From Uche Usim, Abuja
The Revenue Mobilisation Allocation and Fiscal Commission (RMAFC), has thrown its weight behind the proposed review of the Production Sharing Contracts (PSCs), approved by the Federal Executive Council (FEC) at its last meeting on December 13.
The Agency in a statement signed by its spokesman, Mr. Ibrahim Mohammed, viewed the move by the Federal Government as a welcome development and commendable.
He said: “As the Commission that has the constitutional responsibility of monitoring revenue accruals into and disbursement of revenue from the Federation Account had consistently, calling for the review of these contracts over the past seven years. It noted however that these contracts have never been reviewed nine years after, both conditions stipulated in the relevant provision of the Act have elapsed, it has led to the huge revenue loss of about $21 billion to the country in the last 20 years as recently revealed by the Minister of State for Petroleum Resources, Dr. Ibe Kachikwu.
“Recall that Kachikwu recently announced that the government had approved steps to amend Section 17 of the Deep Offshore and Inland basin Production Sharing Contracts Act, 1999 which specifically provides that the 1993 PSCs should be reviewed once the price of crude oil exceeds $20 a barrel or 15 years after the contracts, that is 2008.
“To this end, the Commission advised that government should take appropriate steps to ensure the review of these agreements with due diligence”, Mohammed said.
He added that RMAFC recalls in April, 2016, where it drew the attention of government to the fact that three main contract types namely Joint Venture, Production Sharing and Service Contracts were in use in the Nigerian oil and gas industry. “Having carefully examined the fiscal terms of each contract and the associated revenue inflow into the Federation Account therefrom, the Commission, lamented that the Production Sharing Contracts (PSCs) as represented by the 1993 PSC’s which should have been renegotiated as far back as 2008 has yet to be done, thus causing the Federation Revenue losses due to the unfavourable terms of the contracts,” he said.
The statement also adds that related to the non-review of the PSCs was the low Petroleum Profit Tax (PPT) and Royalty Regime stipulated in the Act which are disadvantageous to the Country compared to what is obtainable in the Joint Venture Contracts (JVCs). The PPT in the 1993 PSCs is put at 50% flat rate whereas in the JVCs it ranges from 85% to 65%. The Royalty Rate in the PSCs ranges from 0% to 8% depending on the water depth for the PSCs while in the JVCs it ranges from shallow 18% and Onshore 20% respectively.