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Growing Expectations as FG Plans to Reduce oil Asset Stakes

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  • Growing Expectations as FG Plans to Reduce oil Asset Stakes

Industry stakeholders are keen on the planned divestment of stakes in joint venture oil and gas assets by the Federal Government, ’FEMI ASU writes

The planned reduction of government stakes in joint oil ventures with private oil companies, especially international oil companies, has sparked interest from some industry stakeholders.

The President Muhammadu Buhari-led administration had, in its Economic Recovery and Growth Plan released in 2017, said it would reduce its stakes in JV oil assets, refineries and other downstream subsidiaries such as pipelines and depots.

The 2019 approved budget public presentation obtained by our correspondent revealed that President Muhammadu Buhari had directed that immediate action be commenced to restructure the JV oil assets “so as to reduce government shareholding to not less than 40 per cent and that this exercise must be completed within the 2019 fiscal year.”

It disclosed that the proceeds of oil assets ownership (JV equity) restructuring would constitute 10.1 per cent of expected Federal Government’s revenue this year.

The document said, “The overall revenue performance in 2018 is only 55 per cent of the target in the 2018 Budget partly because some one-off items such as the N710bn from Oil Joint Venture Asset restructuring and N320bn from revision of the Oil Production Sharing Contract legislation/terms have yet to be actualised and have thus been rolled over to 2019.

The nation’s oil and gas production structure is majorly split between JV onshore and in shallow water with foreign and local companies and PSC in deepwater offshore, to which many IOCs have shifted their focus in recent years.

The Nigerian National Petroleum Corporation owns 55 per cent stake in its JV with Shell and 60 per cent stakes with others, including Chevron and ExxonMobil.

Under the JV arrangement, both the NNPC and private operators contribute to the funding of operations in the proportion of their equity holdings and generally receive the produced crude oil in the same ratio.

But the NNPC failed to meet its share of cash call obligations for many years, resulting in significant debts owed to oil companies.

In 2016, the international oil companies operating in Nigeria agreed to give the Federal Government a discount of $1.7bn from the $6.8bn cash call arrears owed by the NNPC.

The Managing Director/Chief Executive Officer, Seplat Petroleum Development Company Plc, Mr Austin Avuru, said the divestment would generate badly needed fund for the government to support the funding of the 2019 budget.

The Managing Director, Aiteo Eastern Exploration and Production Company, Mr Victor Okoronkwo, described the government’s proposed sell-down of its joint venture participation as a very good way to help the existing private joint venture partners to further capitalise and consolidate their positions.

He said, “Our expectation is that in line with the joint venture agreements between us and the Federal Government, the existing joint venture partners will have the right of first refusal. The first wave of asset sale by the international oil companies happened in a period when oil price was really high; so, they were able to make a lot of money.

“But I believe that the government expects to reap a lot more multiplier effect out of this sell-down of assets rather than just carting cash away, and the existing indigenous joint venture partners will be willing to work with the government to ensure that that materialises.

“Of course, we are an existing joint venture partner; so, we expect the right of first refusal. We have 45 per cent of OML 29 and the government owns 55 per cent.”

As part of efforts to surmount cash-call challenges and put the upstream sector on a path of sustainable growth, the Nigerian National Petroleum Corporation has said it would introduce the Incorporated Joint Venture model to replace all the JV exploration and production projects.

The Group Managing Director, NNPC, Dr Maikanti Baru, said at a panel session on Wednesday at the Nigeria Oil and Gas Conference in Abuja, that the consideration for the IJV model was born out of the need to encourage healthy business culture and growth in the energy sector.

The GMD, who was represented by the Chief Operating Officer, Mr Bello Rabiu, said the IJV model, when implemented, would make oil and gas business more productive and beneficial to investors.

Baru explained that the current alternative funding arrangement was a temporary measure and that the objective of the IJV model was to create a robust business system “that allows for projects self-financing and guarantees a win-win situation for all stakeholders.”

He said, “The only option which is the same everywhere in the world is for any project or any business to fund itself and the only way it can fund itself is for the business to see itself as both funded by equity and debt.

“The incorporation element of IJV allows it to operate as an independent entity that can source capital to fund its projects and deliver dividends to shareholders at the end of each financial year.”

Responding to the question on apparent lack of trust between the government and IOCs, the GMD said that the trust level on both sides had significantly improved since 2015 till date.

He noted that prompt payment of cash-call arears and other measures initiated by the corporation contributed in restoring the confidence of the IOCs.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

Business

The Highest Corporation Taxes Around the World and the Main Drivers Behind them

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tax relief

Taxes Pay by Corporation Around the World and the Main Drivers Behind them

While corporation tax rates are influenced by the country’s definition, there’s clearly a pattern with developing countries and emerging economies paying higher rates to sustain the country.

The top five richest countries in the world’s corporation tax are relatively varied, with Luxemburg standing at 27.08%, Norway at 22%, Iceland at 20%, Switzerland at 18% and Ireland at 12.5%. It would appear that some countries’ cultures factor into how much tax they pay. For example, Scandinavian countries are proud to pay higher taxes to contribute to social welfare.

On average, Africa has the highest corporation tax rate throughout the world’s continents at 28.45% and South America, the second highest with an average rate of 27.63%. However, Europe stands at the lowest rate of 20.27%. Does this contradict the claim that developed countries pay higher tax?

OECD explained that corporation tax plays a key part in government revenue. This is particularly true in developing countries, despite the global trend of falling rates since the 1980s. Let’s take a closer look at two continents, South America and Africa, paying the highest corporation tax rates in the world.

South America has most countries in highest corporation tax top 10

According to data analysed, Brazil and Venezuela have the highest corporation tax at 34%, followed closely by Colombia at 33%, and Argentina at 30%, making South America the continent with the most countries in the top 10 who pay the highest corporation tax.

It is unclear whether South America, as an emerging continent, is charging higher taxes in order to raise government revenue or to benefit from businesses that are looking to expand internationally and enter new markets. According to research, South America is becoming a popular choice for business to enter, with strong trade links and an advantageous geographic location. Indeed, South America is a large continent where some countries are business friendly and others are harder to penetrate.

Africa: the continent with the highest average corporation tax

Being the poorest continent in the world, Africa unsurprisingly has the highest average corporation tax at 28.45%. With the highest in this data being Zambia at 35% and the lowest being Libya and Madagascar at 20%, South Africa stands roughly in the middle at 28%, slightly above average for Africa overall. Does this mean that South Africa is the safest bet for business?

South Africa is one of Africa’s largest economies, with 54 diverse countries in terms of political stability, development, growth, and population. As South Africa has been a relatively slow growth area over the years, corporation tax dropped from 34.55% in 2012 to the current rate — but was this effective? GDP in South Africa has fluctuated quite dramatically since the 1960s. Business favours countries with political stability, which is something South Africa doesn’t currently have. Furthermore, South Africa’s government debt to GDP sits roughly in the middle of the continent’s countries — is this influencing their corporate tax rate?

Country Continent Tax (%)
Puerto Rico North America 37.5
Zambia Africa 35
Brazil South America 34
Venezuela South America 34
France Europe 33.3
Columbia South America 33
Morocco Africa 31
Japan Asia Pacific 30.62
Mexico North America 30
Argentina South America 30
Germany Europe 30
Australia Asia Pacific 30
Philippines Asia Pacific 30
Kenya Africa 30
Nigeria Africa 30
Congo Africa 30
Belgium Europe 29
Pakistan Asia Pacific 29
Sri Lanka Asia Pacific 28
New Zealand Asia Pacific 28
South Africa Africa 28
Luxembourg Europe 27.08
Chile South America 27
Canada North America 26.5
Algeria Africa 26
India Asia Pacific 25.17
Jamaica North America 25
Chile South America 25
Ecuador South America 25
Netherlands Europe 25
Spain Europe 25
Austria Europe 25
South Korea Asia Pacific 25
Bangladesh Asia Pacific 25
China Asia Pacific 25
Indonesia Asia Pacific 25
Zimbabwe Africa 25
Tunisia Africa 25
Greece Europe 24
Italy Europe 24
Malaysia Asia Pacific 24
Israel Middle East 23
Egypt Africa 22.5
Norway Europe 22
Denmark Europe 22
Turkey Europe 22
Sweden Europe 21.4
United States North America 21
Portugal Europe 21
Russia Europe 20
Finland Europe 20
Iceland Europe 20
Afghanistan Asia Pacific 20
Azerbaijan Asia Pacific 20
Kazakhstan Asia Pacific 20
Thailand Asia Pacific 20
Vietnam Asia Pacific 20
Cambodia Asia Pacific 20
Taiwan Asia Pacific 20
Saudi Arabia Middle East 20
Jordan Middle East 20
Yemen Middle East 20
Madagascar Africa 20
Libya Africa 20
Slovenia Europe 19
Czech Republic Europe 19
Poland Europe 19
United Kingdom Europe 19
Belarus Europe 18
Croatia Europe 18
Switzerland Europe 18
Ukraine Europe 18
Singapore Asia Pacific 17
Hong Kong Asia Pacific 16.5
Lithuania Europe 15
Georgia Asia Pacific 15
Maldives Asia Pacific 15
Kuwait Middle East 15
Iraq Middle East 15
Ireland Europe 12.5
Cyprus Europe 12.5
Bulgaria Europe 10
Qatar Middle East 10
Hungary Europe 9
Barbados North America 5.5

 

Lucy Desai is a content writer at QuickBooks, a global company offering the world’s leading accountancy software.

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Nigeria’s Crude Oil Production Declined to 1.31mbpd in September

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Oil

Nigeria’s Crude Oil Output Declined from 1.37mbpd in August to 1.31mbpd in September

The Organisation of the Petroleum Exporting Countries (OPEC) reported that Nigeria’s crude oil production declined by 58,000 barrels per day in the Month of September when compared to the nation’s oil production of August.

In its latest oil market report, the cartel said Nigeria produced 1.37 million barrels per day in the month of August but that number declined by 58,000 to 1.31 million barrels per day in September. Bringing the total decline for the 30 days of september to 1.74 million barrels.

On oil price movement in September, the organisation said prices settled lower in the month under review after four consecutive months of gains.

OPEC Reference Basket declined by 8.1 percent or $3.65 in September to $41.54 per barrel, while it moderated to $40.62 per barrel from the year-to-date.

Commenting on the recent changed in Nigeria’s monetary policy rate, the oil cartel said “the recent cut is a part of the policy to continue supporting the economy that plunged 6.1 per cent in the second quarter hit by the global pandemic.

“Nevertheless, Nigeria’s annual inflation rate surged to the highest rate since March 2018 in August 2020, as it rose to 13.22 per cent year-on-year from 12.82 per in in July.

Oil prices sustained bullish trend on Thursday after data showed U.S oil inventories declined last week.

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Global Economy to Lose $28 Trillion in Five Years -IMF

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IMF Managing Director Kristalina Georgieva

International Monetary Fund Says Global Economy May Lose $28 Trillion in the Next Five Years to COVID-19

The International Monetary Fund (IMF) has said the world’s economy may lose as much as $28 trillion to COVID-19 in the next five years.

The Fund’s Managing Director, Kristalina Georgieva, disclosed this during her opening remarks at the annual general meeting conference held on Wednesday.

She said “The picture over the last few months has become less dire, yet we continue to project the worst global recession since the great depression.

“Growth is expected to fall to -4.4 per cent this year. And over the next five years, the crisis could cost an estimated $28tn in output losses.

“At the same time, we can see stars shining above us. We see unprecedented efforts in vaccine development and treatment.

“We see extraordinary and coordinated fiscal and monetary measures putting a floor under the world economy. And the world is starting to learn how to live with the virus.

“While there is tremendous uncertainty around our forecast, we project a partial and uneven recovery in 2021, with growth expected at 5.2 per cent.”

“As I said in my curtain raiser speech, all countries now face a “long ascent”—a journey that will be difficult, uneven, uncertain, and prone to setbacks.

“Think of how the virus is resurging in a number of countries.”

She also made recommendations, the managing director explained that an unusual crisis requires an unusual approach and solution.

Georgieva said, “In our Global Policy Agenda, which we are releasing today, we outline the measures we believe are needed to overcome the crisis and build a brighter future. Let me highlight three priorities:

“First—continue with essential measures to protect lives and livelihoods.

“A durable economic recovery is only possible if we beat the pandemic everywhere. Stepping up vital health measures is imperative.

“As is fiscal and monetary support to households and firms. These lifelines—such as credit guarantees and wage subsidies—are likely to remain critical for some time, to ensure economic and financial stability.

“Pull the plug too early, and you risk serious, self-inflicted harm.”

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