NEITI Urges Review Of PSCs As Billions Lost To Obsolete Law

The Nigerian Extractive Industries Transparency Initiative (NEITI) has called for the urgent review of the country’s obsolete Deep Offshore and Inland Basin Production Sharing Agreement with oil companies, to avert continuous loss of huge revenue.

The agency stressed that the use of the old agreement in computation of revenues to be shared between the government and oil companies, was detrimental to the country in terms of revenue loss.

According to NEITI, despite the fact that the Deep Offshore and Inland Basin Production Sharing Contracts (PSCs) Act of 1993 provides for a review of the terms when prices of oil crosses $20 in real term; and a review of the terms 15 years after operation of the agreement and five years subsequently, the provision has not been adhered to even with oil prices is revolving around $70 per barrel.

The information contained in NEITI’s Occasional Paper which reviewed the last three years of NNPC’s financial and operations reports, noted that crude oil production under the PSCs has since overtaken production under the Joint Venture arrangements.

Details showed that PSCs accounted for 44.8percent of total oil production while the Joint Ventures (JVs) contributed 31.35percent.

“A historical analysis of this development shows that JV Companies accounted for over 97percent of Production in 1998 while PSCs contributed only 0.50percent. This trend continued until 2012 when PSCs accounted for 37.58percent while JVs contributed 36.91percent. In 2013, PSCs contributed 39.22percent while JVs contributed 36.65percent, 2014: PSCs; 40.10percent and JVs 32.10percent; 2015: PSCs 41.45percent and JVs 31.99percent while in 2017 PSCs contributed 44.32percent and JVs 30.85percent,” the NEITI Paper reported.

It added that other companies, comprising Nigerian Petroleum Development Company (NPDC), Alternative Financing (AF), and Independent/Marginal Fields contributed 2.39percent to total production in 1998 but by 2017 this had risen to 24.83percent. “This figure clearly shows the changing structure of oil production in Nigeria, where PSCs (which contributed a mere 0.5percent to total production 20 years ago) have dramatically overtaken JVs (which contributed 97percent to total production 20 years ago),” it said.

Between 2015 and 2017 covered by the review of NNPC Report, Nigeria produced 2.126 billion barrels of crude oil and condensate, with production highest in 2015 with 775.6 million barrels, the report informed.

Production was lowest in 2016 with 661.1million barrels produced, while production in 2017 was 690 million barrels.

NEITI in the report emphasised that with PSCs accounting for about 50percent of total oil production and major source of revenues, the delay or failure to review and renew the agreement means that payment of royalty on oil production under PSCs would not be made while computation of taxes would be based on the old rates.

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