Editorial
Editorial: The PSC Act and matters arising
The issues around the passage and signing of the new Act on Production Sharing Contracts, PSCs, have been misunderstood and distorted that what should have ordinarily been a good and positive development, has been portrayed negatively with objectionable political and constitutional implications. It was a good thing that assumed treacherous dimensions. The passage of the Act in record time was instructive in several ways. It must go down in history as one, if not, the fastest bill to be passed by the National Assembly.
It sought to end the exploitation of the country by the oil companies which had denied Nigeria the full benefit of the PSC; as well as restore the operation of the original agreement signed between the oil majors and government since 1993. A March 2019 report by the NEITI stated that the PSCs cost Nigeria between $16.03 and $28.6 billion within 10 years (2008-2017), a loss of $1.6 billion and $2.86 on average per year. According to the senate, “By passing the bill Nigeria will be at least $1.5bn richer in 2020”.
This newspaper believes that, for a government that is virtually broke and borrowing and taxing the people without regard, this will be a great relief and boost to pursue its development policies currently stymied due to paucity of funds. Unfortunately, it was the constitutional aberration of its signing by President Buhari, in faraway London, U.K. where he is on medical vacation that dominated and overshadowed the strategic importance of the Act.
The Senate had unanimously passed the bill amending the Offshore and Inland Basin Production Sharing Contract Act 2014. Senate President, Ahmed Lawan, said though the amendment was initiated by private bill, “We also received an executive communication from the sponsors, Akpan Albert and Ifeanyi Uba, who co-sponsored (the bill).”
The Senate had discovered that the IOCs had failed to remit the sum of N7tn ($21bn) to the Federal Government in the last 26 years based on non-implementation of the PSC Act.
In the 1980s and early 199s, oil prices were very low and Nigeria was struggling to meet its cash call obligations to the JVs with oil majors. The country was also keen on expanding its oil reserves. To achieve these multiple goals, the country turned to an oil production contractual arrangement called the production sharing contract, PSC, pioneered by Indonesia in 1967. Under the arrangement, the country as the sole owner of the oil engages contractors (Shell and co.) to provide technical and financial services for production and exploration.
The country gave them a lot of incentives. While the royalty rate for JVs was 20 percent, the one for PSC was graduated from 16.67 percent for oil production within 200 metres water depth to zero percent for oil from1000 metres depth. Also the tax rate for PSC was 50 percent changeable profit, instead of the 85 percent for JVs. It is important to note that companies are allowed to recover their capital and operational costs before profits are shared. The companies also get 50 percent investment tax allowance qualifying expenditure before tax is paid.
In section 16 of the PSC Act, the law had two trigger clauses or conditions for the review of terms “to such an extent as the PSC’s shall be economically beneficial to the government of the federation” when oil exceeds $20 per barrels, in real terms and 15 years after and every five years thereafter. Oil reached $25 in 2004 but no review was made. On July 26, 2007, a letter from the DPR gave notice of intending review after 15 years by January 1, 2008, but nothing happened.
Two other reviews would have been necessary in 2013 and 2018. Still nothing happened. Two things made the review inevitable. One, production for PSC started to exceed oil from JVs from 2012 with PSC responsible for 40 percent and JVs 30 percent; and 80 percent of PSC attracts no royalty at all, because they came from water depth of 1000 metres and beyond. Agbami, Akpo, Bonga, and Erha – Nigeria’s most prolific fields – are beyond 1000 metres.
For instance, in 2016, PSCs accounted for 49.2 percent of the total oil production, and 39.3 percent attracted no royalty. No rent was paid on every four barrels of six barrels produced. The Supreme Court recently ruled that the PSCs owed Nigeria $62 billion on the $20 clause in unpaid rent.
Matters arising from the foregoing reflect the lack of official thoroughness and negligence, and indeed evident collusion by government officials in perpetrating such financial brigandage against the country. It is sad that nothing was done to review this contract even when the responsible authorities of government had given indication of such.
Although the court had found the oil companies who are the contractors culpable of denying the country of legitimate incomes and earnings from the PSCs, there is also the need to investigate the role of government officials whose negligence caused this rape of the nation. It is a well known fact that the oil companies find willing accomplices in government officials to further their economic interests at the expense of the nation. This phenomenon is evident in the botched $8 billion PI&D contract scam which was craftily conceived to rip-off the country.
It is also the view and position of this newspaper that until such criminal conspiracy and economic sabotage by government officials is properly and diligently exposed and prosecuted, the country will continue to serve narrow private interests at the expense of the people. It is the penchant of public officials advancing private interests of business that has largely thwarted efforts to produce a petroleum industry bill for the country that would encourage investment and cooperation of host communities.
This must stop. Corruption is not just taking away government for private use; willfully denying government legitimate revenue for private business interest is even worse and should serious dealt with.
