Energy law group,AEC advocates commonsense approach to promote African oil & gas sector 

By Innocent Obasi

The African oil and gas sector will only work when legislators set fair policies and treat oil and gas companies as relevant players driving the economy, according to analysts at African Energy Chamber (AEC).

The energy law group, in a report titled“Africa’s common sense energy agenda against covid-19 and the oil price war”, said the Covid-19 pandemic and the drop in oil prices are having a negative impact on African economies and the African energy sector, that has resulted in substantial cuts in state budgets and public spending, loss of contracts and hundreds of thousands of jobs put at risk.

“Bouncing back from this historic crisis will require strict and bold government action,” the report said.

Assessing the impact of exploration and extensions of Production Sharing Contractors (PSCs) on African energy sector, the report recommended an extension of 24 months on all exploration projects in order to provide for ongoing drilling deferrals and delays in drilling schedules, saying that most exploration and production companies are the backbone of the sector and their investment is crucial to future growth.

“Several exploratory drilling projects have been put on hold, deferred or cancelled and extending deadlines provided within the PSCs would allow for their rescheduling. Supporting exploration needs to be the top priority across the continent,” it added.

On work programmes adjustments, the report said it is reasonable to immediately waive part of the work programme commitments for exploration companies in order to boost exploration commitments and enable the earliest possible resumption of exploration activities.

According to the the AEC, companies are in a tight position and should not be put into a corner where they will have no option but to proceed with force majeures.

On  petroleum and natural gas fiscal regimes, the report encouraged other African countries to consider passing the Petroleum Industry Bill  just as Nigeria did in order to provide a regulatory and fiscal regime that delivers transparency, predictability, and consistency.

The report also recommended a stronger public-private conversation on the revision of fiscal terms within PSCs, especially for contracts over producing areas and fields whose operating costs are higher.

“Better fiscal terms will enable operators to meet their commitments and keep raising capital even in today’s environment,” it said.

On tax relief for services companies, the report advocated for a series of tax reliefs and deferral measures aimed at the preservation of employment within the services industry. It listed some of the tax reliefs to include; the reduction and/or waiver  of income taxes on services companies for a period of at least two years, along with giving SMEs the possibility to meet their income tax obligations in installments over an extended period of time.

It said the same applied to withholding taxes, which it believed should be waived for nonresident companies for at least six months.

The report also encouraged the government to consider reducing custom tariffs and rates when applicable for the oil service industry as they relied on the importation of goods and equipment.

It also said that tax relief is important especially for local service companies as the aim was to reduce the cost of drilling for the establishment and confirmation of commercial quantities of hydrocarbons.

On subsidy removal, the report encouraged all governments to emulate Nigeria and grab the opportunity to act audaciously by eliminating fuel subsidies when necessary.

“The current situation provides the breeding ground for subsidy reforms across the continent. The Chamber is encouraging all governments to follow the steps of Nigeria and seize the opportunity of the moment to take a bold action on removing fuel subsidies when applicable. Such a reform will allow the saving of several billions of dollars a year and provide a better macroeconomic stability for African economies to recover,” the report said.