PIA may reduce petroleum input to budget funding, say experts

Oil and gas industry experts believe that while the proportion of budget funded by the oil and gas sector directly is significant, Petroleum Industry Act (PIA) provisions in the fiscal framework with budget funding implications are quite glaring.

:A professor of Petroleum Economics and Policy Research, Wumi Iledare, observed that the provisions are skewed more to output expansion and sustainable oil revenue than short to medium term revenue extraction from petroleum”

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He explained: “First, the royalty scheme in the PIA has become less regressive by terrain. In effect, the effective royalty rate is significantly lower with a cap at 15 per cent compared to the 20 per cent flat for onshore assets; meaningless revenue from JV assets in the shallow water and onshore.”

“Yes, effective royalty in deep offshore assets would go up because PIA is charging royalty now at a max of 7.5 per cent. But, interestingly, the government surcharged itself with capping royalty design to just two tranches, 0 – 50MBD and > 50MBD instead of three tranches with a 10 per cent royalty cap beyond 100mbd. This is a design error that reduces government access to revenue, significantly in the short run.”

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