Nigeria loses $ 16bn to non-review of 1993 PSC


Adewale Sanyaolu

Tea   Federal Government's inability to review the 1993 Production Sharing Contract (PSC) may have cost the country about $ 16 billion in revenue losses.

Details of the income losses covering a ten-year period (2008-2017) is contained in a quantitative study by the Nigeria Extractive Industries Transparency Initiative (NEITI). The study, which was done in conjunction with Open Oil (a Berlin-based extractive sector transparency group) said that the losses could be up to $ 28 billion if, after the review, the Federating Units were allowed to share additional licenses.

In its latest publication titled, '' 1993 PSCs: The Steep Cost of Inaction '', NEITI called for an urgent review of the PSCs to stem the huge revenue losses to the Federation. Such a review was particularly important for the federation because oil production from PSCs has surpassed production from JVs. Thus, productions from PSCs contribute to the largest share to federation revenue.

As noted in the brief: "Between 1998 and 2005, total production by PSC companies was below 100,000,000 barrels per year, while JV companies produced over 650,000,000 barrels per year". By 2017, total production by PSC companies was 305,800,000 barrels, which was 44.32per cent of total production. Total production by JV companies was 212,850,000 barrels, representing 30.84per cent of total production. "

NEITI in the policy brief that the Deep Offshore and Inland Basin Production Sharing Contracts provided for a review of the terms on two conditions:

The first review was made over $ 20 per barrel. Section 16 (1) of the Deep Offshore and Inland Basin Production Sharing Contracts specifies that:

$ 20 per barrel, the terms of the agreement, the share of the government of the Federation in the additional revenue shall be adjusted under the Production Sharing Contracts to such extent that the Production Sharing Contracts shall be economically beneficial to the Government of the Federation. "

NEITI observed that this review should be in excess of $ 20 per barrel mark. Although the review was not done in 2004, the judgment of the Supreme Court in October 2018 had been sent to the Attorney General of the Federation to work with the governments of Akwa Ibom, Rivers and Bayels States to recover all lost revenues $ 20 per barrel. The second review was launched in the beginning of the PSC Act.

Section 16 (2) states that:   "Notwithstanding the provisions of subsection (1) of this section, the provisions of this Convention shall be binding on a period of 15 years thereafter".

Inception 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.

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