Nigeria lost $21bn through outdated production sharing contracts, RMAFC says

Revenue Mobilization Allocation and Fiscal Commission (RMAFC) Thursday lamented the $21 billion lost by Nigeria in the last 20 years through outdated production sharing contracts (PSC).

It therefore commended the Federal Government for recently granting approval to Nigerian National Petroleum Corporation (NNPC) to enable it undertake a review of all PSC between it and its various partners to reflect the current realities in the industry.

Minister of State, Petroleum, Dr I’ve Kachikwu, recently announced that government had approved steps to amend Section 17 of the Deep Offshore and Inland Basin Production Sharing Contracts Act, 1999, which specifically provides that the 1993 PSCs should be reviewed once the price of crude oil exceeds $20 a barrel or 15 years after the contracts i.e. 2008.

In a statement signed by Mr Ibrahim Mohammed, RMAFC’s Spokesperson, the commission recalled its consistent calls for review of the PSCs eventually approved by the Federal Executive Council (FEC) at its meeting of December 13 last year.

According to the statement, Acting RMAFC Chairman, Shettima Umar Abba Gana said “the Commission viewed the move by the Federal Government as a welcome development and commendable as the Commission, that has the constitutional responsibility of monitoring revenue accruals into and disbursement of revenue from the Federation Account had been consistently calling for the review of these contracts for the past seven years.

“These contracts had not been reviewed nine years after both conditions stipulated in the relevant provision of the Act have elapsed, thereby leading to the huge revenue loss of about $21 billion by the Country in the last 20 years”.

The commission advised government to take appropriate steps to ensure the review of these agreements with due diligence.

The statement added that in April, 2016, it drew the attention of government to the fact that three main contract types namely Joint Venture, Production Sharing and Service Contracts were in use in the Nigerian Oil and Gas Industry.“Having carefully examined the fiscal terms of each contract and the associated revenue inflow into the Federation Account therefrom, the Commission lamented that the Production Sharing Contracts (PSCs) as represented by the 1993 PSC’s which should have been renegotiated as far back as 2008 has yet to be done, thus causing the Federation Revenue losses due to the unfavourable terms of the contracts.

RMAFC further advised the Federal Government to restore production in Joint Venture Contract to previous level of approximately 108 million barrel per day and also request OPEC to increase Nigeria’s quota because of the country’s population.

JVC, the statement revealed, makes the highest contribution to the Federation Account compared to other revenue streams.