Energy Experts Fault FG’s $62bn Claim Against Oil Majors
Energy experts have raised concerns over the push by the Federal Government to recover $62bn from International Oil Companies operating in the country, following the amendment of Deep Offshore (and Inland Basin Production Sharing Contract) Act.
Last month, the President, Major General Muhammadu Buhari (retd.), signed the bill that amended the Act after its passage by the National Assembly.
The Attorney General of the Federation, Malami Abubakar, has repeatedly asked the IOCs to pay $62bn (over N20tn) owed to the Federal Government with respect to Production Sharing Contracts.
“That’s unnecessarily punitive; it shouldn’t be retrogressive. It will not speak well of government’s drive or desire to encourage foreign investment in Nigeria,” an energy law expert and Partner, Bloomfied Law Practice, Mr Ayodele Oni, told our correspondent.
He added, “I doubt that the government will succeed in its effort to recover the money. It will lead to a lot of disputes between the government and the IOCs.”
The Chairman/Chief Executive Officer, International Energy Services Limited, Dr Diran Fawibe, noted that the government failed to do the review of the terms of the PSCs at the right time, saying the cash crunch facing the country led to the recent amendment of the Act.
“To me, it sounds naive on our part to be asking the oil companies to pay that money when we did not do the right thing at the right time. Are we making the law retrogressive or what is the effective date of the law becoming operational?” he said.
An energy expert, Mr Bala Zakka, told our correspondent, that the Nigerian government should be careful so as not to scare away foreign investors, adding, “There is a high degree of business climate hostility in the Nigerian oil and gas industry. Oil companies pay so much on security; the cost of operation in Nigeria is very high.”
He recalled that one of the conditions given to the IOCs regarding the PSCs was that they would bear the losses if commercial quantity of crude oil was not found in the deepwater.
He said, “There are many companies that went into the deepwater that did not find oil. Lack of discovery has sent many companies out of Nigeria and they lost billions of dollars.”
Zakka said the move by the government to recover $62bn from the IOCs “is not a fair approach and will discourage investment.”
The IOCs and their local counterparts under the aegis of the Oil Producers Trade Section had said the Federal Government’s planned increase in deepwater royalty would worsen Nigeria’s competitiveness and make $15bn of currently planned deepwater investments economically unviable.
The OPTS, in its October presentation to the Senate obtained by our correspondent, said the “proposed unilateral change” to the current terms would damage investor confidence and make the country’s deepwater and inland basin PSC less attractive in the wake of stiffening global competition for investable funds.
The nation’s oil and gas production structure is majorly split between joint ventures onshore and in shallow water with foreign and local companies and the PSCs in deepwater offshore, to which many IOCs have shifted their focus in recent years.