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NEITI advocates urgent review of production sharing agreements with oil companies

The Nigeria Extractive Industries Transparency Initiative (NEITI) called for a review of the Deep Offshore and Inland Basin Production Sharing Agreement between Nigeria and oil companies.

In a statement by its Director, Communications and Advocacy, Dr Orji Ogbonnaya Orji on Sunday, the agency said the call for the review of the obsolete legislation was in view of the revenue losses to the nation.

Orji said the use of the old agreement to compute revenues to be shared between government and oil companies was resulting in significant revenue loss to Nigeria.

He said Production Sharing Contracts Act of 1993 provides for a review of the terms when prices of oil crosses 20 dollar in real term.

The Act also provides for a review of the terms, 15 years after operation of the agreement and every five years subsequently.

“NEITI, however, observed with concern that Nigeria is yet to adhere to the provision of the agreement even now that the price of oil is revolving around 70 dollars per barrel.”

Orji said in its occasional paper, which reviewed three years of NNPC’s financial and operations reports, NEITI noted that crude oil production under the Production Sharing Contracts (PSCs) had since overtaken production under the Joint Venture(JV) arrangements.

““ A careful look shows that PSCs accounted for 44.8 per cent of total oil production while the Joint Ventures (JVs) contributed 31.35 per cent.

““A historical analysis of this development by NEITI shows that JV companies accounted for over 97 per cent of production in 1998, while PSCs contributed only 0.50 per cent.

“”This trend continued until 2012 when PSCs accounted for 37.58 per cent, while JVs contributed 36.91 per cent.

““From the publication in 2013, PSCs contributed 39.22 per cent, while JVs contributed 36.65 per cent .In 2014, PSCs; 40.10 per cent and JVs 32.10 per cent.

““For 2015, PSCs was 41.45 per cent, and JVs 31.99 per cent while in 2017 the contributions stood at PSCs 44.32 per cent and JVs 30.85 per cent respectively,“” he said.

Orji said NEITI’s occasional paper revealed that other companies, comprising Nigerian Petroleum Development Company (NPDC), Alternative Financing (AF), and Independent and Marginal Fields contributed 2.39 per cent to total production in 1998 and by 2017 this had risen to 24.83 per cent.

“”This figure clearly shows the changing structure of oil production in Nigeria where PSCs, who contributed a mere 0.5 per cent to total production 20 years ago have dramatically overtaken JVs ,which contributed 97 per cent to total production 20 years ago.“”

NEITI said its major concern was that currently PSCs accounted for about 50 per cent of total oil production and major source of revenues.

He said the delay or failure to review the agreement meant that payment of royalty on oil production under PSCs would not be made while computation of taxes would be based on the old rates.

On lifting of crude oil, Orji noted that NNPC’s monthly financial and operations report disclosed that International oil companies (IOCs) lifted more crude oil than the government.

According to Orji total lifting of crude and condensates was 2.135 billion barrels with IOCs and Independents companies lifting a total of 1.367 billion barrels, while government’s lifting by NNPC was 721.16 million barrels.

This, he noted resulted in 64.01 per cent lifting of crude by the OICs and independent companies while government, through NNPC, lifted 33.76 per cent.

““When expressed in monetary terms, total government lifting of oil amounted to 35.893 billion dollars, while the figure for IOCs and Independents was 68.591 billion dollars.”

He also said the NNPC report further disclosed that refineries received 15.15 per cent of total domestic crude lifting out of which 41.32 per cent was utilised under the Direct Sale Direct Purchase (DSDP) program of NNPC.

On refineries and domestic crude utilisation, he said NNPC report disclosed that for the three years under review, Nigeria’s refineries recorded an average capacity utilisation of 12.26 per cent.

He said further breakdown showed that Kaduna refinery had the lowest capacity utilisation of nine per cent, while Warri and Port Harcourt recorded 9.73 per cent and 15.4 per cent respectively.

“”While NEITI applauds the monthly voluntary disclosures by the NNPC, it is important to note that NEITI through its auditors under the EITI framework has not independently verified the information and data from the NNPC reports,’’ he said.

Orji, however, commended NNPC for the reconciliation of the crude swap under-delivery transaction executed during the crude- for- product- swap.

He also urged the corporation to sustain the new spirit of openness while encouraging the citizens to use the information and data from the NNPC’s reports. (NAN)

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