The Revenue Mobilisation Allocation and Fiscal Commission has called for wider consultations amongst stakeholders prior to the conversion of Nigeria’s Joint Venture Contracts (JVC) to Incorporated Joint Ventures Company (IJVC) to ensure the full protection of Stakeholders.
The Commission in a statement was reacting to a newspaper publication titled ‘’ Letter to my Countrymen” by Atedo Peterside advocating for the replication of the successful NLNG model in the divestment of assets in the Joint Venture Contracts (JVC). In the said piece, Peterside opined that the JVC should be converted to Incorporated Joint Ventures (IJVs) where the Federation stake is capped at below 50 per cent across all the Oil Producing JVs.
Giving highlights of merits and demerits of the two business models, RMAFC explains that revenue inflow into the Federation Account and its timing could change significantly if and when the Government decides to transit from the JVC to the IJVC noting that the JVs are currently being managed professionally and profitably.
The Commission further illustrates that under the JVC arrangement, the Federation receives its share of Equity Crude which represents 100% revenue and the Federation pays JV Cash Call which represents the cost of production, Equity Crude received less JV Cash Call is gross profit which is 100 per cent profit, Petroleum Profit Tax (PPT) which is presently at 85 per cent will still be paid from the 45 per cent or 40 per cent shares owned by the IOC’s while payment of royalties as required by law is common in both models.
In the case of IJVs, Equity Crude will no longer be received. Equity Crude which is 100 per cent profit will be lost as the IJVs will only pay taxes at 65% of operating profit since the IJV will be registered in Nigeria. The Federation will only receive dividends at the end of the financial year of the IJV companies commensurate with Federation holding which will be less than 50 per cent. Interim dividends may or may not be paid during the financial year. Furthermore, there is no guarantee that the Federation will be receiving dividends regularly as in the JVC which comes monthly.
However, in the case of IJVs, the Federation will no longer make Cash Call payments which have always been a burden on the annual Federal Government budget. The IJV companies will source for funds to finance their programmes.
In view of the advantages and disadvantages highlighted above and given the sensitive nature of the issue at stake especially its implications on the nation’s political economy, the Commission strongly advised that before a final decision is taken on the matter, wider consultations with critical stakeholders should be made to carefully examine the two options before transiting from the JVC to IJV.