President Muhammadu Buhari has confirmed that the Federal Government will no longer make provisions for Joint Venture cash-calls starting from January 2017, in a speech he gave December 14 to present the 2017 budget.
“Going forward, all Joint Venture operations shall be subjected to a new funding mechanism, which will allow for cost recovery. This new funding arrangement is expected to boost exploration and production activities, with resultant net positive impact on government revenues, which can be allocated to infrastructure, agriculture, solid minerals and manufacturing sectors,” Buhari said.
The implication of this decision is that Nigeria will save $8.4 billion yearly from exiting cash call arrangement that requires it paying about $700m monthly.
The Nigeria National Petroleum Corporation (NNPC) would have to explore alternative funding mechanism that will allow the joint venture business finance itself by retaining its operating costs and capital allowances.
Maikanti Baru, NNPC group managing director, at a recent industry conference, said the national oil company would retain part of its profit margin to fund the budget in a year where fiscal costs are not sufficient to funding the budgetary requirements of the joint ventures.
“Also, where necessary, external financing could be sought to finance commercially viable and bankable capital projects, without recourse to government treasury,” said Baru.
Cash calls is the counterpart funding the NNPC pays yearly for the 60 per cent equity shareholding it owns in various oil and gas fields operated by International Oil Companies (IOCs) and indigenous oil firms and $712.46 was earmarked for it in 2016 according to the NNPC’s September operations report.
Cash call underfunding in 2016 alone amounted to $2.5 billion, bringing total cash call areas to $8.5 billion.
