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Beyond Production Sharing Contract Act

By Issa Aremu

Production
*Offshore oil rig on fire.

On Monday, November 4, President  Muhammadu Buhari signed the historic Deep Offshore and Inland Basin Production Sharing Contract (PSC) Amendment Bill into law. There is a consensus of opinions that legislation promises to significantly increase Nigeria’s share of earnings from its oil wells offshore. Also significant is the fact that the Bill was approved by the 9th National Assembly a fortnight ago and submitted to the President for assent into law in record time, a progressive departure from the hitherto war of attrition between the executive and the legislature during the 8th Assembly. Understandably, the President was also upbeat about the development.“He said, “This afternoon I assented to the Bill amending the Deep Offshore (and Inland Basin Production Sharing Contract) Act. This is a landmark moment for Nigeria; let me use this opportunity to thank the National Assembly for the cooperation that produced this long-overdue amendment,”

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“The Deep Offshore and Inland Basin Production Sharing Contracts Act was enacted on March 23, 1999, with its commencement backdated to January 1, 1993. The provisions of the Act stipulate that the law shall be subject to review to ensure that if the price of crude oil at any time exceeds $20 per barrel (even when prices were in triple digits decades after!), the share of the revenue to the Nigerian government shall be adjusted under the PSC.“It is commendable, historic, and developmental that President Muhammadu Buhari assented to the new Deep Offshore (and Inland Basin Production Sharing Contract) Act.“It is also a smart, patriotic and economic move.

The amendment of the Deep Offshore Act has, for once in recent times, commendably balanced the age long corporate greed in the oil and gas sector with urgent national needs in terms of revenue.“Nigeria henceforth would receive its fair, rightful and equitable share of income from its oil and gas, hitherto made impossible with the old law that kept oil taxes to the barest minimum, disregarding the upward swing in oil prices.“The Chief of Staff to the President, Mr Abba Kyari was right on the point when he said: “As a result of this amendment, Nigeria could earn an extra billion dollars a year from our oil. These are funds that will help restore our schools and hospitals, repair our roads and infrastructure and give our armed forces the support they need to keep us safe.

That is a big win.”“The Act is indeed a victory for the campaign for tax justice in the oil and gas sector. The Act also points to the benefit of development cooperation between the 9th National Assembly and the federal executive. This complementary policy positions between the executive and legislature must be extended to all sectors. Never again should Nigeria return to the past discredited era of governance by competition rather than cooperation between various arms of government. The 1999 Constitution (as amended) envisages separate but complementary and non- antagonistic arms of government.“However, there is more to be done.

The PSC amendment should not be one-off thing but an enduring process to reinvent the oil and gas sector. Nigeria must urgently erase the “black hole” perception of our oil and gas industry to realize the benefits of expected improved revenue from the amended Act. There is the need for more transparency and accountability in the oil and gas sector as envisaged by the Petroleum Industry Bill (PIB) that is still gathering dust.“The Nigerian National Petroleum Corporation (NNPC) subsidiaries, namely the Nigerian Petroleum Assets Management Company Limited (NPAMC), the National Oil Company and the National Gas Company (NGC), must operate within the framework of the Fiscal Responsibility Act (FRA) and Public Procurement Act (PPA) so as to check inherent corruption and misappropriation of accrued revenues.

“The point cannot be overstated that oil and gas had never been short of revenues.“What is missing is accountability underlined by crass corruption, primitive accumulation of wealth and sheer funds diversion and downright theft.“NEITI just revealed that as much as $42 billion had been stolen from crude and refined products in less than a decade. President Muhamadu has the responsibility to close the “black hole” in the sector.““As significant as the new Act is, it is not yet Uhuru until Nigeria diversifies the sources of income in the oil and gas sector beyond Petroleum Profit Tax (PPT)/National Hydrocarbon Tax into Companies’ Income Tax on value adding activities in the downstream sector.“President Buhari must therefore unbundle the NNPC now, make taxable refineries work and create sustainable taxable decent jobs.“The future of Nigeria lies in diversified value adding oil and gas sector and not in extraction and export of crude oil, no matter the percentage of government take in percentage tax.“Sustainable fiscal regime that would benefit Nigeria must be based on value addition and production in oil and gas sector and not necessarily tax on oil extraction.“Nigeria must learn from other oil producing countries that have maximized national benefits from the entire oil and gas value chains through enhanced national revenues, transparency and accountability, creation of sustainable decent jobs and growth of  national domestic product.“This underscores the need for government to revisit PIB. PIB represents a great opportunity for Nigeria to ensure a solid legislative foundation on which the future of oil and gas operations in the country will rest. Petroleum is central to the nation’s economy, accounting for 40% of GDP and 80% of government revenue.“Nigeria is the 12th largest producer of petroleum in the world and the 8th largest exporter, and has the 10th largest proven reserves. However the story is entirely different when you look at per capita petroleum reserves.

Even then, the benefit of this resource is largely felt in the negative by the Nigerian people. Living conditions are generally poor with life expectancy put at 47 years. We are 153rd out of 186 countries in the UN Human Development Index (HDI) behind such countries as Ghana and Equitorial Guinea.

“PIB therefore presents an opportunity to make the petroleum resource with which we have been endowed work for and benefit the Nigerian people.“PIB is meant to create a legal and regulatory framework that is 21st century compliant and engender sweeping reforms of our oil and gas sector- create new institutions to govern the operations of the industry; break the NNPC into three main companies with a fully-capitalised and profit-oriented National Oil Company; and institute a new fiscal regime amongst others.

The Petroleum Act, which is the principal legislation for the industry, was enacted in 1969, over 40 years ago. Lastly, sustainable amendment of the moribund Petroleum Act must be inclusive of the labour clause. Labour is the most critical factor in any production process including oil and gas sector. We must recognize and uphold the interest and welfare of workers as demanded by sector unions, namely  PENGASSAN and NUPENG. We must ensure that companies operating in the Nigerian oil and gas industry comply with all international labour conventions that have been ratified by Nigeria; the collective agreements with labour unions and the extant labour laws as a minimum in all their dealings with the Nigerian workers and their representatives.

  • AREMU, a labour leader, is a member, National Institute, Kuru, Jos.

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