PIA-2021_Schedules.pdf

A 342 2021 No. 6 Petroleum Industry Act, 2021 SCHEDULES FIRST SCHEDULE Section 3 (3) RIGHTS OF PRE-EMPTION 1. The licensee or lessee shall use his best endeavours to increase so far as possible with his existing facilities, the supply of petroleum or petroleum products, or both, for the Federal...

A 342 2021 No. 6 Petroleum Industry Act, 2021 SCHEDULES FIRST SCHEDULE Section 3 (3) RIGHTS OF PRE-EMPTION 1. The licensee or lessee shall use his best endeavours to increase so far as possible with his existing facilities, the supply of petroleum or petroleum products, or both, for the Federal Government to the extent required by the Minister. 2. The licensee or lessee shall, with all reasonable expedition and so as to avoid demurrage on the vessels conveying the same, use his best endeavours to deliver all petroleum or petroleum products purchases by the Minister under the right of pre-emption in such quantities, and at such places of shipment or storage in Nigeria, as may be determined by the Minister. 3. Where a vessel employed to carry petroleum or petroleum products under paragraph 2 is detained on demurrage at the port of loading, the licensee or lessee shall pay the amount due for demurrage according to the terms of the charter-party or the rates of loading previously agreed to by the licensee or lessee, unless the delay is due to causes beyond the control of the licensee or lessee. 4. Any dispute which may arise as to whether a delay is due to causes beyond the control of the licensee or lessee shall be settled by agreement between the Minister and the licensee or lessee or, in default of agreement, by arbitration. 5. The price to be paid for petroleum or petroleum products taken by the Minister in exercise of the right of pre-emption shall be— (a) the reasonable value at the point of delivery, less discount to be agreed by both parties ; or (b) where no such agreement has been entered into prior to the exercise of the right of pre-emption, a fair price at the port of delivery to be settled by agreement between the Minister and the licensee or lessee or, in default of agreement, by arbitration. 6. To assist in arriving at a fair price for the purposes of paragraph 5 (b), the licensee or lessee shall, if the Minister so requires— (a) furnish for the confidential information of the Minister particulars of quantities, descriptions and prices of petroleum or petroleum products sold to other customers and of charters or contracts entered into for their carriage ; and Petroleum Industry Act, 2021 2021 No. 6 (b) exhibit original or authenticated copies of the relevant contracts or charter-parties. 7. Any arbitration under the First Schedule shall take place after the petroleum or petroleum products have been delivered. A 343 A 344 2021 No. 6 Petroleum Industry Act, 2021 SECOND SCHEDULE Sections 54 (7) and 65 (1) PRINCIPLES OF NEGOTIATING INCORPORATED JOINT VENTURES General Provisions 1. (1) An IJVC may be created for an existing joint operating agreement and each IJVC shall be formed under the Companies and Allied Matters Act, and NNPC Limited shall enter into negotiations with the other parties to such existing joint operating agreements with a view to, among other things— (a) agreeing and executing a shareholders’ agreement in respect of the applicable IJVC ; (b) agreeing the provisions of the memorandum and articles of association of the applicable IJVC ; and (c) incorporating the applicable IJVC. (2) Prior to the incorporation of each IJVC, the parties to each applicable joint operating agreement shall continue to carry out their obligations under such joint operating agreement in the ordinary course of business. (3) Each IJVC shall be owned by the parties to the applicable existing joint operating agreement in the same proportion as their existing participating interests set forth in such joint operating agreement, or in such other proportion as the parties thereto shall mutually agree. (4) Upon and following the incorporation of an IJVC— (a) it can carry out upstream, midstream and downstream petroleum operations subject to the appropriate fiscal regime as specified in this Act, provided, however, that where the parties wish to enter into more than one stream of operations, the parties shall incorporate separate companies under section 302 (3) and (4) ; (b) it shall be deemed to be the sole licensee or lessee (as applicable) of each petroleum prospecting licence or petroleum mining lease held jointly under the applicable existing joint operating agreement immediately prior to its incorporation ; (c) it shall at all times be the operator of petroleum operations under each petroleum prospecting licence and petroleum mining lease that it holds ; (d) it may contract for specific petroleum services but may not enter into any contract or group of contracts which would have the effect of transferring, directly or indirectly, any of the functions as operator except with the approval of the Commission, in the case of upstream petroleum operations, or Authority, in the case of midstream and downstream petroleum operations ; Petroleum Industry Act, 2021 2021 No. 6 (e) it shall by publication on its website make public reasonable details relating to its incorporation and constitutional documents ; and (f ) it may render any services related to its operations (other than financial and insurance services), to any other IJVC, NNPC Limited, or any other third party under such conditions as it may deem necessary or desirable. Special Provisions Relating to Incorporated Joint Venture Companies 2.—(1) No IJVC shall be subject to the provisions of the Fiscal Responsibility Act and the Public Procurement Act. (2) Once incorporated, the following provisions shall apply to each IJVC— (a) prior to any sale of shares in an IJVC by any shareholder, the other shareholders (including NNPC Limited) shall have the right of first refusal on such transaction at fair market value and appropriate ministerial consent ; and (b) each IJVC shall have its head office and main operational offices in Nigeria. Organisation of Incorporated Joint Venture Companies 3.—(1) Each IJVC shall have a Board of directors to be appointed by the shareholders of the IJVC. (2) The Board of directors of each IJVC shall be made up of persons who— (a) have distinguished themselves in their various capacities ; and (b) are able to exercise independence and objectivity with respect to the affairs of the IJVC. (3) The powers of the Board of directors of each IJVC shall be established in the articles of association of such IJVC, provided that, the Board of directors of such IJVC shall have the power to approve the annual work program and budget of such IJVC and any revisions thereof. (4) The Board of directors of each IJVC may create committees and subcommittees. (5) Decisions of the Board of directors of each IJVC shall be guided by commercial and technical considerations that represent good international petroleum industry practices. A 345 A 346 2021 No. 6 Petroleum Industry Act, 2021 Special provisions relating to the shares of Incorporated Joint Venture Companies 4.—(1) The share capital of each IJVC shall initially consist only of ordinary shares. (2) The shares held directly or indirectly by NNPC Limited in each IJVC shall at all times during the life of each IJVC remain non-transferable either by way of sale, assignment, mortgage or pledge to any other entity except as approved by the Government and such sale or transfer shall be at fair market value after an open, transparent and competitive bidding process in which only companies who qualify under section 95 (11) of this Act can participate. Special provisions relating to rents, royalties, taxes and other levies payable by an IJVC 5.—(1) Each IJVC shall be subject to this Act on payment of rents, royalties and taxes. (2) The initial capitalisation of each IJVC and the transactions required to create such IJVC shall not create any additional tax liabilities for any of the holders of shares in the IJVC, provided that, all assets, interests and liabilities previously held jointly pursuant to the applicable joint operating agreement are transferred to the IJVC at their net book value. Special right of shareholders in an Incorporated Joint Venture Company to purchase petroleum and any petroleum derivatives 6.—(1) Each direct holder of shares in an IJVC shall have the right to purchase from the IJVC— (a) at open market prices, a percentage of the crude oil, natural gas and condensates produced by such IJVC equal to its shareholding interest in such IJVC ; and (b) at open market prices, a percentage of the petroleum products produced by such IJVC equal to its percentage ownership interest in the IJVC. (2) Where the direct holders of shares in an IJVC do not purchase all crude oil, natural gas, condensates and petroleum products that they are entitled to under subsection (1), such IJVC may sell the remaining balance to any person at open market prices on arm’s length terms. (3) Any income received by an IJVC as a result of the export of petroleum may be held in bank accounts abroad and may be used by such IJVC to pay its obligations outside Nigeria, subject to any obligation of such IJVC under this Act and any other applicable enactments. Petroleum Industry Act, 2021 2021 No. 6 (4) The transfer overseas of any fund by an IJVC shall be subject to the regulations and policies of the Central Bank of Nigeria. Pro-rata Dividend Distribution 7.—(1) Each IJVC shall pay dividends and other distributions pro rata among the number of issued shares held directly by its shareholders. (2) Each dividend payment or other distribution shall be subject to any withholding tax applicable under the Companies Income Tax Act. Dividend Policy 8. The Board of directors of each IJVC shall establish and from time to time amend the dividend distribution policy of such IJVC and such dividend distribution policy shall be premised on the prudent and commercially reasonable management of the finances and operations of the IJVC. Special Provisions Relating to Financing of Operations 9.—(1) Each IJVC shall finance any exploration for new prospects, development of new fields, or any other investments in accordance with the applicable approved annual work program and budget for such incorporated joint venture from the cash flows of the IJVC and any borrowings by such IJVC, in each case as approved by its Board of directors. (2) Where the cash flow, together with any borrowings, of an IJVC is insufficient to finance the work program in respect of any exploration for new prospects, development of new fields, or any other investments approved by the Board of directors of such IJVC, the shareholders of such IJVC shall consult as to the manner in which further financing can be raised. (3) With respect to subparagraph (2), the shareholders may consider among others— (a) permitting any of the shareholders to contribute equity in exchange for the issuance of ordinary shares ; and (b) the creation of preferred shares for any shareholder that wishes to make a financial contribution to the incorporated joint venture. A 347 A 348 2021 No. 6 Petroleum Industry Act, 2021 THIRD SCHEDULE Sections 167 (1) and 318 1. The domestic base price at the marketable gas delivery point under section 167 (1) shall be determined based on regulations incorporating among such other matters as may apply pursuant to the subsequent paragraph, the following principles— (a) the price must be of a level to bring forward sufficient natural gas supplies for the domestic market on a voluntary basis by the upstream petroleum industry ; (b) unless required to satisfy conditions under sub-subparagraph (a), the price shall not be higher than the average of similar natural gas prices in major emerging countries that are significant producers of natural gas based on countries determined by the Authority ; (c) subject to the limitations under sub-subparagraph (b) the price shall be adjusted upward on a yearly basis in order to account for inflation on a yearly amount or percentage basis ; and (d) the Authority shall determine the domestic base price based on the regulations within three months following the effective date and modify this price where required by the circumstances in the domestic market pursuant to regulations. Allocation and Pricing of the Domestic Delivery Obligation 2. Pursuant to section 110 of this Act, the Commission shall establish the criteria for allocation of domestic gas delivery obligations including the following— (a) all available gas at low cost of supply shall be eligible for designation to the domestic gas market — (i) the ranking of gas available for the domestic gas market shall be determined by a tier system based on the cost of supply, (ii) the pricing of gas for the domestic market shall be based on the lowest cost of supply of gas available in the three-tier classification of supply sources for the domestic market, and (iii) the Commission shall determine the pricing mechanism to be utilised for gas supply to the domestic market under the domestic delivery obligation and such pricing may include gas on gas, oil based price mechanism, equivalent energy mechanism and bilateral pricing mechanism or any other such mechanism that reflects the prevailing market condition ; (b) all associated gas from producing fields shall be eligible for designation as tier one gas for the domestic gas market ; Petroleum Industry Act, 2021 2021 No. 6 (c) all gas cap gas from depleted oil fields shall be considered as tier two gas and designated for the domestic gas market ; and (d) available gas in non-associated gas fields onshore and shallow offshore shall be considered as tier three to be evaluated for eligibility of supply to the domestic gas market based on its cost of supply. A 349 A 350 2021 No. 6 Petroleum Industry Act, 2021 FOURTH SCHEDULE Section 168 (1) and (4) Pricing formula for gas price for the gas based Industries The gas price for the gas based industries shall be determined by the following pricing formula— CP = NRP * (1 + EPF) <=EPP Where - CP is the applicable price in US $/MMBtu, EPP is the domestic base price under section 168 (3), NRP is the National Reference Price which is US $1/MMBtu EPF is the End Product Factor which is described by the following formula (CMPP – PRP)/PRP CMPP is the Average Current Month End Product Price in US $/MT PRP = Product Reference Price in US $/MT i.e. dollar per metric tonne which varies depending on the industry End Product NRP (US $/mmbtu) Net of transport Tariff US $/Kcf PRP (US$/MT) Ammonia 1.00 250 Urea 1.00 250 Methanol 1.00 250 Polypropylene (LDPPE/HDPPE) 1.00 250 Low Sulphur Diesel (GTL) 1.00 325 The Authority may by regulation change the formulas or the values for NRP, CMPP and PRP and introduce other values for one or more gas based industries where the circumstances so justify. Petroleum Industry Act, 2021 2021 No. 6 FIFTH SCHEDULE Sections 263 (1) (d), 266 (1) (a), 270, 271 (2) (b) and (c), 277 (1) (c) 280 (1) (b) and 302 (10) (a) CAPITAL ALLOWANCES Interpretation 1. For the purpose of this Schedule— (a) “concession” includes a petroleum exploration licence, petroleum prospecting licence, petroleum mining lease, any right, title or interest in or to petroleum in the ground and any option of acquiring any such right, title or interest ; (b) “lease” includes an agreement for a lease where the term to be covered by the lease has begun, any tenancy and any agreement for the letting or hiring out of an asset, but does not include a mortgage, and all cognate expressions including “LEASEHOLD INTEREST” shall be construed accordingly and where,— (i) with the consent of the lessor, a lessee of any asset remains in possession after the termination of the lease without a new lease being granted, that lease shall be deemed for the purpose of this Schedule to continue so long as the lessee remains in possession, and (ii) on the termination of a lease of any asset, a new lease of that asset is granted to the lessee, the provisions of this Schedule shall have effect as if the second lease were a continuation of the first lease ; (c) “qualifying expenditure” means, subject to the express provisions of this Schedule, expenditure incurred for the purpose of hydrocarbon tax in an accounting period, which is capital expenditure, referred to as— (i) “qualifying plant expenditure” incurred on plant, machinery and fixtures directly for upstream petroleum operations applicable to crude oil for petroleum mining leases or petroleum prospecting licence, (ii) “qualifying pipeline and storage expenditure” including floating production systems incurred directly or gathering pipelines for upstream petroleum operations applicable to crude oil for petroleum mining leases or petroleum prospecting licences, (iii) “qualifying building expenditure” other than expenditure, which is included in sub-subparagraph (c) (i), (ii) or (iv) of this “Interpretation”, incurred directly on the construction of buildings, structures or works of a permanent nature for upstream petroleum operations applicable to crude oil for petroleum mining leases or petroleum prospecting licences, or A 351 A 352 2021 No. 6 Petroleum Industry Act, 2021 (iv) “qualifying drilling expenditure”, tangible and intangible, other than expenditure which is included in sub-subparagraph (c) (i) or (ii) of this “Interpretation”, incurred directly in connection with upstream petroleum operations for petroleum mining leases or petroleum prospecting licence, in view of searching for or discovering and testing petroleum deposits, or winning access, or the construction of any works or buildings which are likely to be of little or no value when the upstream petroleum operations for which they were constructed cease to be carried on, provided that, for the purposes of these definitions, qualifying expenditure shall not include any sum which may be deducted under section 263 of this Act and have benefited from capital allowances prior to the acquisition of the asset by another entity ; (d) for the purpose of interpretation of qualifying expenditure, where expenditure is incurred by a company before its first accounting period and such expenditure would have fallen to be treated as qualifying expenditure, ascertained without the qualification contained in the foregoing proviso if it had been incurred by the company on the first day of its first accounting period and that expenditure is incurred in respect of an asset, owned by the company then such expenditure shall be deemed to be qualifying expenditure incurred by it on that day, or which has been disposed of by the company before the beginning of its first accounting period, then any loss suffered by the company on the disposal of such asset shall not be allowed on commencement of accounting period and any profit realised by the company on such disposal shall be liable to capital gains tax in the same period accordingly. Provisions relating to pre-production expenditure 2. For the purpose of this Schedule, where— (a) expenditure has been incurred before its first accounting period and the expenditure would have been treated as a qualifying expenditure in any of the classes of qualifying expenditures stated in subparagraph (1) (c) (i)-(iv), then it shall be so classified and capital allowances claimed accordingly ; and (b) Where the expenditure before the first accounting date should have been treated as allowable deduction in an accounting period, it shall be so allowed but fully amortised over a period of five years with a 1% retention value. Owner and meaning of relevant interest 3.—(1) For the purpose of this Schedule, where an asset consists of a building, structure or works, the owner shall be taken to be the owner of the relevant interest in such building, structure or works. Petroleum Industry Act, 2021 2021 No. 6 (2) Subject to this paragraph, the expression “the relevant interest” means, in relation to any expenditure incurred on the construction of a building, structure or works, the interest in such building, structure or works to which the company which incurred the expenditure was entitled when it incurred the expenditure. (3) Where a company incurs qualifying building expenditure or qualifying drilling expenditure on the construction of a building, structure or works, the company is entitled to two or more interests therein, and one of those interests is an interest which is reversionary on all the others, that interest shall be the relevant interest for the purpose of this Schedule. (4) Where the owner of the relevant interest does not have statutory title to the asset, that is, it is not the licensee or lessee to the asset, the qualifying capital expenditure and the capital allowances accruing therefrom, for the purposes of this Schedule, shall be to the benefit of the holder of the licence or lease. Sale of Buildings 4. Where capital expenditure has been incurred on the construction of a building, structure or works and the relevant interest is sold, the company which buys that interest shall be deemed, for the purpose of this Schedule, to have incurred, on the date when the purchase price became payable, capital expenditure on the construction equal to the price paid by it for such interest or to the original cost of construction, whichever is the less and the capital expenditure shall not be eligible for capital allowance deduction under the hydrocarbon tax, provided that where such relevant interest is sold before the building, structure or works has been used, the foregoing provisions of this paragraph shall have effect with respect to sale and the original cost of construction shall be taken to be the amount of the purchase price on such sale. Annual Allowance 5.—(1) Subject to this Schedule, where in any accounting period, a company owning any asset has incurred in respect of the asset qualifying expenditure wholly, reasonably, exclusively and necessarily for the purpose of upstream petroleum operations applicable to crude oil carried on by it, there shall be due to that company as from the accounting period in which the expenditure was incurred, an allowance “an annual allowance” at the appropriate rate percent specified in the table to this Schedule. (2) Notwithstanding the provisions of subparagraph (1) of this paragraph, there shall be retained in the books, in respect of each asset 1% of the initial cost of the asset which may only be written off in accordance with subparagraph (3). A 353 A 354 2021 No. 6 Petroleum Industry Act, 2021 (3) Any asset or part of it in respect of which capital allowances have been granted, may only be disposed of on the authority of a certificate of disposal issued by the Commission or any person authorised by it. 6. Subject to paragraph 18, an annual allowance in respect of qualifying expenditure incurred in respect of any asset shall only be due to a company for any accounting period if at the end of the accounting period it was the owner of that asset and the asset was in use for the purpose of the upstream petroleum operations applicable to crude oil carried on by it. Balancing allowances 7. Subject to this Schedule, where in any accounting period of a company, the company owning any asset in respect of which it has incurred qualifying expenditure wholly and exclusively for the purposes of upstream petroleum operations applicable to crude oil carried on by it, disposes of that asset, an allowance “a balancing allowance” shall be due to that company for that accounting period of the excess of the residue of that expenditure, at the date such asset is disposed of, over the value of that asset at that date, provided that a balancing allowance shall only be due in respect of such asset if immediately prior to its disposal it was in use by such company for the purposes of the upstream petroleum operations applicable to crude oil for which such qualifying expenditure was incurred. Balancing charges 8. Subject to this Schedule, where in any accounting period of a company, the company owning any asset in respect of which it has incurred qualifying expenditure wholly and exclusively for the purposes of upstream petroleum operations applicable to crude oil carried on by it, disposes of that asset, the excess “a balancing charge” of the value of that asset, at the date of its disposal, over the residue of that expenditure at that date shall, for the purpose of section 262 (1) (a) of this Act, be treated as income of the company of that accounting period, provided that a balancing charge in respect of such asset shall only be so treated if immediately prior to the disposal of that asset it was in use by such company for the purposes of the upstream petroleum operations applicable to crude oil for which the qualifying expenditure was incurred and shall not exceed the total of annual allowances due under this Schedule, in respect of such asset. Residue 9. The residue of a qualifying expenditure, in respect of any asset, at any date, shall be taken to be the total qualifying expenditure incurred on or before that date, by the owner, in respect of that asset, less the total of any annual allowances due to such owner, in respect of that asset, before that date. Petroleum Industry Act, 2021 2021 No. 6 Meaning of “disposed of ” 10. Subject to any express provision to the contrary, for the purpose of this Schedule— (a) a building, structure or works of a permanent nature is disposed of if any of the following events occur— (i) the relevant interest is sold, (ii) that interest, being an interest depending on the duration of a concession, comes to an end at the end of that concession, (iii) that interest, being a Leasehold interest, comes to an end and the possession of the building, structure or works of a permanent nature reverts to the holder of the reversionary interest, or (iv) the building, structure or works of a permanent nature are demolished, destroyed or, without being demolished or destroyed, cease altogether to be used for the purpose of upstream petroleum operations applicable to crude oil carried on by the owner ; (b) plant, machinery or fixtures are disposed of if they are sold, discarded or cease altogether to be used for the purposes of upstream petroleum operations applicable to crude oil carried on by the owner ; or (c) assets in respect of which qualifying drilling expenditure is incurred are disposed of if they are sold or if they cease to be used for the purpose of the upstream petroleum operations applicable to crude oil of the company incurring the expenditure either on the company ceasing to carry on the operations or on such company receiving insurance or compensation money therefrom. Value of an asset or interest in a petroleum prospecting licence or petroleum mining lease 11.—(1) The value of an asset or interest in a petroleum prospecting licence or petroleum mining lease at the date of its disposal shall be the net proceeds of the sale or of the relevant interest, or, where it was disposed of without being sold, the amount which, in the opinion of the service, the asset or the relevant interest, as the case may be, would have fetched if sold in the open market at that date, less the amount of any expenses which the owner might reasonably be expected to incur if the asset were so sold. (2) For the purpose of this paragraph, where an asset is disposed of in the circumstances that insurance or compensation money are received by the owner, the asset or the relevant interest, as the case may be, shall be treated as having been sold and as though the net proceeds of the insurance or compensation money were the net proceeds of the sale. A 355 A 356 2021 No. 6 Petroleum Industry Act, 2021 Apportionment 12.—(1) Any reference in this Schedule to the disposal, sale or purchase of any asset or interest includes a reference to the disposal, sale or purchase of that asset, as the case maybe, together with any associated asset, whether or not qualifying expenditure has been incurred on such associated asset, and, where an asset is disposed of, sold, or purchased together with another asset, so much of the value of the assets as, on a just apportionment, is properly attributable to the first mentioned asset shall, for the purposes of this Schedule, be deemed to be the value of, or the price paid for that asset, as the case may be. (2) For the purpose of this subparagraph, all the assets or interest which are purchased or disposed of in pursuance of one bargain shall be deemed to be purchased or disposed of together, notwithstanding that separate prices are or purport to be agreed for each of those assets or that there are or purport to be separate purchases or disposals of those assets. (3) The provisions of subparagraph (1) shall apply, with modifications, to the sale or purchase of the relevant interest in any asset together with any other asset or relevant interest in that other asset provided that the provisions for apportionment in subparagraphs (1) and (2) shall not apply in the sale or disposal of concessions or interest in a part of the asset. Part of an asset 13. Any reference in this Schedule to any asset shall be construed whenever necessary as including a reference to a part of any asset, including an undivided part of that asset in the case of joint interests and when so construed, any necessary apportionment shall be made in a manner, which in the opinion of the Service, is just and reasonable. Exclusion of certain expenditure 14. Subject to the express provisions of this Schedule, where any company has incurred expenditure which is allowed to be deducted under any provision, other than a provision of this Schedule, such expenditure shall not be treated as qualifying expenditure. Asset used or expenditure incurred partly for the purpose of petroleum operations 15.—(1) The following provisions of this paragraph shall apply where either or both of the following conditions apply with respect to any asset the— (a) owner of the asset has incurred in respect of the asset a qualifying expenditure partly for the purpose of upstream petroleum operations applicable to crude oil carried on by him and partly for other purposes ; or Petroleum Industry Act, 2021 2021 No. 6 (b) asset in respect of which the owner has incurred qualifying expenditure is used partly for the purpose of upstream petroleum operations applicable to crude oil carried on by such owner and partly for other purposes. (2) Any allowances which would be due or any balancing charges which would be treated as income if both expenditure were incurred wholly and exclusively for the purpose of the upstream petroleum operations applicable to crude oil and if the asset were used wholly and exclusively for the purpose of such operations, shall be computed in accordance with the provisions of this Schedule. (3) So much of the allowances and charges computed in accordance with subparagraph (2) shall be due or shall be so treated, as the case may be, as in the opinion of the Service is just and reasonable having regard to all circumstances and to the provisions of this Schedule. Disposal without change of ownership 16.—(1) Where an asset in respect of which qualifying expenditure has been incurred by the owner has been disposed of in circumstances that the owner remains the owner, then, for the purpose of determining whether and, if so, in what amount, any annual or balancing allowance or balancing charge shall be made to or on such owner in respect of his use of that asset after the date of the disposal— (a) qualifying expenditure incurred by the owner in respect of the asset prior to the date of the disposal shall be left out of account ; and (b) the owner shall be deemed to have bought such asset immediately after the disposal for a price equal to the residue of the qualifying expenditure at the date of the disposal, increased by the amount of any balancing charge or decreased by the amount of any balancing allowance made as a result of the disposal. (2) Capital allowances shall be for the computation of hydrocarbon tax and not for cost recovery purposes in production sharing contracts, which shall have their own provisions under the model contract. A 357 A 358 2021 No. 6 Petroleum Industry Act, 2021 Capital allowance rates 17.—(1) Qualifying expenditure shall be subject to the rates below— Qualifying Capital Expenditure 1st Year 2nd Year 3rd Year 4th Year 5th Year Qualifying Plant Expenditure 20% 20% 20% 20% 19% Qualifying Pipeline Expenditure 20% 20% 20% 20% 19% Qualifying Building Expenditure 20% 20% 20% 20% 19% Qualifying Drilling Expenditure 20% 20% 20% 20% 19% (2) Exploration expenditure and the first two appraisal wells expenditure in the same field are to be treated as deductible costs 100% in the year incurred, while for additional exploration expenditures and appraisal expenditures in the same field relating to pre-production period are to be amortised and deducted on commencement of accounting period at an annual allowance of 20% in the first to fourth year and 19% in the fifth year with a 1% retention value. 18.—(1) For the purpose of this Schedule, an asset shall be deemed to be in use during a period of temporary disuse. (2) For the purpose of paragraphs 5 and 6 of this Schedule— (a) an asset in respect of which qualifying expenditure has been incurred by the owner for the purpose of petroleum operations carried on by him shall be deemed to be in use between the dates mentioned, where the Service determines that the first use to which the asset will be put by that owner will be for such operations ; and (b) the said date shall be the date on which such expenditure was incurred and the date on which the asset is in fact first put to use— Provided that where any allowance has been given in consequence of subparagraph (2) and the first use to which such asset is put is not for the purpose of such operations, or it is not put to use within five years from the date the expenditure was incurred, capital allowances already claimed on such assets shall be withdrawn and the amount so claimed shall be assessed to tax. Petroleum Industry Act, 2021 2021 No. 6 SIXTH SCHEDULE Sections 264 (q), 266 (1) (b) and (2), 277 (1) (d) and 280 (1) (c) PRODUCTION ALLOWANCES AND COST PRICE RATIO LIMIT Production Allowance 1.—(1) There shall be a production allowance for crude oil production by leases which are converted oil mining leases based on a conversion contract and their renewals, which shall be the lower of US $2.50 per barrel and 20% of the fiscal oil price. (2) There shall be a production allowance per field for crude oil production by a company for leases granted after the commencement of this Act and determined as follows— (a) for onshore areas — the lower of US $8.00 per barrel and 20% of the fiscal oil price per barrel up to a cumulative maximum production of 50 million barrels from commencement of production and the lower of US $4.00 per barrel and 20% of the fiscal oil price thereafter ; (b) for shallow water areas — the lower of US $8.00 per barrel and 20% of the fiscal oil price, up to a cumulative maximum production of 100 million barrels from commencement of production and the lower of US $4.00 per barrel and 20% of the fiscal oil price thereafter ; and (c) for deep offshore areas and frontier basins — the lower of US $8.00 per barrel and 20% of the fiscal oil price, up to a cumulative maximum production of 500 million barrels from the commencement of production and the lower of US $4.00 per barrel and 20% of the fiscal oil price thereafter. (3) The detailed procedures for determining the production allowances shall be established in regulations. (4) Any allowances for crude oil shall also apply to condensates and liquid natural gas liquids under section 260 (1) (a) of this Act. Cost Price Ratio (CPR) Limit 2.—(1) All costs prescribed under section 263 and under the Fifth Schedule to this Act, excluding those related to section 263 (1) (a), (b) and (h), in an accounting period the sum of which is eligible for deduction under the hydrocarbon tax shall be subject to a cost price ratio limit of 65% of gross revenues determined at the measurement points. A 359 A 360 2021 No. 6 Petroleum Industry Act, 2021 (2) Where, as a result of subparagraph (1), any excess costs incurred not allowed for deduction for that year of assessment, then— (a) the costs may be allowed for deduction for the purposes of ascertaining the profits of the company for subsequent years of assessment provided that the total costs to be deducted shall not exceed the actual costs incurred ; (b) the total costs to be allowed as deduction in those subsequent years shall be such an amount that if added to the sum of the total costs to be allowed as deduction under subparagraph (1) shall not exceed the specified cost price ratio limit of 65% ; and (c) where under paragraph 2 (2) (b), any cost exceed the cost price ratio limit upon the termination of upstream petroleum operations related to crude oil, such costs shall not be deductible for purpose of calculation of the hydrocarbon tax. Petroleum Industry Act, 2021 2021 No. 6 SEVENTH SCHEDULE Section 268 (3), 303 (1), 306 and 318 PETROLEUM FEES, RENTS AND ROYALTY PART I—FEES Fees payable for licences and leases 1. Commission shall through regulations publish the rates or fees payable in respect of the following— (a) application for a petroleum exploration licence ; (b) application for a renewal of a petroleum mining lease ; (c) application to assign an interest or sublet a petroleum exploration licence, petroleum prospecting licence or petroleum mining lease ; (d) application to terminate or effect a partial or full surrender of a petroleum exploration licence, petroleum prospecting licence or petroleum mining lease ; (e) application for permit to operate a drilling rig ; (f ) application for grant of field development plan approval and the related petroleum mining lease ; (g) application for the approval of the drilling of a well ; (h) permit to export samples for analysis ; (i) application to withdraw any of the applications in sub-subparagraph (a)-(h) ; and (j) application for other fees as may be deemed necessary by the Commission. PART II—RENTS AND BONUSES Rents for Licences 2. Every petroleum prospecting licence and petroleum mining lease shall be subject to rent as prescribed in the relevant regulation and the rent shall be an amount per hectare per year. Payment of fees before grant of licence or lease 3.—(1) A petroleum prospecting licence and petroleum mining lease shall not be granted without prior payment of the applicable fees, applicable signature bonus, and the rent applicable to the first year. (2) A petroleum mining lease shall not be renewed without prior payments of the renewal bonus under this Act. A 361 A 362 2021 No. 6 Petroleum Industry Act, 2021 Penalty for default in payment of rent 4. Failure to pay the rent as prescribed in the relevant regulation shall result in a penalty as prescribed in the said regulation or any other enactment, provided that where no penalty is prescribed in the said regulation, there shall be an application of an interest rate of LIBOR or any other successor rate plus 10% to the outstanding payment in US Dollars and where the payment of the applicable rent is not made within three months, revocation of such licence or lease under this Act shall be initiated. Verification and payment account 5.—Any rents imposed under this section shall be paid into the Federation Account and verified by the Commission. PART III—ROYALTIES All Petroleum production subject to Royalties 6. All production of petroleum, including production tests, shall be subject to royalties on a non-discriminatory basis with respect to all licensee and lessees and shall be paid into the Federation Account and verified by the Commission and for royalty purposes condensates shall be treated as crude oil and natural gas liquids shall be treated as natural gas. Measurement Point for the determination of production volumes 7.—(1) Royalties shall be determined on a monthly basis at the measurement points and where there is production from production tests under a petroleum prospecting licence, the Commission shall determine measurement point for such production and where there is no measurement equipment at a possible measurement point in the field at the commencement of this Act, or where logistical conditions make the installation of measurement equipment at a possible measurement point impractical or uneconomic in the opinion of the Commission, the Commission may approve procedures for determining the chargeable volumes at a deemed measurement point in the field based on measurements at the point of sale, export terminal or other point downstream of such deemed measurement point under the regulations or guidelines and the measurement of crude oil, condensates and natural gas liquids shall be in barrels and of natural gas in standard cubic feet and where so justified, the Commission may approve reporting of production of natural gas liquids in metric tons. (2) The chargeable volume for royalty purpose shall be calculated by ascertaining the quantity of natural gas, crude oil, condensates and natural gas liquids produced in the relevant month from each field operated by the licensee or lessee under a regulation or guideline. Petroleum Industry Act, 2021 2021 No. 6 (3) Where natural gas liquids are extracted in a gas processing plant downstream of the measurement point, the rich natural gas volumes, still including the natural gas liquids, shall be measured at the measurement point and be the basis for royalty calculations and the value of such rich natural gas shall be the value of the marketable natural gas plus the natural gas liquids at the exit of the gas processing plant, less the gas processing costs and less the transport cost between the measurement point and the gas processing plant based on tariffs established by the Authority. (4) Natural gas liquids and liquid petroleum gases shall have the same royalty rates as the natural gas from which these products are derived. (5) The chargeable volume shall be measured at standard temperatures and pressures as defined by regulation or guidelines and production shall not include any— (a) volumes burned, flared or vented with the approval of the Commission; (b) volumes re-injected by the lessee into reservoirs for the purpose of improving or enhancing production of crude oil or for conservation of natural gas ; (c) volumes used in the upstream petroleum operations for the production of electricity or heat for exclusive use in the operations of the lessee ; and (d) water or sediments. (6) The obligation to install the necessary measurement equipment shall be that of the licensee or lessee and shall be certified by the Commission and the measurement procedures and equipment for measurement at and prior to the measurement point shall be established in regulations or guidelines. Determination of price for royalty 8.—(1) The royalties applicable to crude oil and condensates shall be based on the fiscal oil price determined for the field at the measurement points under applicable regulations or guidelines, and this price shall be determined by the Commission on the basis of information supplied by the lessees and from non-confidential independent publications, making such adjustments for quality and transport costs as appropriate to prices of comparable crude oils and condensates sold in the international market, as determined by the Commission, for which appropriate information is available and with the objective to approximate as reasonably as possible the average fair market value of the month of the crude oil and condensates for such month for such field. A 363 A 364 2021 No. 6 Petroleum Industry Act, 2021 (2) The fiscal oil price for each field shall consider any quality differentials related to international crude oils and condensates and shall be an export parity price taking into consideration the deduction of transportation costs within Nigeria from the measurement points as determined by the Authority to export terminals. (3) Royalties applicable to natural gas shall be based on the fiscal gas price determined for the field at the measurement point under applicable regulations or guidelines and this price shall be determined by the Commission, taking into consideration submissions by the lessees, and shall be based on the netback value at the measurement point based on the composition of the natural gas in terms of marketable natural gas, ethane, propane, butane, pentanes and other natural gas liquids as may be derived by processing of the natural gas and the net back procedure shall take into consideration the type of natural gas markets to which the natural gas from the field is being sold, such as export markets, domestic wholesale markets, markets based on the aggregate gas price or other natural gas pricing framework as permitted under this Act and the procedure shall take into consideration conditioning costs, processing costs and transportation costs within Nigeria as determined by the Authority from the measurement point to the market, where the sales point is downstream of the measurement point, and where natural gas liquids are produced in the field, the total gross value of the liquids shall be taken into account in the determination of the total gross value of the natural gas for the purpose of the fiscal gas price. Royalties in kind or cash 9.—(1) The Commission shall receive the royalty in kind or in cash at its discretion and the payment shall be subject to notice periods and procedures as provided for in regulations or guidelines and where royalties are paid in cash the payments shall be based on the fiscal oil price and fiscal gas price. (2) The licensee or lessee shall pay royalties to the Commission within a period that is not more than one month after the end of every month during which the petroleum is produced or as the Commission may direct, with respect to— (a) crude oil and condensates the royalties shall be based on the royalties based on production under paragraph 10 plus the royalties based on price under paragraph 11 ; and (b) natural gas and natural gas liquids the royalties shall be based on the royalties based on production under paragraph 10. Petroleum Industry Act, 2021 2021 No. 6 (3) Royalties shall be paid in US Dollars, however, for production delivered for local refining, royalties may be wholly or partly paid in Naira at Central Bank of Nigeria applicable exchange rate for the valuation of crude oil delivered. (4) The Commission shall inform the Minister responsible for Finance of instances where the Commission intends to levy royalties in kind rather than in cash. Royalties based on production 10.—(1) For the purpose of paragraph 9, royalties based on production shall be calculated on a field basis. (2) The royalty shall be at a rate per centum of the chargeable volume of the crude oil and condensates produced from the field area in the relevant month on terrain basis as follows— (a) onshore areas 15% ; (b) shallow water (up to 200m water depth) 12.5% ; (c) deep offshore (greater than 200m water depth) 7.5% ; and (d) frontier basins 7.5%. (3) For deep offshore fields with a production during a month of not more than 50,000 bopd, the royalty rate shall be 5% and the share of the production above 50,000 bopd shall be at the royalty rate specified in subparagraph (2). (4) Royalties for onshore fields and shallow water fields, including marginal fields, with crude oil and condensate production not more than 10,000 bopd during a month shall be at a rate per centum of the chargeable volume of the crude oil and condensates produced from the field area per production day during a month on tranched basis as follows— (a) for the first 5,000 bopd 5% ; and (b) for the next 5,000 bopd, for the share of production over 5000 bopd 7.5% : Provided that fields with crude oil and condensate production more than 10,000 bopd during a month, the share of the production over 10,000 bopd per month shall be at the royalty rates specified under subparagraph (2). (5) With respect to paragraphs (3) and (4), where a single field covers two or more petroleum mining leases, the royalty shall be determined based on the total production from the field. A 365 A 366 2021 No. 6 Petroleum Industry Act, 2021 (6) Royalty based on production for natural gas and natural gas liquids shall be at a rate of 5% of the chargeable volume and royalty rate for natural gas produced and utilised in-country shall be 2.5% of the chargeable volume. (7) Where a field is located partially in onshore and in shallow water or partially in shallow water and deep offshore areas, the weighted average royalty shall be calculated as per regulations. Royalty by price 11.—(1) There shall be payable, in addition to the royalty set out in paragraph 10 for onshore, shallow water and deep offshore a royalty by price with respect to crude oil and condensates at the rates set out below— (a) below US $50 per barrel — 0%, (b) at US $100 per barrel — 5%, (c) above US $150 per barrel — 10%, and (d) between US $50 and US $100 per barrel and between US $100 and US $150 per barrel the royalty by price shall be determined based on linear interpolation, as an example, if in 2020 the price is US $75 per barrel, the royalty by price shall be 2.5%, and the price levels mentioned in sub-subparagraphs (a), (b) (c) and (d) shall apply to the year 2020, and at the beginning of 2021 and of each succeeding calendar year these price levels shall be increased by 2% relative to the values of the previous year. (2) There shall be no royalty by price for frontier acreages. (3) Royalty derived from “royalty by price” shall be for the credit of Nigerian Sovereign Investment Authority. 12. Penalty for non-payment and outstanding payments of royalties and enforcement of payment where any royalty due and payable under this Act is not paid within two months after the month in which the royalty is due, then it qualifies to be a debt which shall attract— (a) a sum equal to 10% of the amount of the royalty payable which shall be added to the royalty ; (b) in the case of foreign currency transactions, the outstanding payments due shall incur interest at the prevailing LIBOR or any other successor rate plus 10% point basis ; (c) in the case of Naira transactions, the outstanding payments due shall incur interest at the prevailing NIBOR plus 10% point basis ; (d) N10,000,000 or US Dollar equivalent on the first day the failure to pay the royalty occurs ; and Petroleum Industry Act, 2021 2021 No. 6 (e) N2,000,000 or US Dollar equivalent for each day in which the failure continues. Revocation, Seizure and Sistrain 13. Where any fee, rent or royalty due under this Act is unpaid within three months after the month when it becomes due, whether legally demanded or not, the Commission may, in addition to any other remedy which may be available— (a) initiate revocation of such licence or lease under this Act ; and (b) enter into any land, property or premises possessed or occupied by the licensee or lessee in connection with the licence or lease, and— (i) seize and distrain and sell as landlords may do for rents in arrears, any petroleum, petroleum products, engines, machinery, tools, implements or other effects belonging to the licensee or lessee which may be found in or upon the land, property or premises, and (ii) out of money arising from the sale of the distress, retain and pay off the arrears of the fee, rent or royalty and also the costs and expenses incidental to the distress and sale, rendering the surplus, if any, to the licensee or lessee. PART IV—SUPPLEMENTAL Production Sharing, Profit Sharing and Risk Service Contracts 14.—(1) Where the Commission decides to grant a petroleum prospecting licence or petroleum mining lease under contractual terms under section 85 of this Act, the Commission shall prepare the related model contract, which stipulates the fiscal and other provisions related to fees, rents, royalties for such contract, to be attached to such licence or lease. (2) The model contract shall contain as a minimum, the provisions related to fees, rents, royalties, hydrocarbon tax and companies income tax stipulated in this Act. (3) A model licence related to frontier acreages shall not contain contractual provisions under section 85 of this Act and shall only contain the minimum provisions related to fees, rents, royalties under paragraph 10 and companies income tax stipulated in this Act and upon the renewal of any petroleum mining leases, hydrocarbon tax and royalty based on price under paragraph 11 based on onshore conditions shall apply. (4) For new acreage any production sharing contract shall have a cost limit of 70% based on total oil production, and where applicable condensates A 367 A 368 2021 No. 6 Petroleum Industry Act, 2021 and natural gas liquids derived from associated gas, measured at the measurement point, and the minimum profit oil scale to Government in a production sharing contract shall be based on cumulative production per field as follows— (a) up to and including 50 million barrels - 5% ; (b) over 50 million barrels and up to and including 100 million barrels — 10% ; (c) over 100 million barrels and up to and including 350 million barrels — 15% ; (d) over 250 million barrels up to and including 750 million barrels — 25% ; (e) over 750 million barrels ad up to and including 1500 million barrels — 35% ; or (f ) over 1500 million barrels — 45%. (5) There may be production sharing for associated or non-associated natural gas, to which only the rents, royalties and companies income tax applies under this Act, capital and operating costs related to making associated natural gas available at the measurement points can be recovered from cost oil. (6) The contractors shall be the licensees or lessees and shall thereby be entitled to the capital allowances under the Fifth Schedule. (7) The profit oil for crude oil under conversion contracts or for new acreages shall be determined as the total volume of crude oil, where applicable, condensates and natural gas liquids derived from associated gas, less the royalties and less the cost oil as defined in the model contract. (8) For production sharing purpose, the adjusted profit of a company for hydrocarbon tax shall be determined under section 263 (1) (b), which means that royalties and the value of profit oil delivered in kind or cash from all fields to the Federation Account shall be deductible for the purposes of determining the adjusted profits and the calculation shall be consolidated as per the two classes under section 267 and the capital allowances under the Fifth Schedule shall be applied. (9) For a production sharing contract subject to a conversion contract under this Act, the cost limit shall be 60%. Petroleum Industry Act, 2021 EIGHTH SCHEDULE 2021 No. 6 Section 53 (3) Creation of the Ministry of Petroleum Incorporated 1. The Corporation sole known as the Ministry of Petroleum Incorporated (the Corporation) is established and shall continue to be a Corporation sole under that title. 2. The Corporation may sue and be sued in its said name and shall have perpetual succession and a corporate seal which may from time to time be broken, changed, altered and made anew as the Corporation deems fit, and, until a seal is provided under this section, a stamp bearing the inscription “Federal Ministry of Petroleum” may be used as the corporate seal. 3. The Corporation may enter into contracts and may acquire, purchase, take, hold and enjoy movable and immovable property of every description, and may convey, assign, surrender and yield up, charge, mortgage, demise, reassign, transfer or otherwise dispose of, or deal with, any movable or immovable property vested in the Corporation upon such terms as the Corporation deems fit. 4. (1) All deeds and other instruments requiring the seal of the Corporation shall be sealed, with the seal of the Corporation in the presence of the Permanent Secretary and signed by the Permanent Secretary, and such signing shall be sufficient evidence that the said seal was duly and properly affixed and that the same is the lawful seal of the Corporation. (2) Any other document requiring the signature of the Corporation shall be signed by the Permanent Secretary. 5. The Minister may, by order, vest in any public officer or authority any property, movable or immovable, for the time being vested in the Corporation and, upon the coming into operation of any such order, the property to which such order relates shall, without any conveyance, assignment or transfer, vest in such officer or authority for the like title, estate or interest and on the like tenure and for the like purposes as the same was vested or held immediately before the coming into operation of the order. A 369 A 370 2021 No. 6 Petroleum Industry Act, 2021 I certify, in accordance with section 2 (1) of the Acts Authentication Act, Cap. A2, Laws of the Federation of Nigeria 2004, that this is a true copy of the Bill passed by both Houses of the National Assembly. OJO O. A., fnia, fcia Clerk to the National Assembly 9th Day of August, 2021 EXPLANATORY MEMORANDUM This Act is to provide legal, governance, regulatory and fiscal framework for the Nigerian petroleum industry, and the development of host communities . An Act to provide legal governance, regulatory and fiscal framework for the Nigerian Petroleum Industry, the development of host communties ; and for related matters. Petroleum Industry Bill, 2021. This Bill provides legal governance, regulatory and fiscal framework for the Nigerian petroleum industry, and the development of host communties. (3) Summary of the Contents of the Bill 15th July, 2021. (4) Date Passed by the Senate 16th July, 2021. (5) Date Passed by the House of Representatives LS I ASSENT 2021 No. 6 MUHAMMADU BUHARI, GCFR President of the Federal Republic of Nigeria 16th Day of August, 2021. OJO O. A., fnia,fcia Clerk to the National Assembly 9th Day of August, 2021. I certify that this Bill has been carefully compared by me with the decision reached by the National Assembly and found by me to be true and correct decision of the Houses and is in accordance with the provisions of the Acts Authentication Act Cap. A2, Laws of the Federation of Nigeria, 2004. (2) Long Title of the Bill (1) Short Title of the Bill SCHEDULE TO PETROLEUM INDUSTRY BILL, 2021 Petroleum Industry Act, 2021 A 371