NNPC proposes 28% oil royalty

…To scrap tax credit in PSC

By Adewale Sanyaolu

In a bid to shore up government revenue, the Nigerian National Petroleum Corporation (NNPC) is proposing to increase Deep Offshore and Inland Basin Production Sharing Contract (PSC) Act by up to 28 per cent.

NNPC Chief Operating Officer (CEO), Mallam  Bello Rabiu, stated this in a presentation to the Joint House of Representatives committees on the amendment of the PSC Act and an Act to establish the National Oil and Gas Museum and Research Centre in Oloibiri.

Rabiu noted that it was imperative to effect increment in royalties across all categories to increase government’s take and optimise the collection of royalties and other revenue in deep water oil production activities.

“It is our opinion that the proposal to increase the royalty rate for terrains beyond 1000 metres, from zero per cent to three per cent, is commendable but it is necessary to also make corresponding adjustments in other categories,’’ he said.

Under the proposed PSC royalty regime, the calculation of what is due to government shall be based on production and price to guarantee fairness and balance between PSC contractors and government.

For royalty based on production within a tranche of 50,000 barrels of crude per day, the NNPC is proposing a royalty tranche rate of 8 per cent.

Under a production tranche of 50,000 to 100,000bpd, the royalty tranche rate would increase to 15.5 per cent and would escalate to 28 per cent once the production surpasses the 100,000 bpd mark.

To calculate royalty based on price, NNPC proposed that under a $50 per barrel price regime, the tranche incremental royalty rate shall be zero per cent but the rate would increase to 0.30 per cent if the price hovers between the $50 to $100 mark.

In the same vain, a price regime of $100-$130 would attract royalty of 0.20 per cent while an increase of price between $130 and $170 translate to royalty rate of 0.10 per cent.

A price regime of $170 and above would attract zero per cent royalty payment.

The NNPC argued that in the alternative, the graduated royalty scale as provided in the Act should be removed while the Minister of Petroleum Resources should be empowered to intermittently set royalties payable for acreages located in deep offshore and inland basin production sharing contracts through regulations based on established economic parameters.

On the provision of investment tax credit, investment tax allowance and associated cost uplift and capital allowances to PSC contractors, the NNPC proposed an outright scrapping of the incentives.

“It is our opinion that these incentives have outlived their usefulness and are now impediments to the Federal Government’s revenue collection efforts. The use of such incentives can be terminated by an amendment of Section 4 of the Act,” the corporation noted.

The corporation called on the National Assembly to seek relevant input from the Federal Inland Revenue Service (FIRS), to resolve the divergent opinions regarding the methodology for the computation of the taxes, which would arise as a result of the proposed royalty regime.

On the Act to establish the National Oil and Gas Museum and Research Centre in Oloibiri, the corporation recommended the establishment of the museum alone with clear budgetary allocation from the Federal Government under the control and management of the National Commission for Museum and Monuments.

“It is better to refine and upgrade the capacity of the Petroleum Training Institute (PTI) in Warri and the National College of Petroleum Studies, Kaduna, in order to avoid duplication of functions and more importantly, ensure optimal utilisation of funds,” NNPC stated.

… As NPDC clarifies on alleged non-remitance of oil revenue 

The Nigerian Petroleum Development Company (NPDC), the upstream subsidiary company of the Nigerian National Petroleum Corporation (NNPC), has provided clarification on the reported non-remittance of some crude oil revenue to the federation account.

The clarification came as the Nigeria Extractive Industries Transparency Initiative (NEITI), in its 2014 audit report, said a total of $4.7 billion and N318.2 billion that should have gone to the federation account were not remitted by NPDC and its parent company, NNPC.

In a presentation to the Senate Ad hoc Committee on the Recovery of Un-remitted Revenue, Yusuf Matashi, Managing Director of NPDC, faulted some of the figures quoted as revenue derived by the company from crude sales.

Providing clarification on the alleged non-remittance of crude proceeds from some divested oil wells (OMLs 61, 62 and 63), Matashi explained that the value of crude oil lifted by NPDC between May 2013 and August 2016 was $3.294 billion, as against the $3.487 claimed by the committee.

He drew the attention of the committee to the fact that on the basis of the ministerial assignment of the assets to NPDC, cash call funding of the assets by government had ceased and NPDC was funding the cost of production and lifting of crude oil by itself.

“According to our records, total crude oil lifted from OMLs 60-63 by NPDC during the period May 2013 to August 2016 is valued at $3.294 billion against the figure of $3.487 billion,” he was quoted by Ndu Ughamadu, the NNPC spokesperson, to have said.

On the allegation that NPDC had been lifting crude oil from divested oil well (OMLs 65, 111 and 119) to the tune of $1.847 billion out of which it paid $100 million only, the NPDC MD explained that the OMLs 65, 111 and 119 referred to by the Senate Committee were not part of the divested assets.

He argued that the figures given refer to the Good Valuable Consideration (G&VC) obligation payments in respect of the Shell Petroleum Development Company (SPDC) divested asset (OMLs 4, 38 &41 and OMLs 26, 30, 34, 40 &42.

“The $1.847 billion referred to by the committee is the total G&VC determined by DPR for the divested assets. The $100 million referred to as paid is part of the G&VC, which has been paid by NPDC,” he said.

While recognising the balance of $1.747 billion for the G&VC, the NPDC noted that the obligation to pay in the future had not been waived and that the balance as payable to the federation was recognised in NPDC’s books.

On the report that a total of $344.34 million worth of crude oil had been un-remitted between January and August 2016, including non-payment of due royalties and taxes within the period, the NPDC faulted the claim.

“The committee is invited to note that the actual value of crude oil liftings from all assets divested to NPDC is a total of $584.1 million for the period January to August 2016. NPDC has paid a total of $608.4 million as royalty and Petroleum Profit Tax (PPT),” he said.

Matashi noted that a total of $608 million was made by the NPDC as royalty and petroleum profit tax in 2016.

Also providing response to the issues raised by the Senate Committee on the legal and operational status of the NPDC, Matashi explained that like all other indigenous oil and gas companies operating in Nigeria, the NPDC is self-funded, which means that gross revenues are not remitted to the federation account.

He said that the company is, however, required to pay royalties to the Department of Petroleum Resources (DPR) and PPT to the Federal Inland Revenue Service (FIRS).

Matashi, however, stated that the NPDC is ready to engage all stakeholders to resolve all outstanding payments, noting that the company is already in talks with statutory agencies to arrive at agreed payments of historical liabilities.

Sun