Nigeria lost close to $60 billion to the non-enforcement of the terms of the Production Sharing Contracts (PSCs) signed between the federal government and the international oil companies (IOCs) in 1993, the Minister of State for Petroleum, Dr. Ibe Kachikwu, has said.
The 1993 PSC provides that royalties paid by the IOCs on oil blocks located in deep water should be reviewed upward when crude oil price exceeds $20 per barrel.Unlike in a joint venture arrangement where the Nigerian National Petroleum Corporation (NNPC) and the IOCs contribute the production costs in the ratio of their stakes in the JV companies, only the IOC in a PSC bears the exploration and production costs, and recovers the costs if oil is discovered in commercial quantities, otherwise it loses its investments.The federal government had in 1993, awarded some oil blocks in the deep water to the IOCs under PSCs and also provided generous fiscal terms to the oil majors as a result of the high risks involved in exploring in the deep water.By the terms of the PSCs, the royalties to be paid by the IOCs depend on the depth of the water where oil is found.
THISDAY gathered that for water depths ranging from 205-500 metres, the royalty is 12 per cent; for 501-800 metres water depth, the royalty is eight per cent; for 801- 1,000 metres, the royalty is four per cent and for water depths of above 1,000 metres, the royalty is zero.However, fortunately for the IOCs, oil was discovered in water depths of above 1,000 metres in all the five deep water oilfields that came on stream between 2005 and 2010 – Shell’s Bonga, ExxonMobil’s Erha, Chevron’s Agbami, and Total’s Akpo and Usan fields, which implies that these IOCs pay zero royalties to the federal government in these prolific fields.It was also learnt that even though the PSCs also stipulate that the royalties shall be reviewed upwards when oil price exceeds $20 per barrel, the federal government did not take advantage of this provision to enforce the review, thus leading to loss of huge revenues.
In a remark at the just-concluded 2017 conference of the Nigerian Council of the Society of Petroleum Engineers (SPE), Kachikwu stated that close to $60 billion was lost as a result of non-review of the PSC terms.
Kachikwu blamed the country’s lack of commitment to enforce the PSC terms on the failure of some people to do their jobs.He pointed out that there were a lot of inefficiencies in Nigeria’s oil and gas sector, which had benefitted all the stakeholders, including the IOCs.He said: “When people say we have a bit of time to change, we really do not have any time. At best, we probably have not more than five years to make very dramatic decisions in this country in this field. And what are those decisions? First, the policy is going to be very bold and very consistent and very long term. It is not going to be a policy that changes, with the coming of any new regime trying to tinker with the process.
People must know the basis upon which they invest and all that is a 25 to 30-year period; it is not a five-year, 10-year period. Nobody invests money in oil and waits for five-year or 10-year returns. So, we are going to look at very long term policy directions.“The second issue is the fact that we must deal with the inefficiencies within our system, whether it is embedded within our national oil company and parastatals or the ministries, or embedded in the private oil companies, the reality, whether we accept it or not, is that every side has benefitted from this lack of efficiencies. A country where after the prices of crude oil moved past $20 – we couldn’t even enforce the PSC requirement terms that could enable us to negotiate with the multinationals to plough back what has been calculated as close to $60 billion of monies paid to the oil companies that didn’t get into Nigeria because people didn’t do their work. That is the level of inefficiency that we had,” Kachikwu lamented.
Kachikwu added that the country’s problem was aggravated by her failure to save during the oil boom, stressing that while other countries had saved, Nigerians stole the oil proceeds and kept them in countries where the money could not be found.According to him, even the countries where some money was found are giving the country the conditions under which they would return the money.According to him: “For countries that have not saved and we (Nigeria) haven’t saved – we haven’t saved sufficiently. I was meeting with my colleagues from the UAE and Saudi Arabia and sometimes, I am ashamed to say what I have in my reserves because when I am celebrating $30 billion, they are celebrating reserves in excess of a trillion dollars in some countries. So, I wonder what happened because we earned fairly closed to what most of these countries earned. But they managed to save a lot; they managed to invest externally. Saudi Arabia started to invest in filling stations in the US in the 1980s.
At that time, nobody thought that was a concept but they began to invest massively in filling stations development in the downstream. The UAE also began to invest very massively in hedge funds and buying out property all over the world,” Kachikwu said.“So, countries who were smart enough invested their monies right and today, they can be cushioned by those investments. Unfortunately, we (Nigeria) didn’t, but we did one thing: we sucked out a lot of our money; a lot of fraud; a lot of diversions; a lot of our money is sitting in countries where we can’t even find them and even when we find them, they give us conditions under which they are going to return this money. We went through processes recently with a country that wants to return our money giving us terms where the money will be invested. This was our money, by the way, but you know, we so belittle ourselves with what we have done with oil proceeds that nobody in the world can give us respect. And that is why the efforts of President Muhammadu Buhari to focus on corruption is very key,” he explained. He said with the efforts of OPEC, oil price had been stabilised between $45 and $55 per barrel, adding that the target of OPEC is $60 between 2017 and 2018.