Sale!
Placeholder

problems and prospects of Electronic Banking in Nigeria the Automated teller machine (ATM) as the case study.

10,000 3,000

Topic Description

CHAPTER ONE

INTRODUCTION

1.1     BACKGROUND TO THE STUDY

Arowomole (2004) recounted that oil and gas operations commenced in Nigeria effectively in 1956 with the first commercial quantity found by the then Shell D’Arcy. This dominant role of Shell in the Nigerian oil industry continued for many years, until Nigeria’s membership of the Organisation of Petroleum Exporting Countries (OPEC) in 1971, after which the country began to take a firmer control of its oil and gas resources. This period witnessed the emergence of National Oil Companies (NOCs) across OPEC member countries, with the sole objective of monitoring the stake of the oil-producing countries in the exploitation of the resource.  Whereas in some OPEC member countries the NOCs took direct control of production operations, in Nigeria, the Multinational Oil Companies (MNOCs) were allowed to continue with such operations under Joint Operating Agreements (JOA) which clearly specified the respective stakes of the companies and the Government of Nigeria in the ventures.

 

Omorogbe (2005) also maintained that the period witnessed the arrival on the scene of other MNOCs such as Gulf Oil and Texaco (now ChevronTexaco), Elf Petroleum (now Total), Mobil (now ExxonMobil), and Agip, in addition to Shell, which was already playing a dominant role in the industry. These other companies were also operating under JOAs with NNPC, with varying percentages of stakes in their respective acreages.  It is on the basis of this that Arowomole maintained that the above companies constitute the major players in Nigeria’s oil industry, with Shell accounting for a just little less than 50% of Nigeria’s total daily production, which currently stands at about 2.4 million barrels of oil per day.  JOAs are also still dominant in the oil industry in Nigeria, accounting for over 90% of total oil and gas production in Nigeria today.

 

According to Emole (2002), the Joint Venture arrangement is an arrangement between the government and International Oil Companies (IOC) where both parties provide funding for the exploration, development and production petroleum and the hydrocarbon produced is shared in proportion to each party’s participating interest. This arrangement is typically governed by a Joint Operating Agreement (JOA) between Nigerian National Petroleum Corporation (NNPC) and the IOCs providing for the conduct of petroleum operations. The IOC is typically the operator with a management committee established to supervise operations. The project is funded through cash calls on each of the party. Federal government through its agent, NNPC, contributes about 60% of the cost of production and also takes 60% of the crude. The other form of joint ventures are the one created when an indigenous company which has obtained concession from government farm out an interest to another financial or technical partners.

 

Fadakinte (2005) narrated that the government in 1993 adopted the Topicion Sharing Contract (PSC) as the preferred petroleum arrangement with the IOC as a result of the difficulties faced by the NNPC to fund joint venture operations and that the federal government introduced the Topicion Sharing Contract to increase Nigeria’s oil reserves.  In this case, the NNPC engages a competent contractor to carry out petroleum operations on NNPC’s wholly owned acreage. The contractor undertakes the initial exploration risks and recovers his costs if and when oil is discovered in commercial quantities. Fadakinte further stressed that under the production Sharing Contract (PSC), Oil Prospecting License  (OPL) and Oil Mining License (OML) is held by NNPC. NNPC then engages the IOC or indigenous private investors as contractors to conduct petroleum operations on behalf of itself and NNPC. The contractor is responsible to finance all costs to production. If the operation is not successful, the contractor bear all the loses. If successful, the contractor recover agreed proportion of its costs called Cost Oil while apportion of the available crude oil (Royalty Oil) is allocated to NNPC for payment of royalties due and other concessions rentals to the government. A portion is also allocated to the NNPC for payment of Petroleum Profit Tax due from the operations (Tax Oil). The balance of available crude oil after deducting cost oil, royalty oil and tax oil; it is then shared between NNPC and the contractor in accordance with the PSC agreement.

 

Dotun (2007) reported that in 2003 the Federal Government of Nigerian initiated a number of measures to increase local participation in the upstream and downstream sectors of the petroleum industry towards aggressive reserve and production capacity enhancement and in pursuant of its local content policy. A request was sent to all operating companies to prepare and submit what in their corporate views from their portfolio of discoveries that contain reserves that are not economical and that could be classified as marginal fields. This led to the award of twenty four (24) marginal oil fields to thirty (30) indigenous companies as part of efforts to promote local participation in the upstream sector of the nation’s oil industry in 2003.

 

This evaluates tax issues associated with these marginal oil fields operations in Nigeria bearing in mind that the same tax regime administers these indigenous marginal oil fields operators and the IOCs. Therefore, the researcher has attempted to delve into these tax issues of marginal oil fields operators.

1.2   STATEMENT OF RESEARCH PROBLEM  

As stated by Dotun (2007), the Federal Government of Nigeria awarded twenty-four (24) marginal oil fields to thirty (30) indigenous companies as part of efforts to promote local participation in the upstream sector of the nation’s oil industry in 2003.  Dotun affirmed that despite this laudable policy of the Federal Government, the success of the indigenous players’ incursion into the upstream sector could be said to be very ‘marginal’ as not many have made appreciable progress with their farmed-out concessions.  The reason on one hand is that the marginal oil fields operators are confronted with low volume of commercial production, imbalance in the financial capacity of joint venture partners, incessant demands by oil producing communities and huge loans commitment in putting the fields into production. On the other hand, those that have put the fields into production are faced with tax challenges.

According to Nwokonko (2003) Petroleum Profit Tax Act 1990 LFN as amended does not make specific provision for separate tax incentives and allowances for Marginal Oil Fields Operations. Nwete (2004) buttressed this by explaining that the Petroleum Profit Tax (PPT) of 85% and the minimum tax liability of 15% is a big burden to a company that is yet to break even especially after paying bonuses, royalties and other charges. The available allowances and incentives provide for in PPTA have been unable to promote and sustain investment to the level desired by government.

The fiscal regime, the allowances and incentives neither encourage marginal investment nor adequately enhance the present value terms of the investor’s post tax return. The marginal fields operations suffer the same royalties as main operators in the fields and bound by the identical tax terms.

 

  • RESEARCH OBJECTIVES

The study was designed to achieve the following objectives:

  1. To review the existing tax systems on Joint Venture Operations of Marginal Oil Fields with a view to ascertain its impact on Marginal Oil Fields survival.
  2. To ascertain the extent to which the current tax incentives and allowances for Joint Ventures Operations of Marginal Oil Fields promote local participation in the upstream sector of the nation’s oil industry
  • To establish the effect of current royalty rate on joint venture operations of marginal oil fields in Nigeria.
  1. To assess the economic implications of granting tax holidays to joint venture operations of small field operators.

1.4    RESEARCH QUESTIONS

The study specifically provides answers to the following research questions:

  1. Are the existing tax systems sufficiently attractive to encourage the marginal oil fields operator’s survival?
  2. Would specific provision for separate tax incentives and allowances for marginal oil field operations promote local participation?
  • What impacts would reduction in royalty payable by marginal oil fields’ operators have on real sector of the national economy?
  1. What possible economy implication would arise by providing tax holidays for Marginal Oil Fields Operations in Nigeria?
  2. To what extent has administrative lags and lapses in the implementation of oil and gas tax-related policies in Nigeria impacted on MFOs?

 

1.5   RESEARCH HYPOTHESES

The following hypotheses are tested in the course of this research work.

Hypothesis 1

Ho: The existing tax system is not sufficiently attractive to encourage the marginal oil fields operator’s survival.

 

Hypothesis 2

Ho:  Specific provision for separate tax incentives and allowances for joint venture operations of small oil and gas fields will not promote local participation in the upstream sector of the nation’s oil industry.

Hypothesis 3

Ho: Increase in royalty payable by marginal oil fields operators will not improve the real sector of the national economy.

Hypothesis 4

Ho:  There are no administrative lags and lapses in the implementation of oil and gas tax-related policies in Nigeria.

 

1.6    SIGNIFICANCE OF THE STUDY

The research work will be of much significance to stakeholders in the oil and gas industry in the following perspectives:

  1. It will entrench government initiative in creation of a modern transparent petroleum legal framework and diverse or flexible oil and gas taxation system that is strongly in the interest of Nigeria.
  2. This research work is intended to expose and highlight the challenges of taxation of marginal oil fields operations in Nigeria and will be of interest and useful to potential researchers to impact on body of literature.
  • It will embed a culture of managing revenue collection and shifting the emphasis of revenue collection towards more rents and royalties and less on taxes.
  1. It will help marginal field operators in Nigeria to familiarize with possible oil & gas tax challenges and and thereby encourage the development of small fields and thus permitting local petroleum companies to participate at levels which are profitable.

 

1.7     SCOPE AND LIMITATIONS OF THE STUDY

The research covers all thirty (30) marginal field operators in Nigeria but the target sample for this study is the six producing marginal oil fields operators. The sample size is chosen because other non-producing marginal oil field operators are presently not exposed to payment of petroleum profit tax and their opinion may be subjective. However, the following factors constrained the scope of the study:

  1. Lack of availability of sufficient data. Reponses from respondents are limited as respondents were unwilling to divulge certain information considered sensitive and confidential (to preserve the core competence of their organizations).Such information would have been useful for academic purposes, thereby enhancing the quality of information gathered for the research.
  2. The challenge of validity and reliability of study instrument to measure what it is supposed to measure and the consistency obtained from the results of the application of the instrument.
  • Locations of the Marginal oil field operations are dispersed and due to the time given to complete the study as well as the fund available to carry out the research, the researcher did not visit all.
  1. The research is limited to six producing marginal oil fields operators in Nigerian.

Notwithstanding the scope of the study and the attendant constraints noted above, these factors are not expected to substantially affect acceptability of the research findings.

 

 

1.8     ORGANIZATION OF THE STUDY

This research work is subdivided and discussed under five chapters.

  1. The first chapter contains introduction to the research work. The researcher expressed the relationship that exists between the background of the study which form the base on which the problem is introduced and the problem being investigated in actualizing the objectives of the study.
  2. Chapter two covers literature review and previous research works relevant to the study. The researcher reviews relevant literature on marginal fields, fiscal regime in Nigeria, global oil & gas trends, joint venture operations and perspectives of petroleum profit tax in Nigeria.
  • Chapter three provides discussion of the entire research design, sampling procedure, data collection methods, and operational measures of the variables and data analysis techniques.
  1. Chapter four deals with presentation and analysis of data. It captures the presentation of the data collected by the research instrument and the analysis of such, to bring out trends, relationships and causation among variables.
  2. Chapter five focuses on findings, conclusion and recommendations. It recapitulates the findings in the previous chapters and presents conclusion(s) and recommendations premised on the findings.

 

1.9   LIST OF ABBREVIATIONS/ DEFINITION OF TERMS

The abbreviations and terms used in the course of the research are defined below:

    BOPD:             Barrels of Oil per Day

CITA:             Company Income Tax Act

E&P:               Exploration & Topicion

ITA:                Investment Tax Allowances

ITC:                Investment Tax Credit

ITF:                 Industrial Training Fund

JENRL:          Journal of Energy and Natural Resources Law

 

JV:                  Joint Venture – A joint venture consists of an operating partner (operator) and one or more non-operating partners who combines monetary and personnel resources to share a project expenses and revenue.

JVA:               Joint Venture Agreement

LFN:               Law of the Federation of Nigeria

MF:                 Marginal FieldsMarginal fields refer to oil fields that contain reserves that are not economical when produced by the major joint venture operations managed by a number of well-known multinationals, Shell, Exxon Mobil, Chevron Texaco, Agip, TotalFinaElf, Conoco but might be profitable if explored by indigenous entrepreneur due to their low overhead and operating cost.

MNOCs:         Multinational Oil Companies

MOU:             Memorandum of Understanding

NNPC:            Nigerian National Petroleum Corporation

NPB:               Nigerian petroleum Business

NWLR:           Nigerian Weekly Law Report

OGEL:            Oil, Gas & Energy Law Intelligence

OGEFZ:                   Oil and Gas Export Free Zone

OGLTR:         Oil and Gas Law and Taxation Review

OML:              Oil Mining Licence

OPCs :            Oil Producing Countries

OPEC:            Organisation of Petroleum Exporting Countries

OPL :              Oil Prospecting License

PITA:              Petroleum Investment Tax Allowance

PPT :               Petroleum Profit Tax

PPTA:             Petroleum Profit Tax Act

PSC:                Topicion Sharing Contract

PTDF:             Petroleum Technology Development Fund

                                                            

 

GET COMPLETE PROJECT