FG and Amended Deep Offshore Act: Why Nigeria should ask for reparation

By Ifeanyi Izeze

Truth be told, whether the source of the idea and/or packaging of it was suspect or not, is very inconsequential. That the National Assembly set out or clinically collaborated to amend the rogue-packaged Deep Offshore (and Inland Basin Production Sharing Contract) Act of 1993 despite massive pressures and lobbies by the foreign multinational oil companies deserves some commendations. If for nothing, the passage of the Amendment is an indication that our National Assembly, if they want to be sincere or rather mischievous, can muzzle enough willpower to help Nigeria do things differently as a nation of serious-minded people.

All the talk about who engineered or facilitated the amendment is very unnecessary in my view. After all it was the military dictatorship that packaged and signed the original unpatriotic version of this Act and if it takes another dictator or his agent (s) now in democratic dispensation to correct the mistake, well and fine. Like the former American President, George Bush Jnr said: “Whether we bring our enemies to justice or we take justice to them, somehow justice will be done (as it’s being done now).”

Now that our lawmakers have taken what could rightly be described as the first step towards correcting the obvious aberrations enshrined in the Deep Offshore Act, it is not just enough to relax and start jubilating at this stage; a more serious step towards redressing the injustice still needs to be canvassed.

We should ask all the upstream operators that have been producing in that arena to pay us reparations to cover the cumulative revenues the nation lost over the years due to the highhandedness of the foreign operators and their collaborators in power and in the NNPC.

Though the Amended Act has modified the royalty rate payable to the federal government by the Operating companies from zero to 50 percent in respect of offshore acreages beyond 1000 meters in water depth, the federal government should go a step further by sitting down with the IOCs to work out the cumulative revenue denied the nation over the period that the initial holiday expired. In addition to the commencement of the payment of the 50 percent royalty to the federal government, we should ask for reimbursement of the denied or rather stolen revenue within the period in question.

This is necessary because even the old Act made provisions for periodic reviews and had some sections that clearly stipulated what should be done in terms of reworking the taxes and royalties payable to the federal government whenever crude oil prices appreciates and it is over 15 years when last the Nigerian premium crude grade sold for $20 per barrel. Nigerian crude passed the $20 per barrel peg since late 2002 but these foreign oil companies criminally refused to accept any changes to their zero-royalty template for production in the nation’s deep offshore.

It was not enough for the IOCs to wholly blame the government for not reviewing the terms of agreement when the need arose as even the old Framework which they were operating under stated what was expected even from the operators themselves.

It should be recalled that The Decree rightly cited as the Deep Offshore and Inland Basin Production Sharing Contracts Decree No 9 of 1999 was amended to Decree No 26 of 1999 and signed into law in Abuja on the 23^rd of March 1999 by the then Head of State, General Abdulsalami Abubakar but was deemed to have come into force on 1^st January, 1993.

According to Section 5(1) of the Act, the payment of royalty in respect of the Deep Offshore Production Sharing Contracts shall be graduated as follows: “In areas from 201 to 500 metres water depth- 12percent; From 501 to 800 metres water depth-8 percent; From 801 to 1000 metres water depth-4 percent; In areas in excess of 1000 metres depth- 0 (zero) percent. The royalty rate payable under the Production Sharing Contracts in the Inland Basin shall be 10 per cent.”

For example, despite oil price rising slightly above $100 per barrel between 2010 and 2014, the foreign operators and their collaborators in and around government and the NNPC worked to ensure the nation did not rake-in more revenues by reviewing the Act and it has been established by experts that the failure to do so caused Nigeria to lose about $21 billion dollars (Twenty One Billion Dollars) of extra revenue.

Section 16(1) of the 1993 Act stipulates that: “The provisions of this Act shall be subject to review to ensure that if the price of crude oil at any time exceeds $ 20 per barrel, in real terms, the share of the government of the Federation in the additional revenue shall be adjusted under the production sharing contracts to such extent that the production sharing contracts shall be economically beneficial to the government of the Federation.” 

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Also, Sub-section 2 of the Act further states that: “Notwithstanding the provisions of subsection (1) of this section, the provisions of this Act shall be liable to review after a period of fifteen years from the date of commencement and every five years thereafter.” 

What this means is that the provisions of the Act ought to be amended in such a way as to be economically beneficial to the nation whenever the price of crude oil in real terms exceeds $20 dollar per barrel as clearly stipulated in the fiscal terms of the Production Sharing arrangements.

Although the fiscal terms enshrined in the Act have long been due for review, since crude oil price soared above $20 for more than fifteen years, the operators made sure Nigeria did not benefit a dime from the produced oil from that arena. And it is unexplainable why successive governments could not muster enough political will or rather willpower to be honest to treat the matter as of urgent national importance.

So this latest Amendment is only complying with the requirement of periodic review of the original Act by amending Section 16 of the Act which stipulates a periodic review to guarantee economic benefits from additional revenues to the Federal Government of Nigeria from deep offshore acreages underpinned by Production Sharing Contracts (PSCs). It is good we are bringing our laws particularly the tax and royalty regimes to comply with something near today’s realities at least.

Agreed that it was the ignorance of the military junta administrations and the dire need to encourage upstream investments in the nation’s deep offshore acreages which was considered extremely risky at the time, that informed the lopsided packaging of the original Deep Offshore Act with the intention of providing fiscal incentives in the then hostile arena, but that was not an excuse for the operators to block all efforts to review some sections of the law as was originally slated.

The federal government should be reminded that there is need for urgency in enforcing this issue of reimbursement and comment of payment of the new royalty regime because when the Petroleum Industry Fiscal Bill (PIFB), is signed into law, the entire incentives that is coming into effect now with the Amended Deep Offshore Act would be totally extinguished. So our gain from this amendment may just be short-term.

Let’s not make any mistakes about it, these same IOCs that placed themselves as stumbling blocks to the passage of the PIB or fragments of it into legal frameworks for the nation’s oil sector will definitely do everything possible to facilitate its speedy passage if they would make more money off Nigeria by bringing the PIB into effect rather than paying the new royalty regime in our offshore arena.

More so, the Federal Government should watch out for legal fireworks to contend the Amendments to the operating Act. It will be a costly mistake to think that the league of foreign operators in our deep offshore would fold their hands and allow the government slice-off a big chunk of their privilege. Does anybody trust our Judiciary not to work with the oil companies to give unfavourable judgement to Nigeria knowing what our Courts have become?

This challenge should be taken up seriously by the federal government, civil society organisations and even concerned private citizens so we as a nation of people can seek redress from the culprit foreign operators in our deep offshore arenas. God bless Nigeria!

(IFEANYI IZEZE writes from Abuja: [email protected]; 234-8033043009)