Bloomberg recently reported that the Federal Government has agreed to an $11.5-per-barrel tax incentive to enable Shell’s $20 billion Bonga South West project to finally proceed.
Some commentators have described the tax incentive as “unusually generous” — reportedly double the standard fiscal terms for deepwater projects in Nigeria. They argue that a previous Executive Order had capped such tax credits at 20% of a licensee’s annual tax liability.
It is a fair question to ask.
But before we answer it, it is worth starting with a simple truth: an untamed river does not irrigate any farm; a locked vault, however full, pays no one’s school fees.
That is the essence of “100% of zero is zero.”
The Bonga South West field — 150,000 barrels a day, discovered in 1995 — has sat stranded since 2010. This is nearly two decades of idle oil that has paid no dividends, created no jobs, and funded no roads, simply because it has never been allowed to flow.
Nigeria does not have the capital or technical means to develop it alone.
Meanwhile, capital that could have come here has instead gone to Mozambique, Guyana, Brazil, and Angola — countries that made their fiscal terms attractive enough to compete for it.
The Petroleum Industry Act has considerably improved our fiscal and regulatory climate, but amendments are still being considered to further enhance it. But legislative amendment of this nature is a slow tide, and yet the world’s shift away from hydrocarbons will not wait for us to finish adjusting the sails.
A Vault That Sat Locked for a Quarter-Century
Nigeria has been here before, and the story is worth telling plainly because it did not end the way skeptics had feared in 1989.
The Nigeria LNG project was first imagined in 1965. For nearly twenty-five years, it went nowhere — one false start after another — until 1989, when NNPC, Shell, Total, and Agip finally signed the NLNG Shareholders’ Agreement.
What broke the deadlock was not swagger, persuasion or goodwill; it was the Nigeria LNG Act, which offered concrete, time-bound incentives: a ten-year exemption from company income tax, alongside other evergreen incentives, exemptions and guarantees designed to give investors the confidence that the ground would not shift beneath a multi-decade, multi-billion-dollar commitment.
To be precise, because the honesty of the comparison depends on it: NLNG’s incentive consists of both a holiday – a ten-year runway after which full company income taxation resumed, as well as some permanent exemption from tax, fees, and levies.
Whether the Bonga SW arrangement is only a time-bound design, or is structured as a standing per-barrel term for the life of the field, is a detail that would be visible to the public when the agreement is gazetted, and/or passed into law as the NLNG incentives were.
What is no longer in dispute is what the NLNG tax holiday and evergreen incentives brought.
It persuaded international shareholders to commit $7.5 billion to build the first two production trains, with Nigeria contributing $2 billion of its own.
That initial trust has since grown into five additional trains and a further $30 billion in capital investment — a single seed that became an orchard.
Counting the Harvest, Honestly
By NLNG’s own published “Facts and Figures,” the project has generated nearly $130 billion in sales revenue since 1999. It is worth understanding which of these figures represent money that landed directly in the government’s hands, and which represent broader economic activity that the project set in motion — the difference between the fruit you can hold and the shade the tree provides to everyone standing under it.
Direct fiscal revenue to government has included over $22 billion in dividends, roughly $10 billion in Company Income Tax and Education Tax paid after the ten-year holiday expired, about $0.6 billion in PAYE, $2 billion in withholding tax, and $2 billion in VAT and port charges — a genuine fiscal harvest north of $36 billion, against Nigeria’s original $2 billion stake.
Broader economic activity – separate from, but no less real than direct fiscal revenue – includes some $21 billion in feedgas purchases paid to the government and $10 billion spent on local goods and services. These represent economic activity that would not have existed at all had the project not moved.
A market that never opens sells nothing to anyone.
Layered on top of both are the harder-to-price, easier-to-feel benefits: LPG supply at a time when domestic refineries had gone quiet since 2008; 1,500 direct and 5,000 indirect Nigerian jobs; twenty-four-hour electricity in Bonny Island, where much of the country still measures light in hours rather than assuming its constancy; and roughly half the cost of the ₦280 billion Bonny-Bodo Road.
In 2015, NLNG’s first CIT payment — at $2.1 billion, the largest single Company Income Tax payment in Nigeria’s history – arrived at the exact moment that the federal and state governments needed it to pay salary arrears. It became, in effect, an unplanned bailout fund, proof that a well-timed harvest can matter as much as a large one.
