RMAFC raises the alarm over loss of $21b to obsolete contract terms with IOCs

A whopping $21 billion may have been lost by the Federal Government to International Oil Companies (IOCs) prospecting for crude oil minerals in the country due to the inability of government to review contract terms that have expired.

The alarm is contained in a statement released by the Revenue Mobilization, Allocation and Fiscal Commission (RMFAC), yesterday, indicating that the amount covers a 20-year period.

The statement by the RMFAC Head of Information Mr. Ibrahim Mohamned quoted the Acting Chairman, Shettima Umar Abba Gana as stressing that “the Commission viewed the move by the Federal Government on the approval given by President Muhammadu Buhari to the Nigerian National Petroleum Corporation (NNPC) to enable it undertake a review of all Production Sharing Contracts (PSCs) between it and its various partners to reflect the current realities in the industry as a welcome development and commendable.

It stated that: “ The Commission, which has the constitutional responsibility of monitoring revenue accruals into and disbursement of revenue from the Federation Account had been consistently calling for the review of these contracts for the past seven years adding that these contracts had not been reviewed nine years after both conditions stipulated in the relevant provision of the Act have elapsed, thereby leading to the huge revenue loss of about $21 billion by the country in the last 20 years.”

Dr. Kachikwu had recently announced that the government had approved steps to amend Section 17 of the Deep Offshore and Inland basin Production Sharing Contracts Act, 1999 which specifically provides that the 1993 PSCs should be reviewed once the price of crude oil exceeds $20 a barrel or 15 years after the contracts, that is, 2008.  To this end, the Commission advised that government should take appropriate steps to ensure the review of these agreements with due diligence.

Similarly, RMAFC recalls that in April 2016, it drew the attention of government to the fact that three main contract types namely Joint Venture, Production Sharing and Service Contracts were in use in the Nigerian oil and gas industry.  Having carefully examined the fiscal terms of each contract and the associated revenue inflow into the Federation Account therefrom, the Commission lamented that the Production Sharing Contracts (PSCs) as represented by the 1993 PSC’s which should have been renegotiated as far back as 2008 has yet to be done, thus causing the Federation Revenue losses due to the unfavourable terms of the contracts.

RMAFC further advised the Federal Government to restore production in Joint Venture Contract to previous level of approximately 108 million barrel per day and also request OPEC to increase Nigeria’s quota because of the country’s population.  It should be noted that the JVC makes the highest contribution to the Federation Account compared to other revenue streams.