The Revenue Mobilization Allocation and Fiscal Commission (RMAFC) has expressed its support for the proposed review of the petroleum industry’s Production Sharing Contracts (PSCs).
The Commission’s support for the PSC regime followed the approval of the proposal by the Federal Executive Council (FEC) during its meeting today.
A news release signed by the RMAFC’s spokesperson, Mr. Ibrahim Mohammed, described the move by the Federal Government as a welcome development as the Commission and also aligns with its stance maintained over the past seven years.
The Commission stated further that thePSC contracts had not been reviewed in nine years after both conditions stipulated in the relevant provisions of the Act have elapsed, thereby leading to the huge revenue loss of about $21 billion by the country in the last 20 years based on recent disclosures by the Minister of State for Petroleum Resources, Dr. Ibe Kachikwu.
Kachikwu recently announced that the government had approved steps to amend Section 17 of the Deep Offshore and Inland basin Production Sharing Contracts Act, 1999 which specifically provides that the 1993 PSCs should be reviewed once the price of crude oil exceeds $20 a barrel or fifteen (15) years after the contracts i.e. 2008.
In furtherance of this approval, the Commission advised that Government should take appropriate steps to ensure the review of the PSC agreements with due diligence.
In addition, RMAFC, which has the constitutional responsibility of monitoring revenue accruals into and disbursement of revenue from the Federation Account, recalls that in April, 2016, it drew the attention of Government to the fact that three (3) main contract types namely Joint Venture, Production Sharing and Service Contracts were in use in the Nigerian Oil and Gas Industry.
Mohammed stated: “Having carefully examined the fiscal terms of each contract and the associated revenue inflow into the Federation Account therefrom, the Commission lamented that the Production Sharing Contracts (PSCs) as represented by the 1993 PSC’s which should have been renegotiated as far back as 2008 has yet to be done, thus causing the Federation Revenue losses due to the unfavourable terms of the contracts.”
He stated further that related to the non-review of the PSCs is the low Petroleum Profit Tax (PPT) and Royalty Regime stipulated in the Act which are disadvantageous to the Country compared to what is obtainable in the Joint Venture Contracts (JVCs).
The PPT in the 1993 PSCs is put at 50% flat rate whereas in the JVCs it ranges from 85% to 65%. The Royalty Rate in the PSCs ranges from 0% to 8% depending on the water depth for the PSCs while in the JVCs it ranges from shallow 18% and Onshore 20% respectively