Nigeria’s Richest Woman Says Onshore Oil Taxation Too High
Nigeria’s 85 percent tax on onshore crude oil production is dissuading local investors from taking over assets from international oil companies, said Folorunso Alakija, an energy tycoon and the nation’s richest woman.
Famfa Oil Ltd., founded in 1991 by Alakija, 64, has sought to acquire stakes in onshore oil fields, yet sees the tax regime as a deterrent, she said in an interview in her office in Lagos, the commercial capital. Onshore producers pay 30 percent corporate tax and 55 percent tax on petroleum profit, while offshore producers who bought stakes in the 1990s are exempt of corporate tax and pay 50 percent profit tax.
“The 85 percent that those who are onshore are having to pay is going to be too high for indigenous companies to be able to stand on their own two feet,” said Alakija, who has a fortune of $1.8 billion, according to an estimate by Forbes magazine. Famfa’s 60 percent stake in Agbami, an offshore field with an output of about 250,000 barrels a day, is the main source of her wealth.
Famfa was among dozens of Nigerian companies granted oil licenses in the early 1990s as the military regime of General Ibrahim Babangida sought to wrest some control from multinationals.
Investment in Africa’s largest oil producer has been held up by uncertainty over Nigeria’s Petroleum Industry Bill, a law that has been delayed in parliament for almost seven years due to political wrangling and opposition from international energy companies to proposed tax and royalty terms.
International producers have agreed to sell off $10 billion of mainly onshore assets over the past three years, according to Bloomberg Intelligence. Those assets are largely being taken over by local companies, such as Seplat Petroleum Development Co. Most of the country’s crude is pumped by international companies, including Royal Dutch Shell Plc. and Chevron Corp., which run joint ventures with the state-owned Nigerian National Petroleum Corp.
Tax Relief
“It would be a good idea when the Petroleum Industry Bill does come out that it would have looked at tax relief for onshore, to help our people to be able to continue running their businesses and investing in that area,” said Alakija. “Nobody knows what is going to be the outcome of that bill.”
Only local companies producing for more than eight years are paying 85 percent tax, said Dolapo Oni, the Lagos-based head of energy research at Ecobank Transnational Inc. A “major reason” international producers have protested one of the latest versions of the bill is that it raised the offshore tax to 85 percent, Oni said.
“Nigerian companies who acquire onshore fields can apply for pioneer status, which means they don’t pay taxes for the first three years and even when they start paying taxes, they start at 65 percent for the first five years,” he said by phone. “The issue is that we don’t know what the PIB looks like now.’
Emmanuel Kachikwu, the group managing director of the NNPC, said last month that a new version of the bill should be ready in a year. President Muhammadu Buhari’s party has recommended scrapping the PIB and replacing it with a new reform law based on discussions with producers.
Tough Financing
With the international companies selling off their onshore assets due to rampant theft and spillages, the output of indigenous producers could rise to up to 25 percent of Nigeria’s overall output from about 10 to 15 percent, Alakija said. Nigeria pumped an average 1.94 million barrels of oil per day in August, according to data compiled by Bloomberg.
When Famfa was founded, the government was “wooing the international oil companies to give up some of the fields that they have; they couldn’t force them,” Alakija said. About twenty years later, “they are giving them up willingly. That gives opportunity for the indigenous companies to be able to buy into some of the smaller acreages,” she said.
Getting financing for fields may prove tough, said Alakija, who expects more mergers and acquisitions in the industry. Most of the smaller companies obtained financing based on a price of $70 a barrel, compounding the difficulties since a halving of oil prices in the past year, Kola Karim, chief executive officer of Nigerian energy company Shoreline Group, said in an interview in February. Brent crude traded at $49.53 a barrel as of 2:32 p.m. in London on Thursday.
“There’s no indigenous company that can say they can stand on their own in an offshore block,” said Alakija, whose Famfa operates in partnership with Chevron and Petrobras Brasileiro SA.
Alakija is looking to diversify into other industries. Already owning real estate in Nigeria, Brazil and the U.K., along with a printing business, Alakija said she’s considering investments in agriculture and power, declining to elaborate.
