NEITI confirms Nigeria loses $16bn to PSCs in 10 yrs

By Olatunde Dodondawa

The Nigeria Extractive Industries Transparency Initiative (NEITI) has
stated that Nigeria lost at least $16 billion in 10 years due to
non-review of the 1993 Production Sharing Contracts (PSC) with oil
companies.
This was contained in NEITI’s latest report titled “The Steep Cost of
Inaction” released in Abuja at the weekend. It said that the losses
were recorded between 2008 and 2017.
The study done in conjunction with Open Oil, a Berlin-based extractive
sector transparency group, found that the losses could be up to $28
billion if, after the review, the Federation were 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.
It added that the review was particularly important for Nigeria
because oil production from PSCs had surpassed production from Joint
Ventures (JV) with PSCs now contributing the largest share to
federation revenue.
“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 per cent of total
production. Total production by JV companies was 212.850 million
barrels, representing 30.84 per cent of total production,” It said.
NEITI stated that the Deep Offshore and Inland Basin Production
Sharing Contracts provided for a review of the terms on two
conditions.
“The first review was to be triggered, if oil prices exceeded 20
dollars per barrel. Section 16 (1) of the Deep Offshore and Inland
Basin Production Sharing Contracts specifies that: The provisions of
the Act shall be subject to review to ensure that if the price of
crude oil at any time exceeds 20 dollars per barrel, real terms, 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 have been activated in 2004
when oil prices exceeded the 20 dollars per barrel mark.
It added that although the review was not done in 2004, the judgement
of the Supreme Court in October 2018 had mandated the Attorney General
of the Federation to work together with the governments of Akwa Ibom,
Rivers and Bayelsa States to recover all lost revenues accruable to
the Federation with effect from the respective times when the price of
crude oil exceeded $20 per barrel.
It further stated that the second review was to be activated 15 years
following commencement of the PSC Act, where Section 16 (2) states
that “Notwithstanding the provisions of subsection (1) of this
section, the provisions of this Decree shall be liable to review after
a period of 15 years from the date of commencement and every 5 years
thereafter”.
The transparency watchdog disclosed that at inception in 1993, the PSC
terms were drawn up to attract oil and gas companies to invest in the
exploration and production of offshore fields considering the risks
involved coupled with low oil prices.
“Thus the PSC contracts were supposedly more beneficial to the
companies. However, the Law anticipates that the companies would have
recouped their investments when oil price increases and after many
years of operations, hence the two trigger clauses in the Act. Since
the Supreme Court judgement has addressed the condition for the first
review, this second review was the focus of NEITI’s Policy Brief.
“This second review should have happened in 2008 and informed why it
chose 2008 as the the start date for commencement of estimated losses
in the model,” NEITI noted.
It explained that to determine the losses, the analysis was conducted
for the seven producing fields of the 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.
Othersmare Erha (OML 133) operated by ExxonMobil; Okwori & Nda (OML
126) operated by Addax and Usan (OML 133) operated by ExxonMobil.