With Federation Petroleum Accruals Falling from $11.9bn to $1.83bn, Agora Demands Urgent Amendment of PIA

*Questions NNPC for not always remitting 40% to federation from PSCs

*Calls for reduction of national oil firm’s PSC management fee from 30% to 7%

Emmanuel Addeh in Abuja

Agora Policy, a Nigeria-based think tank, yesterday called for the immediate amendment of the Petroleum Industry Act (PIA), arguing that accruals to the federation account had drastically fallen as a result of the oversight in the 2021 law.
Specifically, the Waziri Adio-led group in a policy brief, noted that revenues accruing to Nigeria are now meagre under the operation of the Act, slumping from $11. 9 billion to $1.83 billion, translating to an odd situation for the country.

In contrast,  Agora Policy maintained that the Nigerian National Petroleum Company Limited (NNPC) is now better off in terms of revenues while the federation is significantly worse off, explaining that this situation needed to be urgently addressed.
Former President Muhammadu Buhari had on August 16, 2021, signed the then Petroleum Industry Bill (PIB) into law, effectively bringing to an end to a 21-year process to reform the petroleum sector in the country.
At the time, the PIA was hailed both nationally and internationally as the missing link and a panacea for stemming Nigeria’s apparent manifestations of the natural resource curse.

In principle, the PIA was supposed to attract investment into the country’s petroleum sector; enhance the regulatory and business framework; and increase revenue accruing to the federation. In reality, however, Agora stated that none of these aims have been achieved.
But for revenue, Agora argued that the federation has not received more revenue, as petroleum revenue to the federation has fallen drastically after implementation of the PIA, explaining that this is not due to just fall in oil production or prices.
On the regulatory and business environment front, it said that confusion and conflicting signals have meant the maintenance of the difficult and stifling operating environment, while on the investment front, there had been an exodus of International Oil Companies (IOCs).
“…The Federation has received lower revenue from these JV assets, as the dividends declared are very low, and there have been many months in which no dividends were paid.

“For context, in 2021, the last full year before the implementation of the PIA, the Federation received $10.65 billion from sales of JV crude oil and $1.252 billion from sales of JV equity gas and feedstock, amounting to a total revenue of $11.902 billion from crude oil and gas sales from JV assets .
“By contrast, in 2023, the first full year of the PIA implementation, the federation received $399,000 from sales of JV crude oil, $701.287 million from sales of JV equity gas, and $1.13 billion as dividends from NNPC, a total revenue figure of $1.833 billion .
“This is a drastic revenue reduction which clearly shows that the federation has not materially benefited from the new arrangement with its JV assets after the PIA,” Agora Policy pointed out.

With the implementation of the PIA, NNPC, it observed has been deducting 60 per cent of profit oil and gas from Production Sharing Contracts (PSCs).
NNPC’s interpretation of sub-sections 9 (4) and 64 (c) of the PIA, it said, has resulted in the company deducting 30 per cent for management fee, and an additional 30 per cent for the frontier exploration fund, while the federation gets the balance of 40 per cent.
Again, similar to JV dividends, Agora Policy stated that there were many months when the NNPC did not remit the 40 per cent balance.
“It is also questionable why the owner of an asset, the federation, will receive only 40 per cent of the profits from such assets, and even sometimes receive nothing,” the think tank argued.
While JVs and PSCs account for over 80 per cent of crude oil production in the country, however, persistent difficulties of NNPC in funding its part of JV operations, it said, led to the introduction of the PSC model.

“The federation had 23 revenue streams from the petroleum sector before the implementation of the PIA in 2021. In 2021, the NNPC accounted for eight revenue streams, which fetched $10.284 billion, or 44.63 per cent of total federation petroleum revenue of $23.046 billion.
“Thus, NNPC accounted for the largest proportion of petroleum revenue inflows to the federation before the PIA. This has changed drastically after the PIA. Despite the increase in total number of revenue streams to 30, NNPC’s contribution has reduced from eight to three streams.

“ In 2023, NNPC’s three revenue streams brought in $5.01 billion, or 16.23 per cent of total federation petroleum revenue of $30.862 billion . It is important to note that the reduction in revenue from NNPC is as a result of NNPC retaining most of the petroleum revenue, rather than lower gross petroleum revenue,” the document argued.
While the fiscal framework of the PIA was expected to increase revenue to the federation from oil and gas, the paper argued that in reality, the federation has received less oil and gas revenue after the PIA.

The two situations highlighted arising from the implementation of the PIA, it said, have affected government revenue from both JVs and PSCs, and have, on one hand, reduced government revenue from the petroleum sector, while on the other hand, increased revenue to the NNPC.
It stressed that since the largest proportion of petroleum revenue inflows to the federation come through the NNPC, the federation cannot afford to have NNPC retain most of the revenue it collects, which is what has happened after implementation of the PIA.

Thus, Agora stated that it was imperative that the PIA is revisited and necessary actions taken to address these issues and increase the flow of petroleum revenue to the Federation.
In terms of recommendations, Agora Policy identified two areas of the PIA that needed to be revisited to increase federation revenue, including the interpretation of Sub-section 54 (1) which led to NNPC acquiring federation JV assets.

The second, it stressed, was the interpretation of sub-sections 9 (4) and 64 (c) which led to NNPC withholding 30 per cent from profit oil and gas for management fee, and 30 per cent from profit oil and gas for frontier exploration fund.

To increase federation’s revenue from the petroleum sector, the non-profit organisation said that there was the need to revisit the transfer of JV assets to the NNPC.

“It is clear that the federation is not getting maximum benefits from the post-PIA arrangement where JV assets are deemed owned by NNPC. Sub-section 54 (1) of the PIA should be revisited to ensure the JV assets are returned to the federation.

“ (There’s the need) to reduce the PSC management fee for NNPC from 30 per cent to between 4 per cent and 7 per cent. In line with the collection fees of other revenue-generating agencies, sub-section 64 (c) of the PIA should be revisited to reduce the management or collection fee of NNPC from PSCs from 30 per cent to between 4 per cent and 7 per cent .

“(There’s the need) to revisit committing huge resources to frontier basins exploration: President Bola Tinubu, in his role as the Minister of Petroleum Resources, should revisit the huge capital expenditure on frontier basins exploration, and decide if explorations in the frontier basins are a priority for the country at the moment.

“(There’s the need) to revisit Sub-sections 64 (c) 9 (4) of the PIA, Frontier Exploration Fund Administration Regulations 2022, the Frontier Basins Exploration Administration Regulations 2023: following from the last recommendation, there will be the need to amend, revise, or completely overhaul these laws relating to the Frontier Exploration Fund,” it recommended.

According to the group, there was also the need to revisit the private or public status of NNPC, since there is the argument that an entity such as the NNPC that manages federation’s assets should be subject to appropriate oversight by relevant federation entities.

“ Converting NNPC to a private company has created confusion at FAAC where oversight of NNPC has become extremely difficult. NNPC had a history of opaqueness and secrecy, which has only been compounded by the change to a private company, and the illusion that NNPC is not answerable to questions about its operations.

“Our central argument is that the PIA should enhance maximum financial benefits to the federation. After two years of implementation of the law, evidence suggests that the federation is not deriving maximum benefits from its petroleum assets.

“ Thus, it is essential that relevant sections of the PIA be re-examined and appropriate revisions made to channel more petroleum revenue to the federation. Only then can the government realise the extra revenue urgently needed for critical expenditure needs,” it added.