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$15bn investment, Nigeria’s competitiveness under threat over new d’water royalty

Contrary to high hopes that the emerging regime of increased deepwater royalty payable by oil majors to the Federal Government will amass revenue for the economy, international oil companies (IOCs) plus their local allies under the aegis of the Oil Producers Trade Section (OPTS) are having a different opinion.

To them, the planned increase via amendments of the Deep Offshore and Inland Basin Production Sharing Contract Act 2004 may cost the economy Nigeria’s competitiveness and make its $15bn planned deepwater investments economically unviable.

The worrisome issue for the OPTS in the emerging Act is that the Deep Offshore and Inland Basin Production Sharing Contracts (Amendment) Bill seeks to introduce an additional price-based royalty on revenues above $35 per barrel, which ranges from 0.2 per cent to 29 per cent as the oil price increases.

The OPTS is a private industry group under the umbrella of the Lagos Chamber of Commerce and Industry (LCCI).

The group is of the view that the move which recently received the nod of Nigeria’s lower House, would result in an estimated 20 per cent decline in deepwater oil production by 2023.

Recall that the House of Representatives Tuesday last week concurred with the Senate by passing a bill amending the Deep Offshore and Inland Basin Production Sharing Contract Act 2004.

The divergent views of the OPTS came as the Federal Government, in its 2019 approved budget public presentation, said it was targeting N320bn from the revision of the PSC legislation/terms this year.

Before now, both the oil majors and the government had been clamouring for review of the Production Sharing Contracts (PSCs) in a way and manner it will reflect realities in costs and earnings.

Recall that under the PSCs, the Nigerian National Petroleum Corporation (NNPC) holds the concessions, and the contractors fund the development of the deepwater offshore blocks and recover their costs from the production after royalty payments.