The Federal Government lost about $16 bilion in 10 years due to non-review of the 1993 Production Sharing Contracts (PSCs) with international oil companies (IOCs). This is contained in a study by Nigeria Extractive Industries Transparency Initiative (NEITI).
The study, done in conjunction with Open Oil (a Berlin-based extractive sector transparency group) indicated that the losses could be up to $28billion, if Nigeria was allowed to share profit from two other oil fields.
In its latest publication titled: 1993 PSCs: The steep cost of inaction, NEITI called for urgent review of the PSCs to stem the huge revenue losses to the country. Such a review, it said, is particularly important for the federation because oil production from PSCs has surpassed production from joint ventures (JVs). Thus, productions from PSCs now contribute the largest share to the Federation Account.
“Between 1998 and 2005, total production by PSC companies was below 100,000,000 barrels per year, while JV companies produced over 650,000,000 barrels per year. By 2017, total production by PSC companies was 305,800,000 barrels, which was 44.32percent of total production. Total production by JV companies was 212,850,000 barrels, representing 30.84 per cent of total production,”the report noted.
NEITI in the policy brief stated that the Deep Offshore and Inland Basin Production Sharing Contracts provided for a review of the terms on two conditions: first review was to be triggered if oil prices exceeded $20 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 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 said this review should have been activated in 2004 when oil prices exceeded the $20 per barrel mark. Although the review was not done in 2004, the judgment of the Supreme Court in October last year 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.
The second review was to be activated 15 years following commencement of the PSC Act. 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 five years thereafter,” it noted.
At inception in 1993, the PSC terms were drawn up to serve as incentive to attract oil and gas firms to invest in the exploration and production of offshore fields considering the risks involved coupled with low oil prices.
