Access Bank Raises the Alarm over Impact of Petroleum Fiscal Policy on Lending

Access Bank Plc has raised the alarm that the impact of the National Petroleum Fiscal Policy (NPFP) on lending would reduce funding appetitive for financial institutions, shrink oil and gas industry’s Foreign Direct Investment (FDI) and impair cashflow for indigenous players.

Speaking at the recent Financial Forum for gas, which was organised by the Nigerian Gas Association (NGA), the Group Managing Director of Access Bank, Mr. Herbert Wigwe said the adjustments on tax deductible items in the NPFP would discourage the international oil companies (IOCs) from further investments thereby reducing bankable deposits in local banks and the much needed liquidity to support lending in the financial industry.

Wigwe noted that the NPFP, which is meant to feed into the Petroleum Industry Bill (PIB) aims to focus on providing a fiscal framework for the industry and acknowledged that the removal of petroleum profit tax (PPT) would translate to retention of significant revenue savings for industry players.

He, however, argued that the introduction of the hydrocarbon tax with no concessions as obtainable under PPT would greatly impair revenue.

Wigwe identified the reduction of tax deductible items such as: capital allowances- drilling cost, acquisition cost, geoseismic & exploration cost; as well as interest on loan, abandonment expenditure and pension fund as some of the key features of the NPFP.

“Major venture projects, which typically attract FDI from investors would suffer drop in appetite for industry investment. Capital importation from FDI is converted in Nigerian Banks to boost liquidity for lending to both the oil sector and other sectors. Current terms do not support FDIs,” he said.

“Proscription of previous deductible items implies inability of players to recoup

certain expenditures from investment. This impairs their ability to generate cashflow sufficient to service debts,” he added. Wigwe also noted that the current fiscal regime translates to elongated cashflow models for financing oil and gas projects as a result of the extended payback periods.

According to him, the Internal Rate of Return (IRR) for such investments constrains banks to opt for shorter term financing alternatives in other sectors such as trade.

Wigwe also stated that the NPFP is a dis-incentive for gas finance as the “removal of tax deductions under current Associated Gas framework Agreement, which supports tax deduction of 85 per cent and elimination of gas flare deductibility will discourage investment and financing”.