Senate sets to shore up revenue by amending PSC Act

.Places $50m penalty on erring oil companies

.To consider bill next Tuesday

Desirous of increasing government revenue base and generating about N160 billion to fund the 2020 budget, the Senate on Tuesday commenced the process of amending the Production Sharing Contracts Act 1993.

After a comprehensive debate of a motion moved by Senator Bassey Akpan (Akwa Ibom North East) to review additional revenue accruable to the government of the federation from the Production Sharing Contracts Act, the Senate asked a joint committees on Petroleum Upstream, Gas and Finance to work on the bill and report back to plenary next Tuesday.

The Senate also unanimously agreed to consider the report of these committees and possibly pass it same day.

To ensure that international oil companies in agreement with the Nigerian National Petroleum Corporation (NNPC) did not renege on Contracts entered into, the Senate placed a $50m fine penalty on erring oil companies.

Recall that the Senate last Wednesday mandated its Committee on Petroleum Resources Upstream to investigate the reasons for the failure to review the provisions of the Production Sharing Contracts Act (PSA).

The Senate noted that the Government of the Federation 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.

Senators Stella Oduah (Anambra North), Ibrahim Hadeija (Jigawa North East), Theodore Orji (Abia Central), Jubrin Barau (Kano North) and Lawrence Ewhrudjakpo (Bayelsa West), all called for an expeditious passage of the bill to save Nigeria huge loss of accruable revenue.

President of the Senate, Ahmad Lawan, however, advised that the Senate stick to pegging the threshold to excess above $20 per barrel rather than the suggestion of $35 per barrel.

Lawan said the penalty is essential to serve as deterrent to any company that flouts the agreement.

“Since the price of crude went beyond 20 dollars, Nigerians should have benefitted from that Act by immediately ensuring that we review that Act, where we would have gotten 50 percent of the increase in the price of crude; and we are talking about billions of dollars.

“We know that the executive will be on our side. We lost about N350 billion to fund the 2019 budget, because it is not there. And even the N160 billion proposed in the 2020 budget is at risk. So we have to do everything possible to ensure that what is ours as a country comes to us.

“And we are inviting the executive side of government to work with us on this very important Act that we are about to amend.

“We expect that before the budget is passed, this Act would have been amended and signed into law by the President because we have to fund the 2020 budget properly,” Lawan said.

Presenting the motion, Senator Albert Bassey Akpan (PDP, Akwa-Ibom North East), said the bill seeks to amend section 5 of the PSC Act to bring the provisions of that section into conformity with the generality of the provisions of the Act and into congruence with the intendment and essence of Production Sharing Contracts.

He added that “the PSC arrangement was offered by the Federal Government of Nigeria as a contractual arrangement for the exploration and production of petroleum in the 1991 licensing round.”

He explained that the fiscal incentives from the arrangement are distinct and absent from the provisions of the Petroleum Act and the Petroleum Profit Tax Act which regulates the fiscal regime of other types of petroleum exploration and production arrangements.

Senator Akpan further stated that “the Act provided in section 16 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 shall be liable to be reviewed after 15 years from its commencement in 1993 and every 5 years thereafter.”

“This amendment alters the royalty payable by the PSC contractors so that whenever oil and gas price increases, the share of government increases with the automatic inception of the newly introduced royalty by price mechanism”, Senator Akpan added.