Gas Flaring Law Error Cost Nigeria Billions of Dollars, Says Finance Minister

LAGOS (Capital Markets in Africa) – Africa’s top oil producer plans to make gas flaring more costly for companies that have escaped the payment of billions of dollars despite being fined, Nigerian Finance Minister Kemi Adeosun said.

In the “legal framework for the gas-flaring penalty, it was drafted as a charge. A charge is tax deductible,” Adeosun said in a January 23 interview. “So, what do the international oil companies do? They flare, they pay the charge on which they get tax relief. That’s just bad drafting.”

The government is approaching lawmakers to amend the law and have the word “penalty” replace “charge,” the minister said in her office in the capital, Abuja. “Just that one word has potentially cost us billions of dollars.”

Oil companies flare natural gas that is produced along with crude instead of harnessing it because that can be costly or difficult for security reasons. Nigeria has sought to limit the practice over the years as it pollutes the environment and contributes to global warming.

Seeking Revenue
The West African nation is recovering from a contraction of its economy in 2016, the first in 25 years, and is seeking revenue sources to plug a $25 billion infrastructure gap and fund a record 2018 budget presented in December by President Muhammadu Buhari.

The government is also updating the tax law and going after defaulters, with the intention to boost collection and raise the country’s tax-to-GDP ratio, currently at 6 percent and among the lowest in the world. It is investigating more than 200 whistle-blower tips involving tax officials and taxpayers, the finance ministry said Sunday in an emailed statement.

Nigeria in the past never focused much on tax revenue because of its reliance on oil income that funds most of the government spending, Adeosun said. The OPEC member produced 1.8 million barrels per day in December, according to data compiled by Bloomberg.

Source: Bloomberg Business News