NNPC to review PSC agreements with oil companies

The Nigerian National Petroleum Corporation, (NNPC) is set to revisit the fiscal terms of the existing Production Sharing Contracts, (PSC) between itself and some International Oil and Gas Companies with a view to seeking enhanced benefits for Nigeria, based on prevailing realities in the industry.

The existing PSC terms have held sway for 22 years (since 1993) when the Deepwater contract agreements were signed.

Ibe Kachikwu, Group Managing Director of the NNPC disclosed this  on Tuesday, while speaking at the France-Nigeria Business Forum organised to mark the State Visit of President Muhammadu Buhari to Paris, France.

Kachikwu disclosed that in the weeks and months ahead, the NNPC would be re-negotiating the contracts to extract as much benefit as possible for Nigeria.

He observed that though the PSC agreements are firm contracts which should be adhered to, the NNPC is allowed to make use of the window which creates space for re-negotiation.

“We intend to begin the process of the re-negotiation of the PSCs to see what value chain and improvements we can have from these contracts. Some of the contracts were negotiated over 20 years ago and they have since been overtaken by new realities in the industry,’’  he said.

He however noted that in carrying out a review of the existing PSCs, care must be taken not to create an anti-investment atmosphere, as that may be counter-productive.

On the status of France-Nigeria relations in the oil and gas industry,  Kachikwu noted that though the French have a firm presence in the Nigerian petroleum industry, there is still room for French companies to rev up their presence in the refining areas, where Nigeria currently needs support. 

“There is no country in Africa that has the kind of resource base Nigeria has; So France really needs to get more bullish if they want to compete in Nigeria with the very aggressive India, China, Germany … It’s a huge competition and I am looking forward to better days ahead,’’ he said.

On the ongoing reforms of the Nigeria oil and gas industry,  he said the global oil and gas community is showing unmatched excitement about the re-invigoration of the industry.

“ There is a lot of interest in our quest to seek joint ventures across the value chain. There are huge potentials across board and all we need to do is to galvanise the efforts to get the best out of it,’’ he said.

Kachikwu noted that President Buhari’s vision for the industry is absolutely on track. “It is being honed every day: there is focus, transparency and diversified income streams’’.

The review of the fiscal terms in the PSC agreement as contained in the Petroleum Industry Bill (PIB) has been the basis of disagreement between the international oil companies and the Nigerian government

The IOCs felt  those who crafted the PIB reviewed the fiscal terms too much in favour of the government and to their own detriment and consequently have been kicking against the review of the fiscal terms, especially as it affect gas  production.

Funsho Kupolokun, the former  group  managing  director of the NNPC said the PSC terms were to be re-negotiated during the reign of former President Olusegun Obasanjo but that political exigencies caused it to be shifted forward and since then nothing  has happened.

The IOCs which operate under Oil Producing Trade Section (OPTS) of the Lagos Chamber of Commerce and Industries (LCCI) compared fiscal terms spelt out in the PIB with fiscal terms in 20 other countries, and argued that the trend in such countries was to provide a platform for the balancing of high royalties with lower taxes and vice versa.

They submitted that the PIB fails to guarantee this because “it significantly increases royalties and taxes and virtually eliminates all at the same time” and thus imply that Nigeria has the harshest fiscal regimes in the world.

“The result is that Nigeria will have one of the harshest fiscal regimes in the world, so harsh in fact, that not only is Nigeria uncompetitive, but the projects are actually uneconomic, meaning there is no acceptable return on investments,” he added.

The OPTS, which is a conglomerate of 18 international and indigenous oil companies, though the PIB possesses a unique opportunity to resolve the numerous challenges confronting the oil sector, it only sets out to aggravate it and simultaneously reduce investment potential in the oil sector.

They stated that the PIB presents a unique opportunity to resolve many of these challenges. However, in their view, the bill does not resolve these challenges but it will in fact reduce the much-needed investments to sustain and grow the oil and gas industry.”

They said Nigeria has the ninth largest gas reserves in the world and explained that the PIB would worsen the situation in the industry by increasing the tax rate from 30 per cent to 80 per cent.

With the low regulated domestic gas price and the enormous expenditure required to develop gas infrastructure,  the oil producers believe that an incentive-based approach to domestic obligations is the best way to achieve gas development, which Nigeria so clearly needs to jump start the gas revolution.

Olusola Bello