Nigeria is projected to earn an additional income of $1.4 billion annually from oil majors if the bill seeking the amendment of the deep offshore and inland basin production sharing contract (DOIBPSC) is passed and signed into law.
According to a document from the Nigeria Extractive Industries Transparency Initiative (NEITI), the amendment is expected to improve the fiscal position of all tiers of government and place them in a more stable source of revenues as royalties are payable on production rather than profits.
The country first signed the first set of Production Sharing Contracts (PSC) in 1993, while the Deep Offshore and Inland Basin Production Sharing Contract Act (DOA) was enacted in 1999 to govern operations in acreages located beyond 200 metres and the Inland Basin.
A study carried out by NEITI stated that Nigeria lost at least $16 billion and potentially as high as $28.6 billion due to the failure to Amend the Act.
The bill seeking to amend the DOIBPSC was re-submitted by President Muhammadu Buhari’s administration to the current National Assembly this month.
It has been passed by the senate while the House of Representatives is expected to consider the bill today.
The initial effort by this administration to amend the Act was forestalled by the immediate past National Assembly, which received the bill in June 2018 but failed to pass the Amendment.
“It is expected that the House of Representatives will expeditiously concur with the version of the bill passed by the Senate, which will contribute positively to the fiscal position of all tiers of government and will also contribute to the successful implementation of the 2020 Budget,” the document stated.
The bill introduces a royalty of 10 per cent for all fields above 200 metres and 7.5 per cent for Frontier/Inland Basin.
Currently royalty is zero per cent for fields at above 1,000 metres.
The bill also introduces a royalty by price when crude oil exceeds $20 per barrel starting at 2.5 per cent to 10 per cent when the price exceeds $150 per barrel.
In order to encourage exploration in the Deep Offshore and Inland Basins at a time of low oil price in the 1990’s, the government had granted generous fiscal provisions to encourage investors to explore for oil in the Deep Offshore and Inland Basins.
However, Section 16 of the DOA provided for the review of the DOA after a period of 15 years from commencement and every five years thereafter.
The law, according to the NEITI document also stipulated that the amendment would ensure that “if at any time crude oil price exceeds $20 per barrel, the share of the additional revenues will be adjusted in favour of the Nigeria’s government.”
The conditions warranting the amendment of the Act was first met in 2003 but unfortunately previous administrations failed to actualise its aspirations.
In 2008, a notice of change was issued by NNPC to enable the commencement of the amendment of the Act but this initiative was truncated in 2012 by the then Minister of Petroleum Resources.
“It should be noted that crude oil price was at its highest levels between 2008 and early 2014. Therefore, this singular act denied Nigeria billions of dollars while allowing the oil majors to reap significant profits,” the document said.