Nigeria loses $16 billion due to lack of PSC review, says NEITI
NEITI has called for an urgent review of the Production Sharing Contracts with oil companies to stem the huge revenue losses to the government.
The Nigeria Extractive Industries Transparency Initiative (NEITI) has released a new report showing that Nigeria lost at least $16 billion in 10 years (2008-2017) due to lack of review of the 1993 Production Sharing Contract (PSC) with oil companies in the country.
The PSCs are a type of agreements signed between a government and petroleum exploration and production companies. The arrangements determine what share of profit derived from petroleum resources extracted from the country each party will receive. They factor such considerations as exploration risk borne by the exploration and production companies, development and production costs, and the total control of petroleum resources retained by the host government.
The report, titled: The Steep Cost of Inaction, was carried out in partnership with Open Oil, a Berlin-based consultancy, training and provider of open data and resources on natural resources. The report also states that the losses could reach $28 billion if, after the review of the PSCs, the federal government is allowed to share profit from two additional licenses.
The analysis to determine the losses was conducted for seven producing oil fields in the 1993 PSC, namely: Abo (OML125), operated by Eni; Agbami-Ekoli (OML127 and OML128), operated by Chevron; Akpo and Egina (OML130), operated by Total and South Atlantic Petroleum; and Bonga (OML118), operated by Shell.
Others include Erha (OML133), operated by ExxonMobil; Okwori and Nda (OML126), operated by Addax; and Usan (OML133), operated by ExxonMobil.
The transparency agency observed that the terms of the 1993 PSCs were drawn to attract oil and gas companies to invest in the exploration and production of offshore fields, considering the risks involved. Thus, the PSCs are supposedly more beneficial to the companies. With the anticipation that companies would have recouped their investments when oil prices increase and after many years of operations, the Act has two trigger clauses.
According to NEITI, the first review was to be triggered if oil prices exceeded $20 per barrel. Section 16 (1) of the Deep Offshore and Inland Basin Production Sharing Contracts states inter alia, “The provisions of the Act shall be subject to review to ensure that if the price of crude oil at any time exceeds $20 per barrel, real terms, the share of the government of the federation in the additional revenue shall be adjusted under the Production Sharing Contracts to such extent that the Production Sharing Contracts shall be economically beneficial to the Government of the Federation.”
This first review should have been activated in 2004 when oil prices exceeded the $20 per barrel mark.
The second review, NEITI noted, was to be activated 15 years following the commencement of the PSC Act. Section 16 (2) of the Act states that “Notwithstanding the provisions of (1) of this section, the provisions of this Decree shall be liable to review after a period of 15 years from the date of commencement and every five years thereafter.”
“This second review should have happened in 2008 and that informed why we chose 2008 as the start date of the estimated losses in the model,” NEITI said.
NEITI has, therefore, called for an urgent review of the PSCs to stem the huge revenue losses to the government. It noted that the review is particularly important for Nigeria because oil production from PSCs has surpassed production from Joint Ventures (JV). PSCs now contribute the largest share to the government’s revenue.
“Between 1998 and 2005, total production by PSC companies was below 100 million barrels per year while JV companies produced over 650 million barrels per year,” NEITI noted. “By 2017, total production by PSC companies was 305.800 million barrels, compared with 212.850 million barrels by JV companies.”
Most Popular News
- CBN suspends deputy governor, others over email scam
- Zenith Bank commends D’Tigress on back-to-back FIBA tournament victory
- AccorHotels, Ekulo sign deal for first Novotel hotel in Lagos
- FCMB sponsors Ojude Oba festival 2019
- CBN directs banks to maintain 60 per cent loan-to-deposit ratio
- Dangote Oil Refinery extends completion time to 2020