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Senate orders probe into alleged loss of N1.2tr in SINOPEC-ADDAX fiscal incentive

By Anietie Akpan, Calabar
28 December 2020   |   4:14 am
Following SINOPEC-ADDAX alleged breach of terms and conditions of the 2000/2001 fiscal incentive package, the Federal Government might have lost over N1.2tr in oil revenues.

Following SINOPEC-ADDAX alleged breach of terms and conditions of the 2000/2001 fiscal incentive package, the Federal Government might have lost over N1.2tr in oil revenues.

In a statement issued in Calabar at weekend, representative of Cross River South Senatorial District in the Senate, Gershom Bassey, said he earlier sponsored a motion in which he drew Federal Government’s attention to the issue.

He said the Senate mandated its Committee on Petroleum Upstream and Committee on Gas “to scrutinise the 2000/2001 Fiscal Incentive Package and other Federal Government’s agreements with SINOPEC-Addax Petroleum Company with a view to ascertaining the level of its compliance with the agreements and make recommendations.”

He stated that in 2000/2001 the Federal Government provided a Fiscal Incentive Package to Addax Petroleum Company that saw a reduction of its Petroleum Profit Tax from 85 per cent in the 1998 Production Sharing Contract (PSC) to 60 per cent in the 2001 Fiscal Incentive Package and the company’s share of oil lifting increase from 45 per cent to 56 per cent.

Bassey, who is Vice Chairman, Senate Committee on Petroleum, explained that Addax Petroleum followed through by investing to increase production from about 10,000bpb in 2000 to over 100,000bpb by 2008.

He also stated that since SINOPEC acquired Addax in 2009, its assets have witnessed significant production decline due to poor investment decisions that made production levels to fall to about 30,000bpb with no developed gas.

“SINOPEC-Addax despite holding a 100 per cent PSC with oil mining leases OML-123, OML-124, OML-126 has refused to keep the agreement to continue investing in operated assets leading to revenue loss to the Nigerian government amounting to $3.35b yearly. OML-137 is non-producing because the oil firm breached the Fiscal Incentive Package by neglecting to invest in the asset resulting in huge oil revenue losses to Nigeria,” he stated.

He lamented that given the lack of SINOPEC-Addax’s commitment to stay in Nigeria because of its unwillingness to acquire an office building and its refusal to invest in production growth, it was unbelievable that the Nigerian National Petroleum Corporation (NNPC) had continued to honour the agreement that made it to operate the assets and lift 70 per cent of the crude oil being produced resulting in a huge annual revenue losses to the country.

Bassey added that in 2016, the process of Value For Money (VFM) audit of $1.37b of cost oil that Addax Petroleum lifted from 2007 to 2014 was initiated with the understanding that it would take three months to conclude.

Bassey, who is also Chairman, Senate Committee on Federal Roads Maintenance Agency (FERMA), pointed out that the Senate was worried that since the VFM audit was initiated in 2016, SINOPEC-Addax Petroleum had continued to enjoy over lifting of oil and had frustrated the process of conclusion of the audit to allow for equitable and accurate determination of its lifting.

“The Covid-19 Pandemic has negatively impacted on our economy and has thrown Nigeria into debt, meanwhile the Federal Government has over N1.2tr of oil revenue with SINOPEC-Addax Petroleum.

“As such, it will be leaving a liability cost of abandonment and decommissioning of about $750m at the expiration of its stay in Nigeria by 2022.