Nigeria loses $ 16bn in 10 years from no-review of PSCs – NEITI

By Michael Eboh
The Nigeria Extractive Industries Transparency Initiative, NEITI, yesterday, reported that Nigeria lost at least $ 16 billion over a 10-year period, from 2008 to 2017, due to no-review of the 1993 Production Sharing Contracts, PSC, with oil companies.

Acting Executive Secretary of NEITI, Mr. Waziri Adio,

In a statement in Abuja, NEITI said the study, which was done in conjunction with Open Oil, a Berlin-based extractive sector transparency group, says the losses could be up to $ 28 billion if, after the review, the Federation is allowed to share profit from two additional licenses.

NEITI, therefore, called for an urgent review of the PSCs to stem the huge revenue losses to the Federation, adding that the review was particularly important for the federation because oil production from PSCs had surpassed production from Joint Ventures, JV, with PSCs now contributing the largest share to federation revenue.

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It said: "Between 1998 and 2005, total production by PSC companies was below 100 million barrels per year while JV companies produced over 650 million barrels per year." By 2017, total production by PSC companies was 305,800 million barrels, which was 44.32 percent of total production. Total production by JV companies was 212.850 million barrels, representing 30.84 percent of total production. "

Neither the Deep Offshore and the Inland Basin Production Sharing Contracts provided for the two conditions: "The first review was made over $ 20 per barrel.

Section 16 (1) of the Inland Offshore and Inland Basin Production Sharing Contracts specifies that: "'The provisions of the Act shall be subject to the price of oil in the amount of $ 20 per barrel, real terms, The share of the Government of the Federation in the United States, under the authority of the United States.

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NEITI NOTES that this review should be done in 2004 when the price of $ 20 per barrel mark was added, but it was not done in 2004, the judgment of the Supreme Court in October 2018 had been sent to the Attorney General of the Federation Working Together with the Governments of Akwa Ibom, Rivers and Bayelsa States to recover all the income increases to the Federation with the price of crude oil $ 20 per barrel.

It is more than 15 years after the beginning of the PSC Act, where Section 16 (2) states that

"Notwithstanding the provisions of subsection (1) of this section, the provisions of this section may be relied on after the date of commencement".

The transparency watchdog published in 1993, the PSC terms were drawn up to incentivize and attract oil and gas companies to invest in the exploration and production of offshore oil fields.

"Thus the PSC contracts were supposedly more beneficial to the companies. However, the law anticipates that the companies would have recouped their investments in the following two years.

"Since the Supreme Court Judgment has been addressed for the first time, this second review was the focus of NEITI's Policy Brief. This second review should have happened in 2008, and it is not clear what happened in 2008, "said NEITI noted.

It explains that to the losses, the analysis of the production of 1993 PSCs, which are Abo (OML 125): operated by Eni; Agbami-Ekoli (OML 127 & OML 128): operated by Chevron; Akpo & Egina (OML 130): operated by Total and South Atlantic Petroleum; and Bonga (OML 118): operated by Shell.

Others, it said are Erha (OML 133): operated by ExxonMobil; Okwori & Nda (OML 126): operated by Addax; and Usan (OML 133): operated by ExxonMobil.