Nigeria lost N7trn in 20 years to non-review of PSC Act – Senate

.Mandates 3 c’ttees to investigate failure for review of PSC Act

.Seeks urgent compliance with review stipulation to save 2020 budget, considers bill today

The Senate on Wednesday lamented the heavy loss of about N7 trillion (US$21 billion) over a period of 20 years to the failure of the country to review and amend the oil Production Sharing Contract (PSC) Act.

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It consequently mandated its committees on Petroleum Resources Upstream, Finance and Judiciary to investigate the reason for the failure to review the provisions of the PSC Act, identify the best fiscal regime for the PSCs and review the provisions of the PSC 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 Senate said the probing is necessary to recover arrears of revenues which would have accrued to the Federal Government and by implication the states entitled to derivation from contracts in seven oil fields operational in the country covering the years the provisions of section 16 of the PSC Act which were not reviewed and implemented.

The Senate also resolved to urgently save the country further loss of revenue which may hinder the implementation of the 2020 budget by passing bill to review the Act, having lost about N350 billion which would have been used in funding the running 2019 budget.

These followed a motion on ‘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 Contact Act CAP D3 LFN 2004 and amend the Extant Act’ sponsored by Senator Ifeanyi Uba (Anambra South) and 30 others at plenary.

The Senate noted with concern that it has for several years been inundated with petitions and complaints detailing how the Federal Government had lost billions of dollars in revenue due to the non-review and amendment of the Deep Offshore and Inland Basin Production Sharing Contract Act, 2004, especially Section 16 of the Act which regulates the sharing of additional revenue between the Nigerian National Petroleum Corporation (NNPC) and the various oil companies.

It said the Senate is aware that the production sharing contract is a contractual arrangement for petroleum exploration and production, whereby, the state as owner of the petroleum resources engages a contractor to provide technical and financial services for exploration and production operations for an agreed share in profit after payments of royalty, cost and taxes.

This contractual arrangement, the Senate observed, were offered by the Federal Government in the 1991 licensing round and its terms were codified into legislation, namely, the Deep Offshore and Inland Basin Production Sharing Contract Act, 2004, which became effective on January 1, 1993.

It further noted that Nigeria presently has seven fields from the 1993 production sharing contracts which are currently in production, namely, Abo (OML 125) operated by ENI, Agbami-Ekoli (OML 127 and OML 128) operated by Chevron, Akpo and Egina (OML 130) operated by Total and South Atlantic Petroleum, Bonga (OML 118) operated by Shell, Erha (OML 133) operated by ExxonMobil, Okwori and Nda (OML 126) operated by Addax and Usan (OML 138) operated by ExxonMobil.

The Senate observed that in the near and foreseeable future, the production sharing contracts will continue to play an increasingly dominant role in terms of contribution to Nigeria’s oil and gas production by contract arrangement because relative to the production from the Joint Venture Contract arrangement, the PSCs contribution rose from 0.50% (4,000,348 barrels) to 18.70% (193,143,992 barrels) per annum between 1998 and 2005 and its contribution has grown since the year 2006 from 18.37% (188,479,413 barrels) to over 39% (199,254,000 barrels) per annum in 2018.

The Senate expressed concern that in spite of the high contribution of PSCs to total production, the contribution of revenue per barrel of PSCs oil in terms of government take is significantly lower than the contribution of revenue per barrel of Joint Venture oil largely because of the harsh and inequitable terms of the Production Sharing Contracts and the failure to review the salient provisions of the PSC Act

It also noted 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 and that up till date, the PSC Act has not been reviewed and or amended to ensure that government derives maximum and equitable benefits from the PSCs as provided in the Act.

In addition, it noted that Section 16 of the PSC Act provides 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 in the additional revenue is adjusted to the extent that the PSCs shall be economically beneficial to the government and that in any event, the PSC Act may be reviewed after 15 years from its commencement in 1993 and every five years thereafter.

In his remark, Senate President, Ahmad Lawan, said the Senate will today (Thursday) consider a bill to review the Production Sharing Contract Act in a bid to boost the country’s revenue earnings, adding that Nigeria’s economy will gain significantly if the Act is reviewed and amended.

He said: “The monies can be injected into financing the 2020 Budget. This is one important and patriotic motions we have taken so far in the Senate.

“Let me say that tomorrow (Thursday), the bill that needs to be amended is coming up for consideration for second reading, and I believe what we need to do is to give it the most expeditious consideration ever.

“We also pray the executive arm of government will give it expeditious treatment because this is one bill that if amended and signed, will give us N160 billion proposed for the 2020 budget.

“So time is of essence here, and therefore, we will do everything possible to pass it, and of course follow it up, so that the effect is seen in money available to finance the 2020 appropriation which will be presented possibly next week.”