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Daukoru harps on optimising returns on petroleum

By Hector Igbikiowubo
Dr. Edmund Daukoru, the Amayanabo of Nembe Kingdom in Bayelsa state and former minister of energy has expressed total support for efforts at optimizing government’s socio/economic return in petroleum arrangements.

The well respected oil industry technocrat and former president of OPEC made the disclosure in a position paper he made available to the Vanguard newspapers regarding misconceptions being peddled by a national daily (not Vanguard) regarding perceived a opportunity lost during his tenure as minister of energy.

He noted that in maximizing sector values in favour of host nation, attention must focus on cost reduction, fair share of the economic rewards to the nation and promotion of national capacity and content as well as cross sectoral linkages for enhancement of GDP.

“Regarding revenue optimization, periodic review and upgrading of fiscal schemes is a required exercise, which in Nigeria is of interministerial nature. It is rightly so because monitoring of the level and actual collection of revenue i.e. taxes, royalty e.t.c. are functions that statutorily reside with specific Departments of Government some of which are outside the Petroleum Ministry.

Consequently, over the past 30 years at appropriate times Interministerial Fiscal Review Committees are set up to review and upgrade fiscal schemes that fall due. Examples of such exercise in recent past include those of 1985 (Kupolokun Committee), 1991 (Osinubi Committee) and 1998 (Ihonde Committee).

I would not dwell on misconceptions in the newspaper article including the mix up between nominal prices and real term value, or even the erroneous computation which ignores Cost Recovery and Profit Oil Split (elements clearly enshrined in the referenced Deep Offshore and Inland Basin Production Contracts Act of 1999). Rather the object of this write up is to present the efforts that were made at the relevant point in time as follows:

(i)    The first Deep Offshore block to come into production is Abo (Agip) in 2004, followed by Bonga (Shell) and Erha (Exxon) both in 2006. In the meantime while oil price of $20/bbl was attained in year 2000, a price band shift in real terms did not scale same level until sometime in 2004.

(ii)    Acting on advice, the President vide a memo dated 23rd February, 2005 directed that an Interministerial Fiscal Review Committee be set up for review of fiscal schemes. I immediately proceed to set up the Committee with representatives from NNPC, Federal Ministry of Finance (FMF), Federal Internal Revenue Service (FIRS), Ministry of Petroleum Resources (MPR), Department of Petroleum Resources (DPR), and Economic Planning Commission with Dr. Tony Chukwueke, Director DPR as the Chairman.

(iii) The Committee which commenced work shortly thereafter engaged the International Oil Companies (IOCs) on various commercial issues of the MOU (which was already due). The Committee also engaged the International Oil Companies (IOCs) on a complete re-negotiation of the 1993 PSCs focusing on structure, targeted aspiration and above all magnitude of share of the economic rent in favour of the concessionaire and host nation,” he explained.

Dr. Daukoru noted that the fact that the exercise was not concluded by May 2007 should not be surprising, as negotiation of fiscal schemes which are applicable for several years after, is an intensive, painstaking and long drawn exercise, as the immediate past exercise initiated in 1998 and concluding in 2000, amply shows. He said because of the protracted nature of such negotiations, there is usually an effective date to be agreed as part of the negotiations, adding that to compute lost revenue at this point is therefore premature.

According to him, production records available at both the DPR and the NNPC shows that from 2004 when oil production commenced in the first Deep Offshore until the Obasanjo administration left office in May 2007, the NNPC lifted thirty Two percent (32%) of all Deep Offshore oil production.

“It is therefore inconceivable that the country would have lost $18 billion as alleged. Moreover, lifting entitlements are not really lost in a partnership operation; they may be deferred but can be picked up by the entitled partner whenever circumstances so dictates, for as long as the venture is still in production.

Simplistic analysis could thus be misleading and alarmist, however well intentioned. Apart from significant errors of economic modeling earlier alluded to, more than fifty percent of crude volumes used for the calculation are produced in the time period after the administration had left office,” he pointed out.

Dr. Daukoru further explained that having been involved in virtually all aspects of the energy sector, he remains not only supportive, but passionate about efforts at sector value maximization to the Nigerian nation.


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Comments expressed here do not reflect the opinions of vanguard newspapers or any employee thereof.