A Bill on the Deep Offshore and Inland Basin Production Sharing Contract 2004 (Amendment) Bill 2019 passed second reading on Tuesday.
Sponsored by the duo of Senators Albert Bassey Akpan and Ifeanyi Ubah, representing Akwa Ibom Northeast and Anambra South, respectively, the bill “is seeking to amend section 5 of the Production Sharing Act to bring provisions of that section into conformity with the generality of the provisions of the Act and into congruence with the intendment and essence of the Production Sharing Contracts ”
The first reading of the Bill was taken last week.
The Production Sharing Contract is a contractual arrangement for the exploration and production of petroleum resources.
By the arrangement, the federal government through the Nigerian National Petroleum Corporation as owner of the petroleum resources engages a contractor, the International Oil Companies to undertake all the financial responsibilities and all the risks while providing the technical and financial services for exploration and production operations for an agreed share in profit after payments of royalty, cost and tax oil.
Findings revealed that the federal government entered into this agreement with the IOCs in the 1991 licensing round but it became effective in 1993.
Presenting the lead debate yesterday, Senator Akpan who enumerated the fiscal incentives in the agreement to include, longer duration of oil prospecting licenses, reduction in petroleum profit tax and investment tax credit or investment tax allowance.
He called for a review of the Act as he noted that ” a cursory reading and literal interpretation of the generality of the provisions of the Act shows that at the time of the execution of the contract and the enactment of the Act, all parties to the PSC understood that the incentives extended by the Act were excessive but were necessary to achieve the objectives. However, all parties to the PSC also understood that the incentives were, to all intent and purposes, supposed to be adhoc, improvisational, contingent and therefore amendable.”
He further submitted that “it is the reason why the Act provided in section 16 that where the price of crude oil exceeds $20 per barrel the PSC Act will be reviewed to ensure that the share of the federal government of Nigeria in the additional revenue is adjusted to the extent that the PSC shall be economically beneficial to the federal government and that in any event, the PSC Act shall be liable to be reviewed after 15 years from its commencement in 1993 and every 5 years after thereafter.”
Senator Akpan said his Bill proposed the amendment of salient provisions of the PSC Act which are sections 5 and 16 of the Act.
” This amendment alters the royalty payable by the PSC contractors so that whenever oil and gas price increases with the automatic inception of the newly introduced royalty by the price mechanism.”
“The bill provides that whenever oil price goes above $35 per barrel the royalty by price shall kick in for each of the terrains.”
His projection of $35 per barrel threshold was however rejected by the Senate. President of the Senate said jerking the threshold to $35 per barrel would amount to a conscious ploy to sleaze the nation.
He said: “Jerking up from $20 to $35 is totally unnecessary, we already losing $7.5 per barrel because if we are to get fifty per cent of whatever accrues when it is over $20 per barrel, it means we are consciously inviting loss of revenue.
“Therefore, I believe that we should stick to the $20 and I also think that the percentages of the report on page 5 are low.
“While we are not going to make it difficult for investors, we should actually benefit from it as a country, So I want to urge the Petroleum Upstream committee to look into this.
“Definitely, we have to stick to $20 per barrel, we can’t go to $35 consciously losing revenue, we cannot do that. We are looking for revenues. Majority of us won’t take $35 per barrel.
The bill was later referred to the Senate Committees on Petroleum ( Upstream), Gas and Finance for deliberations ahead of next Tuesday plenary when their report would be debated and probably passed.