The Nigeria Extractive Industries Transparency Initiative (NEITI) has said revenue Nigeria did not earn from its failure to review terms in the Production Sharing Contracts (PSCs) it signed with the oil companies in the country may have funded its construction of the 3,050 megawatts (MW) Mambilla hydro power plant estimated to cost $5.72 billion.
Also, the projects which the fund would have funded include the Calabar-Lagos Rail line ($11 billion); Fourth Mainland Bridge ($1.4 billion); Badagry Deep Water Port Complex ($1.6 billion) and Lekki Deep Seaport, amongst other key infrastructure projects.
NEITI, in a report it conducted on what the country potentially lost for not reviewing the PSCs, stated that $16.03 billion or $28.61 billion could have been made by Nigeria if it had reviewed the PSCs when oil price got beyond $20 or 15 years after the PSCs became active.
It equally disclosed that Nigeria operated a peculiar PSC regime in its oil and gas industry which was different from what obtained in other oil producing jurisdictions.
Putting the revenue lost into national development context, NEITI said: “The lower threshold of the estimated losses ($16.03 billion) could have funded the entire federal government budget in 2015. This figure can also fund 55 per cent of the federal government’s proposed budget for 2019.
“The higher threshold estimate ($28.61 billion) can fund 99 per cent of the proposed budget for 2019.”
It added further: “The lower threshold of the estimated losses ($16.03 billion) makes up 94 per cent of the total revenue that accrued to the Federation from oil and gas in 2016; the estimated cost of the Port Harcourt – Maiduguri Rail Line is between $14 billion and $15 billion, which the lower threshold of estimated losses would conveniently fund.
“The estimated cost of the Mambila power plant of 3,050MW is $5.72 billion, while the estimated cost of the Ibadan-Ilorin-Minna-Kano standard gauge line is $6.1 billion. The combined cost of these projects is $11.82 billion, which is less than the lower threshold of estimated losses.”
“The lower threshold of estimated losses is also sufficient to fund the combined costs of the Calabar-Lagos Rail line ($11 billion), Fourth Mainland Bridge ($1.4 billion), Badagry Deep Water Port Complex ($1.6 billion), and Lekki Deep Seaport ($1.2 billion),” it explained.
Emphasising the need for a review of the PSCs terms, the NEITI stated: “This report advocates for an urgent review of the terms of the 1993 PSCs. Such a review is particularly crucial in light of the Supreme Court judgement of 17 October 2018, where the Attorney General of the Federation was mandated to recover all lost revenue from failure to review the terms of these Production Sharing Contracts (PSCs).
“It is also very critical because production from PSCs has outstripped production from Joint Ventures (JVs), and thus production from PSCs constitutes now the largest component of oil production in Nigeria. By virtue of the provisions in Section 16 of the law governing the PSCs, the PSC contracts ought to have been reviewed first, in 2004 (when real oil prices exceeded $20 per barrel); and secondly on 1st January 2008 (15 years from 1st January 1993).”
On the peculiarity of the PSCs in Nigeria, it explained: “The Nigerian oil sector has a peculiar feature of PSCs which is not found anywhere else in the world. There are some cases, where the PSCs are referred to as Production Sharing Agreements (PSAs). For these PSAs, there is no provision for profit sharing with the government; the oil company takes all profit after payment of taxes.”
It noted that this leads to a sub-optimal situation for the country, as potential revenues were lost as a result of the companies not sharing profit oil with government.
“Such a situation exists for OPL 245 (Malabu), where the latest fiscal terms for the block emanating from the 2011 resolution agreement signed in 2012 provided for a production sharing arrangement for profit sharing between Shell and Eni, but the Nigerian government is completely left out of profit sharing.
“Recent quantitative evidence showed that the Federation stands to lose between $4.5 billion and $5.9 billion if the PSA for OPL 245 is implemented as against if the 2003 or 2005 PSC fiscal terms are used,” NEITI stated.
