NIGERIAN SENATE APPROVES SENATOR IFEANYI UBAH’S MOTION TO INVESTIGATE CRUDE OIL REVENUE LOSS WHICH WILL GENERATE N360 BILLION ANNUALLY THROUGH THE REVIEW OF THE DEEP OFFSHORE AND INLAND BASIN PRODUCTION SHARING CONTRACT ACT CAP D3 LFN 2004 AND AMENDMENT OF ACT

To the glory of God, today, The Senate approved my motion which will generate N360 billion annually for the Federal Government through the review of the Deep Offshore and Inland basin production sharing Contract Act.

The Deep Offshore and Inland Basin Production Sharing Contract Act Cap D3 LFN 2004 (PSC Act) became effective on January 1, 1993, and is supposed to be reviewed after 15 years.

I emphatically highlighted that due to systemic negligence and non-review of the PSC Act, the Federal Government has lost about $21 billion over a period of 20 years as confirmed by the Minister of State for Petroleum Resources after a meeting of the Federal Executive Council on the 14th December 2017. Consequently, the Senate also approved the investigation of Oil companies over failure to remit over $21 billion to the national treasury.

I noted that Nigeria, having lost trillions of Naira due to the non-review of the PSC Act, stands to gain an additional sum above *N360 billion annually* if the Act is reviewed and amended which would boost our revenue base significantly.

I also raised concerns about the fact that the Senate Committee on Petroleum Resources Upstream has over several years been inundated with a plethora of petitions and complaints and has suo motu observed that the Government of the Federation has lost several billions of United States dollars in potentially accruable revenue due to the non-review and amendment of the salient provisions of the Deep Offshore and Inland Basin Production Sharing Contract Act Cap D3 LFN 2004 and especially section 16 of the Act which regulates the sharing of additional revenue between the Nigerian National Petroleum Corporation (NNPC) and the various Production Sharing Contract oil companies.

Also aware of the fact that Production Sharing Contract (PSC) is a contractual arrangement for petroleum exploration and production whereby the state as owner of the petroleum resources engages a contractor to provide technical and financial services for exploration and production operations for an agreed share in profit oil after payments of royalty, cost and tax oil, and that this contractual arrangement were offered by the Federal Government of Nigeria in the 1991 licensing round and its terms was codified into a legislation namely, the Deep Offshore and Inland Basin Production Sharing Contract Act Cap D3 LFN 2004 (PSC Act) which became effective on January 1, 1993.

I further noted that Nigeria presently has seven fields from the 1993 PSCs which are currently in production, namely:
(a) Abo (OML 125) – operated by ENI;
(b) Agbami-Ekoli (OML 127 and OML 128) – operated by Chevron;
(c) Akpo and Egina (OML 130) – operated by Total and South Atlantic Petroleum;
(d) Bonga (OML 118) – operated by Shell;
(e) Erha (OML 133) – operated by ExxonMobil;
(f) Okwori and Nda (OML 126) – operated by Addax; and
(g) Usan (OML 138) – operated by ExxonMobil.

I also observed that currently and more so in the near and foreseeable future, the PSCs will continue to play an increasingly dominant role in terms of contribution to Nigeria oil and gas production by contract arrangement because relative to the production from the Joint Venture Contract arrangement, the PSCs contribution rose from 0.50% (4,000,348 barrels) to 18.70% (193,143,992 barrels) per annum between 1998 and 2005 and its contribution has grown since the year 2006 from 18.37% (188,479,413 barrels) to over 39% (199,254,000 barrels) per annum in 2018.

I raised urgent concerns on the fact that in spite of the high contribution of PSCs to total production, the contribution of revenue per barrel of PSCs oil in terms of government take is significantly lower than the contribution of revenue per barrel of Joint Venture oil largely because of the harsh and inequitable terms of the Production Sharing Contracts and the failure to review the salient provisions of the PSC Act

Futhermore, I noted that section 16 of the PSC Act provides that where the price of crude oil exceeds US$20 per barrel, the PSC Act will be reviewed to ensure that the share of the Federal Government of Nigeria (FGN) in the additional revenue is adjusted to the extent that the PSCs shall be economically beneficial to the FGN and that in any event, the PSC Act may be reviewed after 15 years from its commencement in 1993 and every 5 years thereafter.

Cognizant of the fact that the PSC Act recognizes and anticipates the necessity for post execution and periodic review of the Act to ensure that government derives maximum and equitable benefits from the PSCs and, to wit, set out the following review incidents and datelines in the Act:
(a) Price-induced review of the provisions of the PSC Act – that is, a review to be undertaken whenever the price of crude oil exceeds US$20 per barrel, real terms, in order to increase revenue accruable to the Government of the Federation from the PSCs.
(b) Review of the entire provisions of the PSC Act (including sharing-formula provisions contained in the Act) 15 years after the commencement of the Act in 1993; and
(c) Review of the entire provisions of the PSC Act every 5 years thereafter.

Having carefully observed that no review of the Act was undertaken at the statutorily stipulated price-induced and/or anniversary-induced datelines, specifically:
(a) when crude oil price exceeded US$20 in 2004;
(b) at the 15th year anniversary of the PSC Contract, specifically on the 1st day of January 2008; and
(c) at every 5th anniversary post the 15th year anniversary of the Production Sharing Contract (which are the 1st day of January, 2013 and the 1st day of January, 2018).

I pointed out that several unsuccessful efforts have been made in the past to review or amend the PSC Act through private members and government sponsored bills in the 8th and other preceding sessions of this National Assembly.

While observing that there is a subsisting ruling alongside a consent judgement (Terms of Settlement) of the Supreme Court (SC/964/2016) delivered on the 17th day of October, 2018 emanating from a suit titled Suit No. SC/964/2016 commenced in 2016 by the Attorneys-General of Akwa Ibom, Bayelsa and Rivers States (as plaintiffs) against the Attorney-General of the Federation (as defendant), pursuant to the original jurisdiction of the Supreme Court, which sought to compel the Federal Government to review the PSC Act as stipulated in section 16 and to recover arrears of revenues which would have accrued to the Federal Government and by extension to the Plaintiff-states (through their constitutional entitlement to derivation) covering the years the provisions of section 16 were not reviewed and amended.

Up till date, the PSC Act has not been reviewed and or amended to ensure that government derives maximum and equitable benefits from the PSCs as provided in the Act.

I noted that as a result of the non-review and amendment of the PSC Act, the Federal Government has lost about US$21 billion (about N7trillion) over a period of 20 years due the failure to review and amend the PSC Act as stated by the Honourable Minister of State for Petroleum Resources following the meeting of the Federal Executive Council on the 14th day of December, 2017.

Bearing in mind that the principal role of the National Assembly is to make or amend subsisting laws of the Federation of Nigeria, which power is derived from the provisions of section 4 of the Constitution of the Federal Republic of Nigeria 1999 (as amended) and exercised through the passing of bills as provided in section 58 of the same constitution.

Aware of the urgent need to thoroughly investigate the reasons for the failure to review the salient provisions of the PSC Act, identify the best fiscal regime for the PSCs and review the provisions of the PSC Act to ensure that beyond the crude oil price of US$20, the share of the Federal Government of Nigeria (FGN) in the additional revenue is adjusted to the extent that the PSCs shall be economically beneficial to the FGN in accordance with the provisions of the Act;

Conclusively, fully convinced of the need to review the provisions of the PSC Act to ensure that the Federal Government and by implication the states entitled to derivation recover arrears of revenues which would have accrued to the Federal Government and the states afore-said covering the years the provisions of section 16 of the PSC Act were not reviewed and implemented. In line with the sheer patriotism of the ably focused 9th Senate that works for Nigeria;

In view of the points I raised, the Senate accordingly mandated the Senate Committee on Petroleum Resources Upstream in collaboration with the Judiciary and Ministry of Finance to investigate the reasons for the failure to review the salient provisions of the PSC Act, identify the best fiscal regime for the PSCs and review the provisions of the PSC Act to ensure that beyond the crude oil price of US$20, the share of the Federal Government of Nigeria (FGN) in the additional revenue is adjusted in accordance with the provisions of the Act;

The Senate further mandated the Senate Committee on Petroleum Resources Upstream to recover arrears of revenues which would have accrued to the Federal Government and by implication the states entitled to derivation covering the years the provisions of section 16 of the PSC Act were not reviewed and implemented.

The Senate also directed it’s committee on Petroleum Upstream to come up with a bill on the amendment of the PSC Act.

I am grateful that this motion was passed and highly applauded by the Senate as timely and patriotic. The motion which is a brainchild of my in-depth knowledge and expertise in the Petroleum sector has exposed the extremely appalling reality that Nigeria has recorded such monumental revenue loss over the last 15 years and this revenue, if recovered would serve as a mid term fiscal plan to consolidate the 2020 budget.


Senator (Dr.) Ifeanyi Ubah.
*Anambra South Senatorial District.*

God bless u My Boss