Why bill was taken to Buhari in UK for assentHistory was made in the petroleum sector of Nigeria’s economy on Monday, October 4, 2019, when President Muhammadu Buhari in faraway London, United Kingdom, assented to the amended Deep Offshore and Inland Basin Production Sharing Contracts Act. Following the development, what has the country lost, stands to gain? The answers are tucked in this piece.
By Levinus Nwabughiogu
It is either you consult the archives, surf the net or embark on a journey of a good mental research and calculation to recall the last time Nigeria’s crude oil was sold at $20 per barrel in the international market.
Undoubtedly, it will also be a Herculaneum task to recall whether the government of former President Olusegun Obasanjo, at the dawn of democracy in1999, or that of erstwhile President Goodluck Jonathan, from 2010 to 2015, experienced the sale of crude below $20.
If anything, many Nigerians will remember that Jonathan’s regime witnessed a quantum leap and geometric rise of oil prices to even $100 per barrel.
Like the times of oil boom in the 70s when General Yakubu Gowon (ret.) as then-Head of State became confused as to what to do with cash due to its overflow, Jonathan’s era was also adjudged the good days in the oil sector after, perhaps, a long period of snail speed in oil price hike.
Similarly, under President Muhammadu Buhari, crude has not sold below $30 per barrel since he came on board in 2015.
At the estimated production of 2.2million, sometimes 2.3million barrels per day, Buhari’s regime had projected the benchmark of $38 per barrel in 2016. It rose to $42.5 in 2017. In 2018, it was pegged at $47 while, in 2019, government insisted on $60 per barrel.
But for 2020 fiscal year, government has proposed $57 per barrel, a slice of $3 off the 2019 benchmark. Significantly, all of these were predicated on the official exchange rate that journeyed from N197 to the current N305 per dollar since 2015.
Remarkably, crude has hardly been sold strictly at the estimated prices. There had been fluctuations on the rising planks in the country’s favour.
Now, if crude had been sold above $20 consistently from January 1993 till date, heck yourself with the quantum of proceeds and profits that would have accrued to Nigeria. You will then come to terms with the size of money realized.
But the bulk of the profits never made it to government coffers. At best, it was a paltry sum subsumed in a very ridiculous percentage that she got. In fact, call it a handout given to Nigeria as chicken feed by international oil companies, IOCs, you will be right. That’s what Nigeria has received and manifestly so since 1993.
A government document seen by Sunday Vanguard said the nation could as well have lost at least $62billion under a deal she entered into with IOCs.
Background to the Deep Offshore Act
This was, however, made possible by a decree enacted by the Federal Military Government in 1993 which granted the IOCs licences to explore and drill oil at their own expense, recoup their capital, pay tax and share the profit with Nigeria. The deal was anchored on a decree titled ‘Production Sharing Contracts (PSCs)’.
At the time, the economy was in dire straits and the government desperately needed a bailout to shore up infrastructure. And so, bedevilled with the lack of prerequisite drilling machines, the financial muzzle and the technical know-how to excavate the lands for the black gold, then Federal Military Government subscribed to the idea of engaging the oil companies which had the wherewithal to drill, sell and share proceeds with it.
At the time of this agreement, the price of crude oil was at $9.50 per barrel.
Remarkably, there were very important clauses in the decree at Section 16 (1) and Section 16 (2).
Section 16 (1) stipulated: “If at any time the price of crude oil exceeds $20 per barrel in real terms, the share of the Federal Government of Nigeria in the additional revenue shall be reviewed to make it economically more advantageous to Nigeria”, while Section 16(2) provided that after a tenure, the National Assembly shall review the Act.
But since then, there had been so much laxity to review the sharing ratio even when the price of crude oil has significantly exceeded $20 per barrel for over 23 years.
Apparently, in 2004, the name of the decree was reviewed hence the title, ‘Deep Offshore and Inland Basin Production Sharing Contracts Acts, CAP. D3, LFN, 2004’.
But despite the amendment, the practice remained the same. No enforcement of the review of the sharing formula even when the law stipulated a review after every 15 years from its commencement and every five years thereafter. For purposes of recapitulation, it has been 26 years since the enactment in 1993.
Some analysts suspect internal collusion, politics, avarice, inefficiency, laxity, outright sabotage of government efforts and oil theft as reasons why Nigeria had been defrauded of at least $62billion.
ALSO READ: Buhari signs amended Deep Offshore Act
First attempt to bill amendment in the House of Representatives
Angered by the perennial loss of money, a member of the House of Representatives (Monguno/Marte/Nganzi federal constituency of Borno State), Hon. Mohammed Tahir Monguno, in 2018, during the 8th National Assembly, proposed an amendment to the Act to reflect modern realities.
It was titled: ‘A Bill for an Act to Amend the Deep Offshore and Inland Basin Production Sharing Contracts Act, CAP. D3, LFN, 2004 to Review the Share of the Government of the Federation in the Additional Revenue under the Production Sharing Contracts; and for Related Matters (HB89)’.
Opening the debate on the bill then, Monguno bemoaned the lacunae in the existing law.
He said: “Rt. Hon. Speaker, Hon. Members, the Act, however, did not provide any mechanism for the implementation or otherwise of the provisions regarding the statutory periodic review in Section 16.
“The Bill, therefore, seeks to amend, among other things, Section 16 to review the production sharing contract. The amendment alters the royalty payable by the production sharing contract contractors so that whenever oil and gas price increases, the share of government also increases.
“The amendment provides for the review of the share of the Federal Government to the extent that production sharing contracts shall be economically beneficial to the Federal Government of Nigeria.”
The debate on the proposed amendment bill was robust. According to Monguno, members spoke for and against. There were, however, some observations and reservations in the area of the level of percentage the royalties payable should be pegged at. Another one was amending the law in the petroleum sector holistically and passing the law on Petroleum Industry Bill (PIB) instead of in piecemeal.
Unfortunately, in the end, the bill did not see the light of day, not because of the opposing debate or observations of members but chiefly so because of the frosty relationship between the Executive Arm of government and the 8th National Assembly headed by Senator Bukola Saraki and Rt. Hon. Yakubu Dogara.
Bill reintroduced in 9th National Assembly
Monguno, who is now the Chief Whip of the House of Representatives, reintroduced the bill in the 9th House. But it had only gone into Second Reading on Tuesday, October 29, 2019, when the Senate brought its passed bill to the lower chamber for concurrence having received it as an Executive Bill this time and passed it expeditiously.
Why Buhari reintroduced Bill
The best expression as to the reason that propelled and compelled the Executive Arm of government to reintroduce the amended bill to the National Assembly is to say that Nigeria is broke. To this end, there is an urge to shore up revenue from every quarter to finance the budget and, to the Buhari’s regime, amending the Deep Offshore Act, at this time, was most appropriate.
This is why the President, while presenting the 2020 Budget before a joint session of the Senate and the House of Representatives on October 8, 2019, factored in the amendment proposal as one of its “strategic priorities” in the fiscal year expected to commence on January 1.
Buhari said: “The 2020 Budget is expected to accelerate the pace of our economic recovery, promote economic diversification, enhance competitiveness and ensure social inclusion. We are optimistic of attaining higher and more inclusive GDP growth in order to achieve our objective of massive job creation and lifting many of our citizens out of poverty.
“The efficiency of port operations will also be enhanced by implementing a single customs window, speeding up vessel and cargo handling and issuing more licenses to build modern terminals in existing ports, especially outside Lagos.
“Furthermore, completing the reforms to the governance and fiscal terms of the Petroleum Industry will provide certainty and attract further investments into the sector. A consequence of this will be an increase in jobs and in the government’s take. I, therefore, seek your support in passing into law two Petroleum Industry Executive Bills I will be forwarded to you shortly.
“In addition, we need to quickly review the fiscal terms for deep offshore oil fields to reflect the current realities and for more revenue to accrue to the government. The Deep Offshore and Inland Basin Production Sharing Contract (Amendment) Bill 2018, was submitted to the 8th National Assembly in June 2018 but was unfortunately not passed into law.
“I will be re-forwarding the Bill to this Assembly very shortly and therefore urge you to pass it. We estimate that this effort can generate at least 500 million US dollars additional revenue for the Federal Government in 2020, and over one billion dollars from 2021.”
How the bill fared in the Senate/House
If the growing argument that Executive Bills are usually given priority attention than Private Member’s Bill because of interest and urgency, it, indeed, played out here.
Titled ‘The Deep Offshore and Inland Basin Production Sharing Contracts Act CAP D3, LFN 2004 (Amendment) Bill, 2019 (SB.21), A Bill for an Act to Amend the Deep Offshore and Inland Basin Production Sharing Contract Act CAP D3 LFN, 2004 and For Other Matters Connected Thereto”, the bill gained unusual acceleration though with all facets of due diligence followed.
The Deep Offshore Amendment Bill was read for the first time in the Senate on Thursday, October 3, 2019. Seven days later, precisely on Tuesday, October 10, 2019, it scaled through to second reading. By Tuesday, October 15, 2019, it was read for the third time and passed, following every process of bills presentation and passage.
Details of the Amendment and New Insertions:
Principally, the Bill witnessed amendments of Section 5, deletion of Section 16, insertion of new Sections 17 and 18.
The new Section 5(1) reads: “Royalties shall be calculated on a field basis. The royalty shall be at a rate per centum of the chargeable volume of the crude oil and condensates produced from the relevant area in the relevant period as follows: (a) in deep offshore: greater than 200m water depth-10 per cent (b) in deep frontier/inland basin: 7.5 per cent.”
Subsection 2, titled ‘Royalty by Price’, reads: “Royalty by price is adopted in order to allow for royalty reflexivity based on changing prices of crude oil, condensates and natural gas. This also replaces the necessity for Section 16 of the Principal Act.”
Subsection 3 reads: “The royalty based on price shall be identical for the various water depths in Deep Offshore (beyond 200m water depth) including frontier acreages from crude oil and condensates.”
Subsection 4: “The royalty rates shall be based on increase that exceeds US$20 per barrel and shall be determined separately for crude and condensates as follows: (a) from US$ 0 and up to US$ 20 per barrel-0% (b) above US$20 and up to US$60 per barrel-2.5% (c) above US$60 and up to US$100 per barrel-4% (d) above US$100 and up to US$150 per barrel-8% (e) above US$150-10%”.
The newly inserted Section 17 reads: “The Minister shall cause the Corporation to call for a review of production sharing contracts every eight years.”
Penalty for non-compliance:
Newly inserted Section 18 (1) reads: “Any person who fails or neglects to comply with any obligation imposed by any provision of this Bill commits an offence and is liable on conviction to a fine not below N500,000,000 or to imprisonment for a period not less than five years or both”.
Hardly had the House of Representatives at plenary on Tuesday, October 29, 2019, enlisted the Bill sponsored by Monguno and listed on the Order Paper for second reading than the arrival of a communication from the Senate for concurrence on the bill.
Being a bicameralism legislature, the House stood down the second reading of its own Private Member’s bill and gave accelerated consideration to the passed one from the Senate for concurrence.
Considered in the Committee of the Whole, the bill was passed just as it came. No dissensions. No alterations. No murmuring but applauses.
The concurrence of the House to the bill gave accelerated impetus for its onward transmission to the President for his assent. Not even his ‘private visit’ in faraway London, United Kingdom could stop the presidential assent. The signing of the bill into law was urgent and so, the Presidency ferried it to Buhari in London. Though the journey has thrown up a legion of procedural arguments as to why Buhari would assent to a bill of the Nigerian shores, what is important however is that a new era for the petroleum sector, which would elevate the country’s revenue profile, has birthed.
Speaking via a press statement signed by his media aide, Mallam Garba Shehu, Buhari said, “Today (Monday) is an important day for all Nigerians – but particularly the young generation.
“I signed into law the amended Deep Offshore Act. Nigeria will now receive its fair, rightful and equitable share of income from our natural resources for the first time since 2003.
“In that year oil prices began a steep increase to double – and at times – triple over the following decade.
“All this time Nigeria has failed to secure its equitable share of the proceeds of oil production, for all attempts to amend the law on the distribution of income have failed. That is, until today (Monday).
“A combination of complicity by Nigerian politicians and feet-dragging by oil companies has, for more than a quarter-century, conspired to keep taxes to the barest minimum above $20 per barrel – even as now the price is some three times the value.
“Today this changes. For the first time under our amended law, 200 million Nigerians will start to receive a fair return on the surfeit of resources of our lands. Increased income will allow for new hospitals, schools, infrastructure and jobs.
“Today marks a new and beneficial relationship with our oil company partners: one that benefits all – starting with the Nigerian people.”
What Nigeria has lost, stands to benefit with the new law – Monguno
In his reaction to the presidential assent, Monguno, who decried the loss of billions of dollars so far arising from the long delay in the enforcement or amendment of the Act, however, stated that Nigeria stands to gain a lot from the new law.
By its passage and eventual presidential assent, Nigeria has successfully amended the Deep Offshore and Inland Basin Production Sharing Contract Act, CAP D3, LFN, 2004 to make provisions for price reflexive royalties, periodic review of royalties payable in respect of Deep Offshore and Inland Basin Production Sharing Contracts as well as offences and penalty for non-compliance. The results are being awaited with bated breath.