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Production Sharing Contract: Government, Oil Majors Pass The Buck Over Nigeria’s $62bn Cut

Oilfield
13-04-2021
There is a cloud of uncertainty surrounding $62 billion outstanding taxes and royalties owed Nigeria by operating major oil companies in the country.

The federal government had in 2019 taken the step to recover as much as $62 billion (£50.6bn) from international oil companies using a 2018 Supreme Court ruling which, it said, enabled it to increase its share of income from production-sharing contracts (PSCs).

The move was in line with the present administration’s commitment to bolster revenue after a drop in the output and price of oil which is Nigeria’s main export.

LEADERSHIP learnt that government was compelled to demand the money after realising that the energy companies failed to comply with a 1993 contract-law requirement that the country receive a greater share of revenue when oil price exceeds $20 per barrel.
Subsequently, the attorney-general’s office and the justice ministry presented the demand for payment through a document. Though it is not clear how the government intends to recover the money, it has said it wants to negotiate with the companies.

However, 18 months after the minister’s letter, the stakeholders in the multibillion dollar oil deal on government side were engaged in buck passing when they were asked the status of the money, with none of them ready to provide clarity on the issue.

And when LEADERSHIP NG reached out to the oil majors, those who even agreed to speak on condition of anonymity decline making any comment   because the matter was in court.  Under the production-sharing contract law, companies including Royal Dutch Shell Plc, ExxonMobil Corp., Chevron Corp., Total SA and Eni SpA agreed to fund the exploration and production of deep-offshore oil fields on the basis that they would share profit with the government after recovering their costs.
LEADERSHIP recalls that when the law came into effect 26 years ago, crude was selling for $9.50 per barrel.

At the moment, oil companies take 80 per cent of the profit from these deep-offshore fields, while the government receives 20 per cent, according to the document.

Most of Nigeria’s crude is pumped by the five oil companies which operate joint ventures and partnerships with the Nigerian National Petroleum Corporation (NNPC).

It was also reported that representatives of the oil companies met justice minister Abubakar Malami on October 3 of the same year in Abuja.

According to Bloomberg report, Malami told them that while no hostility is intended toward investors, the government will ensure all the country’s laws are respected.

Attempts by our correspondent to get information on the payment from ExxonMobil, Shell and Chevron were unsuccessful.

The NNPC would also not comment on it but referred LEADERSHIP to the Department of Petroleum Resources, DPR, which it said regulates the industry and enforces compliance to rules and sanctions.

On its part, the DPR was not adequately responding.

However, the senior media advisor to the minister of state for petroleum resources, Garuba Deen, told LEADERSHIP that he would check with the minister and revert but at the time of this report, he has not responded.

On their part, some oil companies including Shell have gone to the Federal High Court to challenge the government’s claim that they owe the stated money, arguing that the Supreme Court ruling doesn’t allow the government to collect arrears.

They also contend that because the companies weren’t party to the 2018 case, they shouldn’t be subject to the ruling.

“We do not agree with the legal basis for the claim that we owe outstanding revenues,” Shell’s Nigerian unit said in an emailed response to questions.

The Supreme Court ruling followed a lawsuit by states in Nigeria’s oil-producing region seeking the interpretation of the nation’s production-sharing law. The states argued that they weren’t receiving their full due. The court ruled in their favour and asked the attorney general and justice minister to take steps to recover the outstanding revenue.

The 1993 law required that its provisions be reviewed after 15 years and subsequently every five years. The attorney-general’s office insists that the provision for a higher share of revenue doesn’t require legislative action to take effect, according to the document.

“Instead,  it imposes a duty on the oil companies and contracting parties, being NNPC, to by themselves review the sharing formula,” the ministry said.

In separate interviews with our correspondent, chairman, Human and Environmental Development Agenda (HEDA), Mr Olanrewaju Suraju, and executive director, Civil Society Legislative Advocacy Centre (CISLAC),  Auwal Musa Rafsanjani, blamed the inability of government to legitimately collect revenue accruing to it from the industry on the lack of fiscal policy and corruption.

Rafsanjani also lamented weak regulatory system and seeming connivance between corrupt government officials and the operators.

“There is a clear absence of oversight by the industry regulator and lack of fiscal policy has also influenced flagrant abuse of processes. I don’t see why Nigeria should indulge in so much borrowing while humongous sums of money are being tied down by oil companies,” he said.

On his part, Suraju said that it is sad that after a thorough calculation of legitimate outstanding taxes, nobody is saying anything about it and the public is now worried about the size of the country’s debt.

According to latest data from ActionAid Nigeria, Nigeria’s external debt stock increased by 410.9 per cent between 2012 and 2020, with the highest year-on-year growth recorded in 2017 at 65.82 per cent, followed by 35.16 per cent growth in 2013 and 33.63 per cent in 2018.

Rafsanjani noted that already social institutions are on the verge of collapse. He specifically said the country’s health and education sector are clearly not well funded and other critical infrastructure not available to support the economy.
Leadership Ng

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