Nigeria’s push for more revenue from oil has received a major boost as President Muhammadu Buhari yesterday assented to the bill amending the Deep Offshore and Inland Basin Production Sharing Contract (PSC) Act governing the PSC agreements between the federal government and International Oil Companies (OICs). The House of Representatives had earlier concurred with the Senate and passed the bill.
With the signing of the bill into law, the country is projected to earn an additional income of $1.4 billion annually from the oil majors. The passage of the bill, according to analysts, will also provide the federal government further legal backing to pursue the $62 billion entitlement that it claimed arose as a result of the failure to review the production sharing formula when oil price exceeded $20 per barrel.
The president, who is currently in London on a private visit, announced the signing of the bill into law in a series of tweets on his verified Twitter handle at 4. 23p.m local time.
“This afternoon I assented to the Bill amending the Deep Offshore (and Inland Basin Production Sharing Contract) Act. This is a landmark moment for Nigeria; let me use this opportunity to thank the National Assembly for the cooperation that produced this long-overdue amendment.
“You will recall that in my 2020 budget presentation speech before the National Assembly in October, I highlighted the need to urgently review the fiscal terms for deep offshore oil fields, to reflect current realities and to ensure increased government revenues.
“Now, a month later, we have together with the Ninth National Assembly made history with the passage and the signing of the amended bill into law. We will continue to work together to deliver on all our promises to ensure inclusive growth and enhance the welfare of all Nigerians”, the president tweeted.
Before the president assented to the bill, the House had passed the provision of new Section (18), which provides that: “Any person who fails or neglect to comply with any obligation imposed by any provision of the bill commits an offence and is liable on conviction to fine not below N500 million or to imprisonment for a period not more than five years or both.”
The approval was based on the recommendations adopted in the report on the Bill for an Act to amend the Deep Offshore and Inland Basin Production Sharing Contract Act, Cap. D3 Laws of the Federation of Nigeria, 2004 and for other related matters.
The bill had sought to amend the Deep Offshore and Inland Basin Production Sharing Contract Act, 2004 and to make provisions for price reflective royalties, periodic review of royalties payable in respect of Deep Offshore and Inland Basin Production Sharing Contracts as well as offences and penalty for non-compliance.
After the consideration of the report at the Committee of the Whole, the bill passed through the third reading. In the new fiscal regime as contained in the amendment to Section 5 of the principal Act, the House approved royalties of 10 per cent in Deep offshore greater than 200 water depth and 7.5 per cent in frontier/Inland basin.
The House also adopted royalty price in order to allow for royalty reflectivity based on changing prices of crude oil, condensates and natural gas. This also replaces the necessity for section 16 of the principal Act.
The amendment also provides a new section 17 which states that “the Minister shall cause the Corporation to call for a review of the Production Sharing Contracts every eight years.
“The royalty based on price shall be identical for the various water depths in Deep offshore (beyond 200metres water depth) including frontier acreages for crude oil and condensates.
“From $0 and up to $20 per barrel – zero per cent; above $20 and up to $60 per barrel – 2.5 per cent; above $60 and up to $100 per barrel –four per cent; above $100 and up to $150 per barrel – (eight per cent) and above $150 – 10 per cent.”
The federal government had earlier begun moves to recover as much as $62 billion from international oil companies, being backlog of its share of income from the PSC.
The government was basing its action on a 2018 Supreme Court judgment that would enable the country to increase its share of income from PSC.
Representatives of the oil companies were said to have met with the Attorney General of the Federation and Minister of Justice, Abubakar Malami, on October 3.
The government accused the energy companies of failing to comply with a 1993 contract law requirement that the government would receive a greater share of revenue when the oil price exceeded $20 per barrel.
But Malami told them that while no hostility is intended toward investors, the government will ensure all the country’s laws are respected.
However, the oil companies, including Shell, have gone to the Federal High Court to challenge the government’s claim that they owe the state any money, arguing that the Supreme Court ruling doesn’t allow the government to collect arrears.