Nigeria lost a whopping $21 billion to its failure to implement the premium element governing the country’s oil and gas production sharing contracts (PSCs) as provided under the Deep Offshore and Inland Basin Production Sharing Contracts Act, the Minister of State for Petroleum, Dr. Ibe Kachikwu disclosed Wednesday.
Accordingly, the federal government has initiated moves to amend the Deep Offshore Act, in order to increase government’s revenue from crude oil sales when prices exceed $20 a barrel.
The Deep Offshore and Inland Basins PSC Act was enacted in 1993 to provide the fiscal framework for foreign investments in deep offshore and inland basin acreages in the oil and gas sector.
It was also targeted at addressing the challenges confronting the joint operating agreements (JOA), which paved the way for the Nigerian National Petroleum Corporation (NNPC) to become the concession holder while the international oil companies (IOCs) became the contractors.
Following the agreements entered into by NNPC with eight IOCs in 1993, the country was able to attract foreign investments running into billions of dollars to develop oil acreages located in deep waters offshore Nigeria.
Some of such oil fields include the 225,000 barrel per day (bpd) Bonga oil field operated by Shell, the 250,000bpd Agbami oil field operated by Chevron, and the 180,000bpd oil field operated by Total. Others in the pipeline are the Egina and Zabazaba oil acreages.
But Kachikwu, while briefing State House correspondents at the end of yesterday’s weekly Federal Executive Council (FEC) meeting presided over by Vice-President Yemi Osinbajo, said failure to implement the relevant clause in the Deep Offshore Act governing the PSCs, effectively robbed Nigeria of $21 billion.
He said under the Deep Offshore Act, once the price of crude oil exceeded $20 per barrel, the “premium element” should have been distributed in accordance with the PSCs between the government and IOCs in a manner that the nation would have derived more value for its oil.
He said because of the failure of the Nigerian government to take the required steps in the past 20 years, the inertia had cost it such a huge sum, thus prompting him to seek FEC’s approval to amend Section 15 of the Act, with a view to giving the policy the required bite.
According to him, following council’s approval, the eventual amendment of the Act was expected to yield $2 billion extra revenue to the government’s coffers.
“The first and most substantial for me is the decision to work with the Attorney-General of the Federation to amend Section 15 of the Deep Offshore Act.
“Under the Deep Offshore Act, there was a provision in 1993 that says once the price of crude exceeds $20 a barrel, the government will take steps to ensure that the premium element is then distributed under an agreed formula so that we can get more from our oil. But over the last 20 years, nothing really was done.
“From 1993 till now, cumulatively, we have lost a total of $21 billion just because the government did not act. We did not exercise our rights under the Act.
“In 2013, there was a notice to oil companies that we were going to do this, but we did not follow through in terms of going to council to get approval.
“One of the things we’ve worked very hard on is to get that amendment because once we do, the net effect for us is close to $2 billion extra revenue for the federation,” he explained.
The minister noted it would be difficult to recoup past losses, given that oil companies that were not paying the government a premium for sales over $20 a barrel were not breaking the law.
However, the administration will explore whether there is an opportunity to get back some of the money, Kachikwu added.