%. We anticipate significant benefits from this

reform, including the development of local companies’ capacity, thereby

generating additional business opportunities, job creation and boosting

economic growth.

Implementing Partners

• A diverse array of stakeholders were consulted and provided input

into. Some of these stakeholders will be responsible for

implementation.

1. Fiscal Incentives: The Minister of Finance/Co-ordinating

Minister of the Economy will develop and propose amendments

to introduce fiscal incentives for deep-water developments into

legislation. The Federal Inland Revenue Service (FIRS) and the

Nigerian Upstream Petroleum Regulatory Commission

(NUPRC) will issue guidelines on the implementation of the

fiscal incentives.

2. Streamlining of Contracting Processes, Procedures and

Timelines: The MOFI, MOPI, Nigerian Content Monitoring and

Development Board, NNPCL will be responsible for

implementation and enforcement.

3. Local Content Practice Reform: The NCDMB is responsible for

implementing the Directive and issuing supporting guidelines.

Details on the role of each stakeholder are contained in the Policy

Directives, which have been Gazetted and will be distributed shortly.

Co-ordination

• The Special Adviser to the President on Energy to play a

coordinating role in ensuring implementation within the timelines

stipulated in the Directives.

• I will follow up on implementing these directives and in return we

expect the Operators to commit to their promises to make these

investments.

Conclusion

• Our need to fuel economic growth at rates that significantly exceed

our population growth rate has never been more urgent. The

President strongly believes that private sector-led growth enabled by

clear and inclusive government policies is the most enduring path to

prosperity for all Nigerians. We will sustain engagement and

collaboration with key investors to ensure we attract capital and

capabilities to this sector to catalyze job creation, productivity,

income growth across multiple sectors. This administration is laser

focused on enabling transformational economic opportunities to lift

millions of hardworking Nigerians our of poverty.