NNPC Seeks More Royalty on Deep Offshore, Inland Basin PSCs

Chineme Okafor in Abuja
The Nigerian National Petroleum Corporation (NNPC) has proposed some key amendments to the royalty regimes of deep offshore and inland basin Production Sharing Contract (PSC) Act.

The proposed increase, it said, would enable the Federal Government improve its PSC royalties collection from both deep water and inland basin oil production activities.

A statement by the Group General Manager, Public Affairs of NNPC, Mr. Ndu Ughamadu, on Thursday in Abuja said the proposal was made 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.

The presentation, the statement explained was made by NNPC’s Chief Operating Officer, Upstream, Malam Bello Rabiu, who noted that it was imperative to effect the increment in royalties across all the categories to increase government revenue from them.

“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,” Rabiu said in the statement.

It noted that under the proposed PSC royalty regime, the calculation of what would be due to the government shall be based on production and price to guarantee fairness and balance between PSC contractors and the government.
It stated that for royalty based on production within a tranche of 50,000 barrels of crude oil per day (bpd), a tranche rate of 8.0 per cent should be made.

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

According to the NNPC, to calculate royalty based on price, instances of prices coming under a $50 per barrel at any given time, 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.

Similarly, it noted that a price regime of $100 to $130 should attract a royalty of 0.20 per cent while an increase of price between $130 and $170 should translate to a royalty rate of 0.10 per cent, while a price regime of $170 and above would attract zero per cent royalty payment.

The NNPC added that it argued that in the alternative, the graduated royalty scale as provided in the PSC 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 PSCs 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 equally proposed an outright scrapping of the incentives.

The NNPC said: “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.”

It 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 stated: “It is better to refine and upgrade the capacity of the Petroleum Training Institute 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.”