NEC ends JV cash calls, endorses new funding regime

The National Economic Council (NEC) yesterday endorsed a proposal ending the payment of Joint Venture cash calls by the Federal Government.

The NEC, at its three-hour meeting held inside the Council Chambers of the Aso Rock Presidential Villa in Abuja, described cash calls regime as ‘arduous and onerous’ saying it had stalled the growth of the oil and gas industry for a decade.

Cash calls is the counterpart funding which the Federal Government, through the Nigerian National Petroleum Corporation (NNPC), annually pays as its 60 percent equity shareholding in various oil and gas fields operated by international oil companies and indigenous oil firms.

Daily Trust had exclusively reported on Thursday that NEC would end the JV cash calls yesterday.

Minister of State for Petroleum, Ibe Kachikwu said the militants’ attacks on oil facilities in the Niger Delta and the drop in oil price had reduced government’s revenue and made it difficult to meet cash calls obligations.

The NEC therefore, endorsed an alternative funding regime in which the joint ventures would become incorporated and source their own financing, freeing the government from the budgetary obligations of coming up with the cash calls already put at $2.3bn for this year alone.

Under the alternative funding regime, the technical cost of oil production in the country would also come down from about $27 per barrel to $18.

Kachikwu told the council that the new arrangement would drive up investment in the sector and boost production output and revenue significantly.

He said for instance, net payment from oil production to the Federation account was expected to peak under the new arrangement to about $18bn by 2020, while raising output to three million barrels per day.

He explained that the Joint Venture cash call arrangement was Unincorporated Joint Venture (UJV ) which entails that the NNPC and the international oil companies partner in each joint venture as unique and separate legal entities.

According to him, while the NNPC pays the entire oil and gas revenues realised from the JV operations into the federation account, the production costs are appropriated and paid monthly as cash calls to the JV operations from the NNPC and IOCs.

He said from January to November 2016, the underfunding of the NNPC cash calls was estimated at $2.3 billion, noting that this was in addition to the inherited arrears estimated at $6.8 billion for 2015.