It is well known that Nigeria’s economy heavily relies on its oil sector for economic sustenance and revenue generation. Nigeria derives 95% of export earnings and 70% of government revenue from the oil sector. In a significant move to attract investments and enhance the oil and gas sector, the President of Nigeria issued Executive Orders 41, 42 and 43 on February 28, 2024 (“The Executive Orders’), aimed at propelling the nation towards greater economic diversification and attracting foreign capital in the oil and gas sector, positioning Nigeria as Africa’s preferred investment destination. This insight delves into the key policy directives of the Executive Orders, their objectives, and the anticipated impacts on Nigeria’s economy.
Notable Highlights of the Executive Orders
Nigeria’s economy has been largely dependent on the oil and gas sector for revenue, making it vulnerable to fluctuations in global oil prices. Recognising the imperative for reforms, the Executive Orders aim to remove obstacles to investments, and foster an investor-friendly environment for the benefit of all Nigerians. At their core, the Executive Orders seek to improve the incentive structure for investment, streamline contracting processes, and enhance local content practices within the oil and gas sector.
The key aspects of the Executive Orders are as follows:
Local Content Practice Reform (Executive Order 41):
Recognizing the need for flexibility in implementing the Nigerian Oil and Gas Industry Content Development Act of 2010 (Local Content Act), the Order directs the Nigerian Content Development and Monitoring Board to consider the practical challenges of insufficient in-country capacity for certain services.
This reform underscores the Government’s commitment to fostering a conducive environment for investment and development in the oil and gas sector while simultaneously promoting local participation and capacity building. Through strategic reforms such as these, Nigeria is poised to strengthen its position as a hub for oil and gas activities, driving sustainable economic growth and prosperity for its citizens.
Streamlining of Contracting Processes, Procedures, and Timelines (Executive Order 42):
The Executive Order also includes provisions to streamline contracting processes, procedures, and timelines within the oil and gas sector. Among these directives, the President has instructed the Ministry of Finance Incorporated (MOFI) and the Ministry of Petroleum Incorporated (MOPI) to work towards raising the contract approval thresholds for Production Sharing Contracts (PSCs) and Joint Operating Agreements (JOAs) to a minimum of $10 million or the equivalent in Naira.
Furthermore, the President has directed collaboration between regulatory bodies and industry stakeholders to simplify the contract approval process. Additionally, the duration for third-party contracts awarded under PSCs or JOAs is extended from three to five years, with an option for renewal for an additional two years after the initial term.
These directives aim to compress the contracting cycle to 4-6 months, thereby reducing project schedules and expediting the delivery of oil and gas products to the market. By streamlining processes and increasing efficiency, these measures are expected to enhance the overall value proposition of oil and gas projects in Nigeria, fostering economic growth and development in the sector.
Executive Order on Fiscal Incentives for Non-Associated Gas (NAG), Midstream and Deepwater Developments (Executive Order 43):
This recent Executive Order issued by the President of Nigeria introduces a series of fiscal incentives tailored to stimulate investment in Non-Associated Gas (NAG), Midstream, and Deepwater developments within the oil and gas sector. Among these incentives are gas tax credits for NAG greenfield projects in specific locations, along with a 25 percent gas utilisation investment allowance for qualifying expenditures on plant and equipment in the midstream industry. Additionally, the Executive Order mandates the implementation of commercial enablers to incentivize investments in deepwater oil and gas projects.
These incentives address critical challenges within the sector, such as the lack of differentiation between NAG fields, and aim to yield competitive returns while preventing value erosion for ongoing gas utilization projects.
Overall, these fiscal measures represent a strategic move by the government to boost investment, enhance infrastructure development, and foster sustainable economic growth in Nigeria’s oil and gas sector. By encouraging exploration and production activities, the incentives have the potential to spur broader economic development and prosperity across the country.
CONCLUSION
The Executive Orders of February 28, 2024, represent a landmark initiative to revitalise the oil and gas sector and foster economic growth. The Executive Orders should create a conducive environment for international oil companies to invest in Nigeria’s developing oil and gas market by introducing fiscal incentives, streamlining contracting processes, and reforming local content practices. These reforms are poised to attract foreign capital, stimulate economic growth, generate job opportunities, and position Nigeria as Africa’s preferred investment destination in the oil and gas sector, thereby driving sustainable economic prosperity for the nation and its people. It is also a step further to improve the ease of doing business in Nigeria, reaffirming the belief that clear and inclusive government policies are essential for long-term prosperity.
