A report by PricewaterHouse Coopers (PwC) has hailed a provision in the new Petroleum Industry Act (PIA), which allows for continuation of existing court cases against the Nigerian National Petroleum Corporation (NNPC), when the corporation is fully commercialised in the coming months.
The globally renowned consulting firm, which raised concerns over the establishment of two regulatory agencies, however lauded the portion of the law that exempts stamp duties and Capital Gain Tax (CGT), which if said will be a welcome relief for investors.
The report which centres around the operation of the PIA, noted that the introduction of the commission will promote transparency and introduce good governance practices in the sector as the minister of petroleum no longer has absolute powers.
"The provision that court cases instituted against NNPC will continue against NNPC limited will be of comfort to investors who want to acquire companies or assets which have outstanding receivables or other unreceived issues with the NNPC.
"However, Section 92 provides for existing oil prospecting lease or oil mining lease holders to enter into a voluntary conversion contract to enjoy the fiscal provisions under the PIA on the condition that they discontinue all court cases existing in respect of those OPL or OMLs.
"This seems to be inconsiderate of counterparties to such cases without considering likely impacts on the parties or seeking to address the underlying issues with a view to achieving speedy and amicable resolutions, "the audit firm argued.
It further maintained that incorporating a Joint Venture (JV) as a distinct entity will resolve many of the issues with the existing structure of the joint operating agreements including failure of the NNPC to fulfil cash call obligations, difficulty in making decisions and getting approvals from the NNPC due to the government's bureaucratic processes.
It added that incorporated JVs will also be able to access external funding as it will be a more attractive option for investors, with the Act now making migration to be as painless as possible with exemption of the corporate action from transaction taxes.
On the two regulators, it said: "In practice, upstream and midstream operations are often integrated and there might be some difficulty in separating the streams especially where the assets for the operations are integrated.
"However, the exemption from stamp duties and CGT, where the qualifying condition is met, is a needed relief for companies who will be compelled to make the separation based on the PIA. This should also spur major deals in the industry as it would open up the midstream market to new investors," the report stated.
It said that while the Act is clear on some of the benefits to be received from the Federal Inland Revenue Service (FIRS) on an internal reorganisation including the calculation of the basis period of the new company, the transfer of unutilised capital allowance to the buyer remains unclear.
According to PwC, the provision can be interpreted to mean that only allowances, which have been received by the selling company, can be transferred to the buyer.