The Senate on Wednesday mandated its Committee on Petroleum Resources Upstream to investigate the reasons for the failure to review the salient provisions of the Production Sharing Contract Act. It also mandated it to identify the best fiscal regime for the PSCs and review the provisions of the Act to ensure that beyond the crude oil price of US$20, the share of the Federal Government of Nigeria (FGN) in the additional revenue is adjusted in accordance with the provisions of the Act.
The resolution came on the heels of the motion, “Urgent need to review and recover additional revenue accruable to the government of the Federation from the Production Sharing Contracts pursuant to Section 16 of the Deep Offshore and Inland Basin Production Sharing Contract Act CAP D3 LFN 2004 and amend the Extant Act.”
It was sponsored by Senator Ubah Ifeanyi Patrick (Anambra South) with 30 of his colleagues as co-sponsors.
The Senate noted with concern that the nation has lost several billions of United States dollars in potentially accruable revenue due to the non-review and amendment of the salient provisions of the Deep Offshore and Inland Basin Production Sharing Contract Act Cap D3 LFN 2004 and especially section 16 of the Act which regulates the sharing of additional revenue between the Nigerian National Petroleum Corporation (NNPC) and the various Production Sharing Contract oil companies.
The PSC which became effective on January 1, 1993, under the military regime of General Ibrahim Babangida, is a contractual arrangement for petroleum exploration and production whereby the state as owner of the petroleum resources engages an international oil company to provide technical and financial services for exploration and production operations for an agreed share in profit oil after payments of royalty, cost and tax oil.
The contractual arrangement was offered by the Federal Government of Nigeria in the 1991 licensing round and its terms were codified into legislation namely, the Deep Offshore and Inland Basin Production Sharing Contract Act Cap D3 LFN 2004 (PSC Act).
Section 16 of the PSC Act provides that where the price of crude oil exceeds US$20 per barrel, the PSC Act will be reviewed to ensure that the share of the Federal Government of Nigeria (FGN) in the additional revenue is adjusted to the extent that the PSCs shall be economically beneficial to the FGN and that in any event, the PSC Act may be reviewed after 15 years from its commencement in 1993 and every 5 years thereafter.
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Findings revealed that there are existing seven fields from the 1993 PSCs which are currently in production. They include Abo (OML 125), operated by ENI; Agbami-Ekoli (OML 127 and OML 128) – operated by Chevron. Others are the Akpo and Egina (OML 130) operated by Total and South Atlantic Petroleum and the Bonga (OML 118), operated by Shell. ExxonMobil operates the Erha (OML 133), Usan (OML 138) while Addax Petroleum operates the Okwori and Nda (OML 126.
The Senate recalled that several unsuccessful efforts have been made in the past to review or amend the PSC Act through private members and government-sponsored bills in the 8th and other preceding sessions of this National Assembly.
Failure to review the Act, it noted has deprived the nation maximum and equitable benefits of the PSCs as provided in the Act.
Senator Uba said, “that as a result of the non-review and amendment of the PSC Act, the Federal Government has lost about US$21 billion (about N7trillion) over a period of 20 years due to the failure to review and amend the PSC Act as stated by the Honourable Minister of State for Petroleum Resources following the meeting of the Federal Executive Council on the 14th day of December, 2017.
Senator Uba further informed his colleagues that if the Act was expeditiously reviewed, Nigeria “stands to gain an additional sum above 30billion naira monthly (360billion annually) if the Act is reviewed and amended which would boost our revenue base significantly.”
Contributing to the motion, Senator George Sekibo, ( Rivers East) lamented the complacency of the NNPC towards the review of the Act and the gang up by the International Oil Companies to frustrate its review.
He said: ” It was agreed that the sharing formula be reviewed when the price of crude oil moved to $ 20. When the price goes beyond $20, the price of crude has since 1999 been on the rise, it was supposed to be revised after 15 years since the law was formulated. The country can make more money from PSC, but it hasn’t. Why have we failed? I understand that there is cartel frustrating it because they make money at the expense of Nigeria. The President must personally take this upon himself and recover all the outstanding arrears.”
Senator Opeyemi Bamidele, (Ekiti Central) said, “those who enacted the PSC Act in 1993 were very conscious of the fact that it must be dynamic, but no review has been done after 15 years as stipulated. It even said subject to crude oil price. But we have refused to review it for whatever reason and everybody watches Nigeria bleed. We must do something to save this country.”
He informed his colleagues that the PSC was in operation in Angola but noted that the Angola government put a peg to cost recovery.
“There must be cost recovery ceiling; it is at 50% in Angola and you can’t go beyond it. We must stop Nigeria from bleeding. Whatever needed to be done must be done.”
Senator Stella Oduah, (Anambra North) equally blamed the NNPC for its lack of vigilance in ensuring that the IOCs keep their own part of the agreement.
“The price of crude oil has been on the increase since we make $20 the benchmark. Anytime it goes beyond that, they bring the balance to the table to share. They haven’t been doing that. I see it as NNPC negligence and recklessness. I do solely support that we call NNPC to order and ensure that this contract is implemented to the letter.”
Former Imo state governor and senator representing Imo West senatorial district, Rochas Okorocha spoke in a similar vein and said the Senate must insist that the arrears of N7 trillion were recovered from the OICs
He said: “It is the inability of those in charge, some of these agencies have failed the people and have failed the Nigerian nation. We must call these oil companies to order. I think there is need in assigning responsibility to the committees recover the lost funds, and call the oil companies to sit up and clear the mess they have created.”
Senator majority leader, Yahaya Abdullahi said relevant committees of the Senate be assigned the responsibility of blocking the financial leakages.
“We must rise up to the occasion and block the leakages. We should refer this matter to the Committee on Finance and Committee on Human Rights to make sure that the revenue accruing to us from the PSC are brought to us.”
President of the Senate, Ahmad Lawan, equally appealed to the Senate Committee on Petroleum Resources Upstream to give the bill expeditious treatment. “Time is of essence to pass it so that the difference is seen in the money that will be available to finance the 2020 appropriation bill.”