Federal Government has unveiled plans to boost its revenue base on royalty to 50 percent in the Deep Offshore and Inland Basin Production Sharing Contracts in a new bill waiting for amendment at the National Assembly.
The proposal was contained in the Deep Offshore and Inland Basin Production Sharing Contracts (Amendment) bill, 2018 transmitted separately by the Presidency to the House of Representatives and Senate.
But industry analysts say the implication of the law is that there would more money in the hands of the federal government at the expense of the state governments.
Oladiran Fawibe, chairman and chief executive officer of international Energy Services (IES) told BusinessDay that the development may instigate the states of the federation to oppose the move during public hearing on the bill as it would put them at a disadvantage financially.
He said he used to know that the royalty was cede to the states based on field of production goes to the states but lamented that in spite of the money accruing to many of the states they have nothing to show for it.
According to the explanatory memorandum that accompanied the bill, the government seeks to review its share of the government of the federation in additional revenue under the production sharing contracts.
Authorities anticipate that the proposed law would realize an extra $2 billion to the government.
The amendment bill, which scaled through first reading on the floor of the House on Thursday, seeks to alter the Deep Offshore and Inland Basin Production Sharing Contracts Act, 1999.
Ibe Kachikwu, Minister of State for Petroleum said late last year that since 1993, Nigeria had cumulatively lost some $21 billion for failing 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 Deep Offshore Act which is being amended provides that 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 the country can earn more from oil.
“But over the last 20 years, nothing really was done. We did not exercise our rights under the Act “From 1993 till now, cumulatively, we have lost a total of $21 billion just because the government did not act,” Kachikwu had said.
He said then that a key decision of government was to work with the Attorney-General of the Federation to amend Section 16 of the Deep Offshore Act.
According to the Bill seen by BusinessDay, section 16 of the Principal Act by adding a new subsection 3, which provides that: “in accordance with the provisions of subsection (1) of this section – a royalty rate by price of 50% shall apply for the additional revenue in the contract area of production sharing contracts under this Act.
“The additional revenue shall be determined by the product of the volume of crude oil or condensate sold and the difference between the actual nominal sales price of the oil or condensate and nominal value of $20 per barrel (1993 real terms), at the time of sales, provided that the value of $20 per barrel (1993 real terms), shall be determined based on relevant US All items consumer price index (CPI) as published by the US Bureau of Labour Statistics.
Recently the Nigerian National Petroleum Corporation (NNPC) disclosed that President Muhammadu Buhari had given it the approval to undertake a review of all Production Sharing Contracts (PSCs) between it and its various partners to reflect the current realities in the industry.
KEHINDE AKINTOLA, Abuja
