Nigeria lost $16bn to non-review of production contracts – NEITI
The Nigeria Extractive Industries Transparency Initiative (NEITI) has said the country lost at least $16billion over a ten-year period (2008 – 2017) due to non-review of the 1993 Production Sharing Contracts (PSCs) with oil companies.
NEITI said in a statement yesterday by its spokesman Dr. Orji Ogbonnaya Orji that it arrived at the figure from a quantitative study it conducted.
The study, which was done in conjunction with Open Oil (a Berlin-based extractive sector transparency group) indicates that the losses could be up to $28bn.
At inception in 1993, the PSC terms were drawn up to attract oil and gas companies to invest in the exploration and production of offshore fields considering the risks involved coupled with low oil prices.
In the publication titled, ‘‘1993 PSCs: The Steep Cost of Inaction’’, NEITI called for an urgent review of the PSCs to stem the huge revenue losses to the country.
Such a review, it said, is particularly important for the federation because oil production from PSCs has surpassed production from JVs. Thus, productions from PSCs now contribute the largest share to federation revenue.
It further stated that Section 16 (1) of the Deep Offshore and Inland Basin Production Sharing Contracts provided for a review of the terms if oil prices exceeded $20 per barrel and Section 16 (2) provided the second review was to be activated 15 years following commencement of the PSC Act.
NEITI said it observed that the first review which should have been activated in 2004 when oil prices exceeded the $20 per barrel mark was not done.
According to NEITI, the second review should have happened in 2008 and thus the choice of 2008 as the start date for commencement of estimated losses in the model.
In summary, the results showed that between 2008 and 2017, lost revenue to the Federation owing to failure to review the PSC terms was between $16.03 billion and $28.61 billion depending on which scenario one adopts.
Putting the losses in project terms, NEITI reported that the lower threshold loss of $16.03bn to the Federation Account would have funded the Port Harcourt - Maiduguri rail line put at between $14bn to $15bn. Other projects that the lost revenue could have been used to fund include the “Mambila Power Plant of 3,050 MW at $5.72 billion, while the estimated cost of the Ibadan-Ilorin-MinnaKano Standard Gauge Line is $6.1 billion