This report sets out the results of the reconciliation of the financial flows from activities in the solid minerals sector in Nigeria for the 2018 fiscal year.
According to OPEC, Nigeria has almost 40 billion barrels of proven oil reserve. After nearly 50 years of exploration, the oil and gas sector continues to play a significant role in the economy and accounts for 65% of total revenue to the government. With a maximum crude oil production capacity of 2.5 million barrels per day, Nigeria is Africa's largest producer of oil, and the 13th largest oil producing country in the world. The country has faced significant challenges in managing the sector such as the unaccountable use of revenues and corruption. Nigeria EITI has been effective in strengthening public debate and promoting policy options around signature bonuses, unpaid royalties, crude oil and refined products theft. It has identified USD 9.8 billion owed to the Federal Government, of which USD 2.4 billion has been recovered through Nigeria EITI’s efforts.
The ownership and control of all minerals, oil and gas in Nigeria, its territorial waters and exclusive economic zone is vested in the Federal Government based on the provision of section 44(3) of the 1999 Constitution of the Federal Republic of Nigeria. The Federal Government is mandated to manage such natural resources in a manner as may be prescribed by the National Assembly.
The Petroleum Act of 1969 is the primary legislation governing petroleum activities in Nigeria. It provides comprehensive provisions for exploration, production and transportation activities in the sector. The Act, like the constitution, vests ownership of petroleum resources on the Federal Government of Nigeria. There are a myriad of other laws and subsidiary pieces of inter-related legislations that deal with specific operations of the industry.
The Petroleum Industry Governance Bill (PIGB) was passed by the Senate in 2017 and is expected to reorganise the legal and fiscal terms governing the oil and gas sector. The bill has recently been passed by the House of Representatives and only needs to be assented by the President before it becomes law. Companies operating with a concession or license in the oil sector are liable to pay royalties, petroleum profit tax and corporate income tax. In many cases, production-sharing contracts between the government and petroleum companies also determine the fiscal terms of oil and gas operations in the country. Companies involved in mining activities are liable to company income tax (20% or 30%), capital gains tax (10%), value added tax (5%) and education tax (2%) among others.
The state participates in the oil and gas sector through its national oil company, NNPC, and its various subsidiaries, which represent government interests in the various production arrangements and contracts in the oil and gas sector. The government is on the path of restructuring the NNPC as part of the reforms under the PIGB.
In accordance with the Petroleum Act, the Ministry of Petroleum Resources, through the Department of Petroleum Resources is empowered to oversee the license allocation process in the oil and gas sector. Oil and gas licenses are awarded through open tenders or direct negotiations, and the Minister of Petroleum Resources is empowered to grant licenses on a discretionary basis.
In the mining sector, the Mining Cadastre Office is responsible for granting licences and for maintaining a records of all license applications. Licenses are granted according to the Guidelines on Mineral Titles Application and on a “first come, first served” basis.
Petroleum Profit Tax
The Petroleum Profit Tax Act (PPTA) is the tax law that governs the taxation of companies engaged in petroleum operations. PPT payments are made either in cash or in-kind depending on the operating contract of the company. Variable taxes are applicable for the different terrains as; (i) Onshore/Shallow offshore: First five years (producing companies) 85%, First five years (new comers) 65.75%, Subsequent years (all companies) 85% (ii) Deep offshore (PSC): The PPT applicable to a contract area in a PSC is 50 flat of chargeable profits for the duration of the PSC.
Royalty on oil
On 4 November 2019, His Excellency, President Muhammadu Buhari, GCFR, assented to the Deep Offshore and Inland Basin Production Sharing Contract (Amendment) Act, 2019 (“the Amendment Act”) following its passage by the National Assembly in October 2019. The Amendment Act introduces a combined production and price-based royalty system to replace the existing production-based royalty system, which varies according to areas of operations.
The new royalty regime specifies a baseline royalty of 10% for crude oil and condensates produced in the deep offshore (greater than 200 meter water depth) and 7.5% for the Frontier and Inland Basin. In addition to the baseline royalty, a royalty based on the applicable price of crude oil, condensate and natural gas will apply, but only when the price exceeds $20 per barrel 1. The graduated royalty rates are shown below:
- from $0 up to $20 per barrel 0%
- above $20 and up to US $60 2.5%
- above $60 and up to US $100 4.0%
- above $100 and up to US $150 8.0%
- above $150 10.0%
Royalty on gas
Royalty on gas is based on gas sales. The volume of gas produced and sold from the fields within the concession is in line with the following fiscal terms: (i) Onshore Areas 7% (ii) Offshore Areas 5%
Company Income Tax
Company Income Tax is tax paid on profit arising from gas operations of companies. Oil and Gas companies pay Company Income Tax in USD, on profit arising from gas operations.
Objectives of beneficial ownership transparency in Nigeria
- Anti-corruption agenda and the ongoing oil sector reforms.
- Government’s commitment to implementing Open Contracting Data Standard, and the establishment of a publicly accessible registry of the licensed owners of all companies operating in Nigeria.
- Elimination of all forms of corruption through transparency and accountability in the extractive industry.
Progress on implementing beneficial ownership disclosure
Nigeria proved its desire to implement beneficial ownership when they participated in the beneficial ownership pilot in 2015. Both the oil and gas and the mining audit provides legal ownership for the companies, which in some cases are natural persons. The report does not confirm if these natural persons are legal owners or beneficial owners. Concerns over confidentiality in disclosing beneficial owners, lack of political will and legislation requiring ownership disclosure were key challenges outlined in Nigeria's evaluation report.
To meet the requirement of EITI of establishing a BO register by 1 January 2020, NEITI has developed a BO register for the extractive sector, the register is searchable by companies, assets and individuals. From a user perspective, the register performs and functions well. Significantly, the BO data is available for bulk download, allowing for systematic analysis of all companies on the register. There are however gaps, the register does not include unique identifier for companies, also those listed as beneficial owners are other legal entities registered in offshore jurisdiction. So, there are other efforts by regulators in the oil and gas and the mining sector to develop registers, NEITI is working with them to ensure the gaps that exist in its register is covered by the current register being developed by DPR and MCO.
Nigeria is Africa's largest producer of crude oil. According to the NEITI’s 2018 Audit, total crude oil production stood at about 701 mbbls, increasing slightly from 690 million barrels in 2017 - 2% increase. There. In terms of exports, a total of 147.9 million barrels of crude oil was exported. In the gas sector, a total of 2,909 mmscf was produced, a decline of 5% from 2017 production volume of 3,051 mmscf. The total gas sold in 2016 was 1,252 thousand metric tons valued at US$610.676million..
Nigeria is richly endowed with various types of mineral resources. The government is committed to diversifying the nation's economy; from dependence on oil revenue to non-oil revenues. In September 2016, the Federal Government of Nigeria through the Ministry of Mines and Steel Development, re-launched the Solid Mineral Policy Roadmap, aimed at ensuring policy continuity and consistency in the sector. During the year, 2018, the total volume/quantity of actual mineral production was 46,680,658.24 tonne.
According to OPEC, Nigeria has almost 40 billion barrels of proven oil reserve. Oil and gas dominate the extractive sector in Nigeria, and the country holds 29% of Africa’s proven oil reserves. Nigeria is the Africa's largest producer of oil, and the 13th largest oil producing country in the world. Most of the oil and gas activities are found in the Niger Delta in the southern part of the country. Nigeria is richly endowed with various types of mineral resources. Presently, there about thirty-one mineral finds in commercial quantity spread across the entire country. Some key mineral resources include limestone, laterite, gold, coal, bitumen, iron ore, tantalite/columbite, lead/zinc sulphides, barytes, cassiterite, gemstones, talc, feldspar, and marble.
Over 90% of the revenue accrued to the government in terms of royalties and other fees on minerals comes from quarrying operations according to the 2016 Solid Minerals Audit. A new development in quarry operation is dimension stone quarry for the production of granite and marble blocks, tiles and slabs.
|Oil||37,070||million barrels||Nigeria has about 2% of the world's proven oil reserves|
|Gas||5,111||billion Sm3||Nigeria has about 2% of the world's proven gas reserves|
|Iron Ore||3||billion tonnes||Nigeria currently has the 12th largest iron ore reserves in the world.|
|Bentonite and Baryte||7.5||millon tonnes|
|Limestone||568||million tonnes||Limestone occurrences are reported in over 30 States of the Federation.|
The NEITI Reports have all the information and data that will guide the government to reform the industry.
Nigeria’s oil and gas sector represents about 65% of government revenues. The total revenue flow to the Federation, other tiers of government and sub-national entities from all sources (including crude oil sales, taxes, royalties and other incomes) came to USD 32.6 billion 2018. There was an increase of 55.45% in the total financial flow in 2018 when compared to 2017 (USD 20.9 billion).
The revenues reported by the government from the solid minerals sector in 2018 amounted to N69.47 billion compared to N 52.7 billion in 2017. Total government receipts increased in 2018 by 31.63% compared to 2017 receipts.
Nigeria EITI (NEITI) has produced seven oil & gas reports disclosing details of ‘first trades’ by Nigerian National Petroleum Corporation (NNPC), the Nigerian SOE. Presently, NNPC publishes production, lifting and sales values in aggregates but does not disclose details on off-takers and the beneficial owners operating in commodity trading.
Through its participation in the targeted effort, NEITI aims to conduct an in-depth study that will strengthen transparency and accountability in Nigeria’s commodity trading. As such, the commodity trading report will aim to:
- Disclose the identity of the beneficial owners of commodity traders operating in the Nigerian Oil & gas sector.
- Develop a well-defined framework and suitable methodology for mainstreaming commodity trading reporting in the Nigerian Oil & gas sector
- Design a detailed framework and structure for commodity trading reporting in accordance with the EITI requirements.
Revenue from oil and gas are normally allocated to the state budget from joint venture operations through NNPC in accordance with the state’s share in each of the operations. The government’s share is accounted for directly by the NNPC while the sales proceeds with respect to crude oil and gas liftings are accounted through bank accounts overseen by the Department of Petroleum Resources and Federal Inland Revenue Service respectively.
Oil and gas producing regions receive 13% of the government revenue from production in their territory. These revenues are distributed according to an allocation formula (52,68% to central government, 26,72% to regional governments, and 20,60% to local governments).
The EITI encourages multi-stakeholder groups to explore innovative approaches to make the EITI more relevant and useful.
NEITI is trying to investigate, raise debate and promote policy solutions on matters such as data on signature bonuses, unremitted funds by NNPC, crude oil and refined products theft, the need for a new petroleum law and Beneficial ownership. NEITI audits have identified USD 9.8 billion owed to the Federal Govt, of which 2 billion has been recovered.
The NEITI Fiscal Allocation and Statutory Disbursement Audit 2012-2016 brings transparency to the allocation, disbursement and utilisation of revenue from the Federation Account to federal, state and local governments and thereon to local beneficiaries. NEITI published quarterly review of FAAC accounts.
Nigeria was found to have achieved meaningful progress in implementing the EITI Standard. View more information under the Validation section of this page or go to the Board's decision in full. Previously, the country was compliant under the 2011 Rules.
Implementation in Nigeria has mostly focused on oil and gas, which accounts for 99% of extractive sector revenue. The EITI process has exposed outstanding debts by the national oil company to the government, recovered uncollected taxes, identified weaknesses in the regulatory bodies, audited oil-related transfers to the subnational government, estimated oil theft, and examined oil sales. Nigeria EITI also contributes to the ongoing debates on the management of the national oil company, NNPC.
Read more in Nigeria EITI's 2018 Annual Progress Report
EITI implementation in Nigeria is led by the National Stakeholder Working Group (NSWG). The NSWG comprises representatives from civil society, government, and extractive industry companies and representatives of communities (the six Nigeria geo-political zones), and the media. The NSWG makes decisions based on consensus and is required to meet quarterly. The day-to-day work is carried out by the NEITI Secretariat, which comprises about 50 staff. The NEITI Secretariat is currently run by Mr. Waziri Adio, Executive Secretary.
The NEITI Act 2007 establishes the NEITI body, functions and MSG. It requires reporting from related government bodies and from all extractive industry companies.
This report, “Financial, Physical and Process Audit: An independent report assessing and reconciling physical and financial flows within Nigeria’s oil and gas industry – 2018,” is the eleventh (11th) oil and gas industry report published by the Nigeria Extractive Industries Transparency Initiative (NEITI).
This report sets out the results of reconciliation of the financial and physical flows from activities in the oil and gas sector in Nigeria for the 2017 fiscal year.
This report sets out the results of the reconciliation of the financial flows from activities in the solid minerals sector in Nigeria for the 2017 fiscal year.
This is the Nigeria EITI 2018 Annual Progress Report