Workers in the upstream sub-sector of the oil and gas industry have called on the Federal Government to seek alternative ways of funding the Joint Venture (JV) projects between the Nigerian National Petroleum Corporation (NNPC) and oil companies.
Some of the alternatives suggested include the Incorporated Joint Venture (IJV), modeled after the Nigerian Liquefied Natural Gas (NLNG), traditional JV, whereby government reduces interest, service contract, with oil companies as contractors, and tax-based system, where government detaches totally from operations in the sector and raises revenue simply from taxation.
They argued that these steps would enable the Federal Government and the NNPC resolve the issues of debts owed the oil companies due to NNPC/government’s inability to pay the JV counterpart fund.
According to the workers, under the auspices of the Producers Forum (PF) of the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN), the JV between NNPC and oil companies presently accounts for over 60 per cent of Nigeria’s crude oil production.
Addressing the media on the issue in Lagos, PF Chairman, Emmanuel Onuorah, said the contributions of the JV operations to the nation’s economy cannot be over-emphasised despite increasing production from the Production Sharing Contracts (PSC) fields.
The JV structure, he noted, is an average of 55 per cent for the NNPC and 45 per cent for private oil companies, regretting, however, that NNPC’s larger chunk of the proceeds from the JVs notwithstanding, it has always defaulted in payment of its counterpart fund. “The sector’s activity has been greatly recessed by the challenge of funding and cash call obligations.
Over 50 per cent cut in JV funding and irregular release of cash calls has made operators to scale down on the whole spectrum of the exploration and production operations,” Onuorah said.
He disclosed that oil companies were being owed billions of dollars in cash call arrears, thereby jeopardising the job of PF members, as companies easily blame the disengagement of staff and reduction in welfare packages on lack of funds.
“For Nigeria, the lack of funding translates to reduced work programmes by the oil companies, which means reduction in re-investment and, on a larger scale, revenue to the federation.”
According to him, there is depletion in national reserves due to lack of exploration, as many fields were yet to be developed by the International Oil Companies (IOCs) due to lack of funds, thus reducing what is accrued to the nation. He added: “In essence, it is like we are eating today without thinking of tomorrow.
It is important to ask what the government and NNPC do with its share of the proceeds from crude oil sales that it owes years of cash call arrears.
“As workers in the industry and Nigerians, we are concerned about this perennial problem and call on government to make funds available to clear cash call arrears owed oil companies or provide alternative funding to producers for new exploration opportunities.”
Explaining the alternative funding system, he said various companies have in the past used the Modified Carry Agreements (MCAs) as alternative funding arrangements to avoid the issue of cash call arrears, which ended up creating problems. “Government may wish to maintain the traditional JV, but with reduced interest.
Proceeds from the reduction can be used to clear the cash call arrears, which will translate to more investments and provide needed infrastructure.
“Government can adopt what obtains in some Middle East countries, where government holds 100 per cent of all oil blocks and employ the oil companies as contractors to produce oil from the blocks solely for the country and get paid in crude for their work.”
In Tax-based System, “government detaches totally from operations in the sector and raises revenue simply from taxation; this entails putting in place a strong and efficient regulatory system and a fair fiscal regime.”
The forum further suggested that once work programme and budgets are approved, government should adhere to them, and there should be no cuts in the budget during the year when work programmes are already being implemented, as it has adverse effect on operations.
To this end it urged the new government to represent the Petroleum Industry Bill to the eighth National Assembly for accelerated passage, as enormous work had already gone into the bill.
More so, “the gas policy for PSCs and appropriate pricing of domestic gas should be addressed because it affects gas supply to the Independent Power Projects, which impacts negatively on electricity supply, Onuorah said.