19 November 2012, Sweetcrude, ABUJA — STRONG indications have emerged that International Oil Companies, IOCs, have begun to engage in vigorous lobby of senators to ensure that they kill the current Petroleum Industry Bill, PIB, on arrival.
According to a source, these foreign oil companies want the senators to either abandon the Bill, which is currently before them or if they must continue with discussions, find ways of adjusting the terms to accommodate their interests.
A source within the corridor of government disclosed that methods being put in place by the IOCs to lobby government officials include hiding under the Federal Government’s Foreign Investment drive to boost and grow the economy, with threats that the bill, if passed, will result in massive pushing of investment to other oil producing countries in the region.
The IOCs, the source said, were desperate and lobbying to ensure the amendment of the PIB to sustain the current revenue leakages, despite the five years tax waivers for investors in gas projects dedicated for domestic gas supply for power generation.
It would be recalled that with the Bill, when passed into law, the Federal Government would increase its revenue generation from Joint Ventures (JVs) and Production Sharing Contracts, PSCs, and this is exactly what IOCs are kicking against.
In the new PIB, the source said that new conditions attached to JVs and PSCs would enable the government raise its share to rates at par with what obtains in other oil producing countries as well as introduce royalties that will allow marginal field producers grow and compete, in line with the Nigerian Content Act, signed into law by President Goodluck Jonathan on April 22, 2010.
The source said: “With the absence of an enabling law that sets out guidelines for operations in the oil and gas sector, the Nigerian government has continued to lose billions of dollars in tax dues and an unfavourable PSC terms approved in 1993, which are no longer valid for current economic and business realities.
“But the PSC is designed such that the first five years the huge capital is invested, the IOCs take a large chunk of revenue estimate of 70 per cent of the profit compared with 30 per cent for the government.”
The source, however, noted that the current arrangement was bad for the country against the backdrop that royalty was set currently at zero in the 1993 PSC, adding that the PSC designed for Nigeria made it possible for the IOCs to enjoy the juicy part, while the country could only begin to receive higher profit in the ratio of 60:40 when the oil well was getting old.
The source said the PSCs were designed then as an incentive to encourage people to go into the oil sector.
“The PSCs were signed when price of crude oil was pegged at $20 per barrel. In this case, it implies that if the oil price goes above $20, government should take more from the wind fall but since the PSC started in 1993, oil price has always been above $20 per barrel, but government did not invoke the clause.
“The agreement also said the contract will be due for review after 15 years, which expired in 2008. It was not done because the oil companies threatened to relocate and government out of fear at that time allowed it to linger.
“Having identified revenue loopholes being utilised by IOCs, the experts of the Federal Government had drawn up provisions in the bill that will raise her revenue per barrel from 86 to 87 per cent for PSCs blocks and introduction of flexible royalty arrangement that will enable the government earn higher revenue as the prices of crude oil rise above $100 per barrel in JV fields.
“Our lawmakers should protect the resource base of the mainstay of Nigerian economy by rejecting offers and pressures from the IOCs. If the IOCs come to a government official and he refused to yield, they will send his brother to him. If the official refused the offer by his brother, they will send somebody to his wife, if that does not work, they will talk to his father or even report the official to his village chief.
“The IOCs, led by Shell, are divesting not because of the fiscal terms in the PIB, but because the PSC fields are more profitable to operate than the JV fields. For instance, at the current production level of 2.4 million barrels per day (mbpd) of crude oil, the PSC fields are generating $7.8 billion annually from daily production of 900,000bpd, compared to the contribution of $32 billion by the JV fields for 1.5mbpd.
‘’Under the current 1993 PSC terms, the Federal Government is also receiving 15 per cent, representing 180,000bpd from the production of 900,000bpd, while the IOCs take 720,000bpd. This cannot continue.”