The Nigerian Petroleum Industry Act (PIA), enacted in August 2021, introduced a 0.5% levy on the wholesale price of petroleum products to generate revenue for the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA). The Act mandates the collection of this levy from wholesale customers but remains ambiguous about the designated collecting entity, sparking disagreement between the NMDPRA and oil producers. The NMDPRA contends that oil producers, as the sellers to wholesale customers, are best positioned to collect and remit the levy. However, oil producers argue that acting as levy collectors deviates from their core function as upstream operators and places an undue burden on them. This contention forms the crux of the ongoing debate, highlighting a critical gap in the PIA’s implementation framework.
The NMDPRA initiated stakeholder sensitization workshops to address the ambiguities surrounding the levy collection process and achieve consensus on its implementation. The regulator emphasized that the levy is not an additional charge on producers but rather a component of the wholesale price payable by the customer. Collecting the levy at the wholesale point, the NMDPRA argues, represents the most convenient and efficient method. Oil producers, represented by the Oil Producers Trade Section (OPTS), maintain that the PIA does not explicitly assign them the role of levy collectors and that such a responsibility should fall either on the NMDPRA itself or the wholesale customers. This difference in interpretation underscores the need for clearer legal stipulations within the PIA.
The OPTS argues that transforming oil producers into levy collectors introduces a significant departure from their established role in the upstream sector. They contend that this added responsibility creates unnecessary complexities and administrative burdens, diverting their focus from their primary function of oil production. Furthermore, they posit that requiring producers to collect and remit the levy necessitates additional administrative infrastructure, financial reconciliation processes, and potential exposure to audit scrutiny, all of which represent added costs and operational burdens. This disagreement highlights the potential for misaligned incentives and operational inefficiencies if the collection mechanism is not clearly defined and agreed upon by all stakeholders.
The NMDPRA, while acknowledging the concerns raised by oil producers, emphasizes the need for a practical and efficient collection mechanism. They argue that collecting the levy at the source, i.e., from the oil producers at the wholesale point, streamlines the process and minimizes the risk of revenue leakage. They further explain that the regulation designating suppliers as collectors was formulated to address the PIA’s silence on this specific aspect. However, the NMDPRA has expressed willingness to engage in further dialogue with stakeholders to reach a mutually agreeable solution, recognizing the importance of collaboration in the successful implementation of the PIA.
The ongoing debate surrounding the 0.5% levy underscores the importance of clear and unambiguous legislation in the oil and gas sector. The lack of explicit designation of the collecting entity within the PIA has created a point of contention between the regulator and the industry, potentially hindering the effective implementation of the levy and the realization of its intended revenue generation objective. A clear resolution to this issue requires either a legislative amendment to the PIA clearly defining the responsible party or a mutually agreed-upon framework developed through ongoing dialogue between the NMDPRA and oil producers.
Ultimately, the success of the PIA hinges on collaborative engagement and a shared understanding between the regulator and industry players. The ongoing discussions and sensitization workshops represent a positive step towards achieving consensus and ensuring the smooth and efficient implementation of the levy collection mechanism. A well-defined and agreed-upon framework will not only optimize revenue collection for the NMDPRA but also minimize operational complexities for oil producers, fostering a more stable and predictable operating environment within the Nigerian oil and gas sector. This requires continued engagement, transparency, and a commitment from all stakeholders to find a sustainable and equitable solution.
