100% of Zero is Zero: What NLNG Teaches Us About the Bonga SW Tax Incentive

Babs Omotowa

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.

It bears saying plainly: these are NLNG's results, achieved over twenty-five years under its own specific terms. They demonstrate what unlocking stranded capital can do. 

What Bonga SW delivers over time will depend on its own execution, timeline, and oversight. But the key is to unlock it now rather than to continue to leave it stranded. The country needs it during these challenging times.

Nigeria Is Not Alone in This Calculation

Every major hydrocarbon nation competing for scarce global capital has reached for similar tools, each shaped to its own circumstances:

·       Guyana offered ExxonMobil a 2% royalty on its Liza, Payara, and Yellowtail projects, an unusually fast cost-recovery ceiling of up to 75%, exemption from corporate income tax, and a promise that fiscal terms would not change for the life of the contract.

·       The United Kingdom ring-fenced its North Sea reliefs so upstream profits from Shell's Victory gas field could not be diluted by unrelated losses elsewhere in the business — a roughly 90% saving that made the field's economics work.

·       The United States used federal and state tax credits alongside immediate expensing of drilling costs to make its Gulf Coast carbon-capture and blue hydrogen megaprojects viable for ExxonMobil.

·       Norway paired tax credits with accelerated depreciation and refundable exploration credits to bring its Northern Lights offshore electrification and CCUS projects to life.

None of these governments handed away their patrimony. Each simply recognized that a smaller share of a project that is executed is worth more than a full share of one that remains stranded.

What This Should Not Become

Another worry beneath the "unusually generous" critique is about precedent. Nigerians have, through experience, become worried about what a generous deal for one investor becomes once every investor expects the same.

The President had reaffirmed that the incentives are not blanket concessions but will be ring-fenced and focused on new capital, incremental production, and strong local-content delivery. This safeguard is that megaproject terms like this would remain ring-fenced to genuinely exceptional cases — defined by scale, technical difficulty, production, and the years a field has already sat stranded — rather than becoming the new floor for ordinary developments. 

If four or five such megaprojects do emerge, each carrying $20 billion in investment, that is not fiscal generosity escalating out of control; it will be $100 billion in foreign direct investment, jobs, and local content flowing into an economy that badly needs all three.

The government's part would not end with signing the incentive. NLNG's history is a reminder that stranded capital is unlocked by more than fiscal terms alone — customs clearance that doesn't stall at the port, regulators who move at the pace of the investment rather than the pace of the bureaucracy, and agencies genuinely aligned behind the strategic value of the project. 

An offshore field like Bonga South West is spared the security and community-relations complexity of an onshore development, which makes it a more forgiving test case — but the rest of the machinery must keep pace with the fiscal generosity already on the table.

Building Trust, Not Just a Field

One other lesson that NLNG offers, one that matters more than the dollar figure, is that transparency compounds trust the way an oilfield compounds revenue, slowly, then significantly. NLNG's own public "Facts and Figures" disclosures are precisely what make this comparison possible today.

The same standard — regular, public reporting on Bonga South West's investment milestones, production start-up, and fiscal remittances — would let Nigerians know that this incentive is doing what it was designed to do: create value, and that it is not a giveaway or a revenue loss.

It is what a quarter-century-locked vault finally being opened looks like: a considered, well-precedented bet that a smaller share of something real will always outweigh the whole of nothing at all.

Babs Omotowa is a former Managing Director of Nigeria LNG Limited and Vice President at Shell.