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Will DOIBPSC Law Boost Nation Revenue?

By Hon Abdullahi Mahmud Gaya


It is no longer news that President Muhammadu Buhari has assented Deep Offshore and Inland Basin Production Sharing Contract (DOIBPSCA) into law.

It will be recalled that the Deep Offshore and Inland Basin Production Sharing Contract Act enacted as a decree in 1993 (DOIBPSCA or the Act) provides the legislative framework guiding Nigeria’s deep offshore oil production, covering acreages greater than 200 meters in water depth.

By means of PSC into law in the country billions of dollars will land into national coffers to fund public infrastructure and essential social services instead found residence in the balance sheets of the oil firms this was not attempt to deprive the International Oil Companies (IOCs).

Federal Government of Nigeria wants the firms to make a just profit for their efforts; however, they have been receiving a surplus at the expense of our minimal developmental needs this is not ideal. The operated oil companies are Nigeria’s long-term business partners and PSC law have no interest in denigrating them; but law seeks fair equitable relationship government and International Oil Companies (IOCs).

With the amendment, the revenue generation for the federation in the Production Sharing Contracts (PSC) arrangement in the oil and gas industry would witness significant improvement. As part of this witness significant improvement Nigeria will generate an estimated $500m in additional revenues for the FG in 2020, and over $1.5billion from 2021 at the prevailing oil price at $55 per barrel and that Nigeria would rake in $2billion if oil price rises to $60per barrel since it’s become an applicable law in the country.

With the law into force the International Oil Companies (IOCs) have nothing to fear as the National Assembly ensures a level playing field that would take their concerns and suggestions into consideration. It may interest citizens to know that Nigeria receives $268million only before assenting Deep Offshore (and Inland Basin Production Sharing Contract (DOIBPSCA) Act into law.

Deep Offshore and Inland Basin Production Sharing Contracts Act Cap. D3. LFN 2004 spelt out the conditions under which the PSCs should be reviewed. The provisions of the Act stipulates that the law shall be subject to review to ensure that if the price of crude oil at any time exceeds $20 per barrel, the share of the revenue to the Nigerian government shall be adjusted under the PSC.

Part of the amended Section 5 of the principal Act, which now reads, “(1) Royalties shall be calculated on a field basis. The royalty shall be at a rate per centum of the chargeable volume of the crude oil and condensates produced from the relevant area in the relevant period as follows: In deep offshore greater than 200 meters water depth – 10 per cent; in frontier/inland basin – 7.5 per cent. (2) Royalty by price is adopted in order to allow for royalty reflexivity based on changing prices of crude oil, condensates and natural gas. This also replaces the necessity for Section 16 of the principal Act. “(3) The royalty based on price shall be identical for the various water depths in deep offshore – beyond 200m water depth, including frontier acreages for crude oil and condensates. “(4) The royalty rates shall be based on increase that exceeds $20 per barrel, and shall be determined separately for crude oil and condensates as follows: From $0 and up to $20 per barrel – 0 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.

The amended sections (Section 16 of the Act) stipulates a periodic review to guarantee economic benefits from additional revenues to the Federal Government of Nigeria from deep offshore acreages underpinned by Production Sharing Contracts (PSCs). Now under the new law before assented, the bill National Assembly also inserted a new Section 17 that read, “The minister (of petroleum resources) shall cause the corporation (Nigerian National Petroleum Corporation) to call for a review of production sharing contracts every eight years. A new Section 18 also criminalized any abuse of the law and prescribed punishments. Any person who fails to comply with any obligation imposed by any provision of the bill commits an offence and is liable on conviction to a fine not below N500,000,000 or an imprisonment for a period not (more or less: not indicated) than five years or both.

Nigeria host the world’s 10th largest Petroleum reserve at about 25 billion barrels with Gas reserve of 166 Trillion Standard Cubic Feet (TSCF). It is indubitable that Nigeria with the largest reserve in Africa has significant untapped hydrocarbon potential available to advance her economic goal. Now with act passed into law Production Sharing Contract will witnessing significant improvement to the nation economy.

Its may interest public to recalled that crude oil price between 2008 and 2014 was at its highest levels. But Nigeria has not being maximizing the opportunity to cream off the additional revenues thus losing billion dollars of extra revenue. Despite the price was at its peak level but this singular act of delayed in the past of 25 years for not effecting the laws denied Nigeria billions of dollars while allowing the oil majors to reap significant profits. With law into effect Deep Offshore and Inland Basin Production Sharing Contract (DOIBPSCA) it will be economically beneficial to the government of the federation.

Gaya is the Chairman House Committee on Downstream (Petroleum) wrote in from House of Representatives Abuja.

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