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LONDON (Alliance News) - Seplat Petroleum Development Co Ltd Friday released a statement responding to press reports that the company benefited improperly from tax waivers in Nigeria through the pioneer tax incentive, saying the company has reinvested the proceeds from the incentive back into the company and into the country.
"Seplat notes recent press coverage suggesting that the company benefited from improper tax waivers in relation to it being granted the pioneer tax incentive by the government of Nigeria. Whilst it is Seplat's policy to not comment ordinarily on press statements or business dealings with the government, on this occasion it is deemed necessary to clarify Seplat's position on this matter," it said.
The pioneer tax incentive, or being awarded pioneer status, means the company gets a tax holiday period that varies in length. In Seplat's case, the holiday is for a five-year period.
Seplat said since being awarded the pioneer tax incentive, it has more than doubled gas production, upped oil production and said royalty payments to the Nigerian government have risen by USD300 million per year, and described itself as a "key supplier of gas to the domestic market", denying claims it has wrongly benefited from the incentive.
In 2013, Seplat applied for the pioneer tax incentive through the Nigerian Investment Promotion Council, which was granted to the company as the government tried to promote investment in certain areas of the economy, particularly in promoting indigenous participation in the oil and gas industry, said Seplat.
The tax incentive was part of an "industry-wide exercise" and Seplat was one of 15 oil and gas companies to be awarded the pioneer tax incentive.
"The grant of pioneer status to an industry is aimed at enabling the industry concerned to make a reasonable level of profit within its formative years. The profit so made is expected to be ploughed back into the business," said the Nigerian Investment Promotion Council on its website.
Once awarded, the Federal Inland Revenue Service acknowledged the grant as applicable to the company for five financial years.
Seplat said it has invested USD300 million in gas development since being awarded the tax incentive on increasing production to 200 million standard cubic feet of gas per day from 90 million standard cubic feet, which goes solely into the domestic market. By the end of 2015, Seplat is expecting production in the country to reach 300 million standard cubic feet per day.
"This progress is being driven by an aggressive investment programme in gas development and differentiates Seplat as an early mover willing to commit significant capital to the sector and increase domestic supply," it said in a statement.
Seplat has also increased its oil production since being awarded the incentive, to 70,000 barrels per day which increased the royalty payments to the Nigerian government to around USD340 million per year from only about USD40 million per year in 2010.
"Given Seplat's aggressive re-investment of the pioneer proceeds into its business, which has led to a significant increase in oil and gas production, the company's tax and royalty payments are expected to double post pioneer period compared to the level it was at pre pioneer period. This, in Seplat's view, is what the pioneer incentive program was designed to achieve," said Seplat.
Over the tax holiday period to date, Seplat has also created over 300 new jobs and delivered several community development projects in its operating areas, it said. The multiplier effect of Seplat's USD700 million plus in annual expenditure through Nigerian contractors adds over 1,000 additional jobs, Seplat argued.
"Seplat believes that it is an excellent example of the whole purpose of establishing the pioneer incentive scheme. The company has fully re-invested the tax savings from the grant and has delivered verifiable results," it said in a statement.
"Seplat is now a key supplier of gas to the domestic market, which is the direct outcome of the pioneer incentive, and the company aims to continue to contribute meaningfully to the growth and development of the Nigerian economy," it added.
Seplat shares were down 4.7% to 116.0 pence per share on Friday morning.
By Joshua Warner; joshuawarner@alliancenews.com; @JoshAlliance
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