PwC Africa Oil and Gas

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1 Africa Oil and Gas Leadership Conference 2014 Towards more effective policy dialogue between industry and regulator Presented by Steve Okello Tax Partner

2 General Overview Fiscal policy is the means by which a government adjusts its spending levels and tax rates to monitor and influence a nation's economy. Until fairly recently most African countries did not design their fiscal policies as this was largely dictated by external authorities. With stabilised economies and a shift in the stance of the international community (notably the IMF) this has changed and fiscal policy design is back in the domestic agenda. IMF continues ( with a more participatory approach) to have an operational involvement in fiscal policy formulation through provision of technical support, surveillance and work programs for most countries. A continuous dialogue is needed to improve taxation and public expenditure policies in all countries to support economic growth and income redistribution A broad dialogue would facilitate the sharing of practical experiences and insights into alternative policies and administrative approaches, as well as data and analysis to help guide policy decisions The dialogue need not be limited to in-country stakeholders but should also include regional and other international players Africa Oil and Gas Leadership Conference

3 Engagement at the fiscal policy design and implementation stage A dialogue at the design and implementation stage would ensure that: There is exchange of views and comparison of various key data such as tax rates and structures and other comparable tax burden indicators. This could be undertaken through tax policy workshops or seminars The significant contributions by the oil and gas industry on social infrastructure expenditure is taken into account Fiscal policymakers in potentially oil-producing countries properly consider how expenditure can be insulated from oil revenue shocks It is factored in that oil is an exhaustible resource. Although mostly a distant concern, inter-generational equity question needs to be posed A proper dialogue would ensure that the impact of tax levels and structures on long-term growth are well appreciated by all stakeholders and are factored into the fiscal policies. Africa Oil and Gas Leadership Conference

4 Some country experiences - Kenya Significant policy (tax) changes over the last two years since the discovery of oil Several changes in tax legislation prematurely effected. Adverse impact on the sector as a result of removal or reduction of existing tax incentives and introduction of new tax types The recent changes have, so far, not been underpinned by long term- fiscal policy considerations. Looming resource sharing issues developing However, the regulatory stakeholders are willing to engage the industry. A working group of regulatory stakeholders and the industry has recently been set up to help formulate tax policy Previous interactions between the regulatory stakeholders has been more of lobbying for piecemeal changes as opposed to a full-fledged contribution to policy formulation Various policy initiatives are currently on going with the involvement of most stakeholders in an attempt to harmonise policies within the oil and gas sector Africa Oil and Gas Leadership Conference

5 Some country experiences - Nigeria On going interactions between the regulators and the industry for years through various channels especially the Lagos Chamber of Commerce and the various sub-sector committees Influence of political considerations has in certain instances negated or delayed the successes of the policy dialogue. The Petroleum Industry Bill for example is still work in progress. Some astuteness required in ensuring full participation of senior policymakers in some of the fora The way oil revenues are collected and spent is not just an economic issue. Fiscal policies have to be designed within specific political and institutional frameworks. These frameworks, including their governance, transparency, and accountability characteristics tend to vary among countries Africa Oil and Gas Leadership Conference

6 Conclusion There is on going dialogue between the industry and regulators in most territories, however, for more effectiveness: The engagement should be for all the regulators, should be continuous, be both formal and informal and where possible, special interest working groups should be formed A recognition that engagement on fiscal policy by itself is not enough. The regulatory stakeholders need to fully understand the nature of the oil and gas industry A recognition that most countries with new hydrocarbon discoveries tend to have fairly aggressive fiscal policies, ambitious revenue and expenditure budgets that are intertwined. Need for tampering Encourage synchrony of fiscal and other relevant e.g. (energy)policy and the extractive tax legislation in view of changing dynamics in the oil and gas cycle. The temptation has been for the tax policy to lead Africa Oil and Gas Leadership Conference

7 Asante sana... This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication w ithout obtaining specific professional advice. No representation or w arranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, Pricew aterhousecoopers Limited, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it Pricew aterhousecoopers Limited. All rights reserved. In this document, Pw C refers to Pricew aterhousecoopers Limited w hich is a member firm of Pricew aterhousecoopers International Limited, each member firm of w hich is a separate legal entity.

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