By Chioma Obinagwam
Nigeria’s President, Muhammadu Buhari, on Monday, signed into law, a Bill to amend the Deep Offshore (and Inland Basin Production Sharing Contract) Act [the PSC Act].
Taiwo Oyedele, Head of Tax and Corporate Advisory Services at PwC Nigeria (the world’s leading professional services firm), disclosed on his Twitter Feed- @taiwoyedele.
According to him, Production Sharing Contract (PSC) is a contractual arrangement for exploration and production of petroleum resources where the contractor undertakes all the financial, technical and operational risks associated with petroleum operation in return for a share of profit oil after payment of royalty, cost and tax oil.
The arrangement, he stated, was introduced during the 1991 licensing round while the PSC Act became effective on 1 January 1993. The price of oil per barrel at the time was around US$13 per barrel.
It was considered that certain incentives were necessary to encourage activities in the deep offshore which requires significant investment and technology.
He said, “The special incentive regime includes: longer duration of oil prospecting licenses, reduction in the petroleum profit tax rate investment tax credit or investment tax allowance lower royalty regime.
Section 16 of the PSC Act provides for the incentives to be reviewed where the price of oil exceeds US$20 per barrel or in any event after 15 years from inception and every 5 years thereafter.
“The new amendment now introduces the following key changes:
Introduction of incremental royalty rate based on the price of oil Periodic review of the PSC arrangement every 8 years Significant penalty for offences including imprisonment.
“He further noted that the federal government estimates that the changes will generate about $500 million in additional revenues for the government in 2020, and over $1billion from 2021. The changes are expected to take effect from fiscal year 2020.”
