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Landmark Ruling Upholds NMDPRA’s Control Over Petroleum Levies

Landmark Ruling Upholds Authority's Control Over Petroleum Levies

In a groundbreaking legal decision marking the first major interetation of the Petrleum Industry Act (PIA) 2021, the Nigerian Federal High Court has affirmed the jurisdiction of the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) in imposing and collecting levies on petroleum products distributed within Nigeria.

In a case brought forth by IHS Nigeria Limited and INT Towers Limited against the NMDPRA, the plaintiffs contested their obligation to pay the statutory 0.5% levies for the ‘Authority Fund’ and the ‘Midstream and Downstream Gas Infrastructure Fund’ respectively on petroleum products they import.

The plaintiffs argued that since their products are used for internal business operations rather than directly sold within Nigeria, they should be exempt from the levies.

Furthermore, they petitioned the court to invalidate two crucial regulations for PIA implementation – the Midstream and Downstream Petroleum Operations (MDPO) Regulations 2023 (defining the notion of ‘sold in Nigeria’) and the Petroleum (Transportation and Shipment) (PTS) Regulations 2023 (specifying the information the NMDPRA may request from a permit holder), alleging they contravene sections 47(2) and 57(7) of the PIA and violate constitutional property rights.

In rendering the verdict on Monday, February 5, 2024, Justice Inyang Ekwo of the Federal High Court Abuja Division concurred with the arguments presented by NMDPRA counsel Dr. Emeka Akabogu, upholding the legality of the Midstream and Downstream Operations Regulations 2023 and the Petroleum (Transportation and Shipment) Regulations 2023.

The court determined that these regulations neither overstep nor clash with sections 47(2)(c) and 57(7)(a) of the PIA, which mandate a 1% levy on petroleum products and natural gas sold within Nigeria.

It was established that the definition of ‘sold in Nigeria’ encompasses three distinct scenarios – where goods are sold “fob” in Nigeria or its territorial waters, where they are loaded or offloaded for sale within a wholesale point in Nigeria, or where the transaction originates, occurs, or concludes in Nigeria.

The ruling underscores the broad authority granted to the NMDPRA under Section 33 of the PIA to regulate the sector through subsidiary legislation. It also significantly affects natural gas and petroleum products intended for export, which are automatically governed by and subject to the MDPO Regulations.

Consequently, petroleum producers engaged in the sale and export of such products are obligated to pay the levies as a prerequisite for valid export operations.