"I believe the government is doing its best to put incentives in place. However, the delay in pinning down some of the key fiscal terms for oil industry operators in Nigeria, which is largely due to political factors, is hurting the system."

Olufemi Abegunde

PARTNER AND LEADER OF THE ENERGY AND RESOURCES INDUSTRY, DELOITTE NIGERIA

August 07, 2020

Can you give an overview of Deloitte Nigeria and the role the company plays in the oil and gas industry? 

Deloitte Nigeria is the evolution of the firm Akintola Williams & Co, which was established by the Doyen of Accountancy in Nigeria, Mr Akintola Williams, in 1952. Over the years, the firm has gone into some mergers with other firms and evolved into what we have as Deloitte & Touche Nigeria today.

We are the foremost professional services firm in Nigeria delivering audit, tax, risk advisory, financial advisory and business process advisory services to our clients in the country and West Africa region. We are equally formed into unique industry sectors to ensure we “speak the language” of our clients. Today in the firm, we have the financial services, consumer business, energy resources and industrials, as well as technology, media and telecommunications industry groupings.

Deloitte Nigeria has established its footprints in the oil and gas industry, whether upstream, downstream or oil service sectors.

Can you give an overview of the current macro-economic environment and the fiscal uncertainty in the oil and gas industry?

The macro economic landscape in Nigeria still remains a challenge. Despite its potential to be a rapidly growing economy, there remains a huge deficit in electricity supply in Nigeria which stalls economic growth. Without power, the manufacturing sector cannot function well. This means that everybody in Nigeria is effectively a trader as we are not manufacturing or maximising the use of our human capital, thus ending up not creating the right quantum of added value to propel the economy.

In terms of fiscal matters, I believe the government is doing its best to put incentives in place. However, the delay in pinning down some of the key fiscal terms for oil industry operators in Nigeria, which is largely due to political factors, is hurting the system. International oil companies (IOCs) are unable to take FID, as they do not know of the certainty of the incentives to give them the returns they need on many of their proposed projects in the industry.

Apart from inconsistent /controversial policies, there is some contention in the interpretation of previous terms given to deep water operations. Notable is the appropriate application of investment tax credits. A case which is currently in the Supreme Court is the whether it is investment rax credit or investment tax allowance that applies to a particular acreage. This case has been on for 10 years. These things shake the confidence of the IOCs who are those with the capital or financial muscle to help propel our oil industry. Consequently they end up diverting their capital to other countries with more stable fiscal terms. We need better stability than what we currently have.

How does the taxation framework differ across the oil and gas value chain?

Upstream oil producers are taxed according to the PPT (Petroleum Profits Tax) Act, while the downstream and oil service companies are taxed according to the CITA (Companies Income Tax Act). Each has its own incentives or rules that guide them. The value chain differentiations depend on where a company is operating.

Within the upstream operations, we still have a different tax regime for deepwater and inland basin operations, with certain additional incentives and taxes to protect these areas.

How does the newly signed Finance Bill impact the oil and gas industry

There are two obvious impacts that I can say right away: Dividends declared by oil companies, which was hitherto free of taxes, will now be taxed at 10%, and the  general increase in VAT to 7.5% from 5%.

Since 2020 has been titled the year of natural gas for Nigeria, what potential does Deloitte Nigeria see in this move towards LNG?

Nigeria requires more action as opposed to catchy phrases such as ‘the year of gas’. The country could have established two more LNG plants (Brass & Olokonla), but we blew those chances again because of politics.  The funds that were set aside for those operations have been used for something else. However, if the new thinking is to revisit these project in 2020, then it is a welcome development.

What is your vision for Deloitte in the upcoming five years?

Deloitte Nigeria is going to dominate the market. We have laid the foundation. This firm was a sleeping giant before and we have woken it up. The leaders of the firm have put structures in place and have brought on board excellent and skilled individuals to achieve this goal.

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