BY Nse Anthony-Uko,
ABUJA (Sundiata Post) – The Federal Government, on Thursday signed a new cash call exit policy with International Oil Companies (IOCs), targeting a $2 billion savings in its revenues annually.
The new exit policy, announced by the Minister of State, Petroleum Resources Dr Ibe Kachikwu, is in line with recent moves to restructure the financing template for oil earnings, increase investments and boost government revenues.
Kachikwu, while giving an account of key achievements of the Ministry in 2016 on Thursday, said that the agreement which will bring clarity and stability to the management of the country’s main revenue source has already received the approval of the Federal Executive Council.
It is also part of new measures and strategies aimed at eliminating the burden of Joint Venture Cash Call arrears and securing future funding for the Upstream Petroleum Sector.
These strategies which are fully supported by the National Economic Council (NEC) will lead to an increase in national production from the current 2.2mbpd to 2.5mbpd by 2019, as well as reduction in Unit Technical Costs from $27.96/Barrel Oil Equivalent (boe) to $18/boe.
With the new policy net payments to the Federation Account is expected to double from about $7 billion to over $14 billion by 2020 while the immediate effect of the new cash call policy will increase net FGN Revenue per annum by about $2 billion.
Dr Kachikwu outlined other innovations and initiatives championed by the ministry over the past year which have revamped the sector, restored investors’ confidence which was at an all-time low and positioned Nigeria’s Oil and Gas value chain for profitability.
Based on historical records, the current Cash Call system has been considered structurally defective and has failed to address the perennial Joint Venture funding challenges being experienced in the industry where the Federal Government underfunding of the industry through JV Cash Calls stood at $9.125 billion by September 2016. This arrangement will guarantee payments of statutory Oil and Gas Royalties and taxes by NNPC and its JV partners as well as profit from its investments in the Joint Ventures.
“At US$42.5 per barrel Oil price which the 2017 budget is predicated on and US$24 per barrel fiscal cost recovery proposed for 2017 in FGN Medium Term Expenditure Framework (MTEF) recently submitted to NASS, over US$13 per barrel will accrue to Government as Royalties & Taxes from Joint Venture Oil and Gas Production apart from US$2.8 per barrel estimated as Government share of profit, at 57 per cent equity.
This will restore investors’ confidence and achieve accelerated production growth in the Joint Ventures. New Governance processes will also be introduced.”
The negotiation on behalf of the Federal Government of Nigeria which was led by Dr Kachikwu resulted in a remarkable agreement by the IOCs who have agreed to be paid their accumulated arrears up to December 2015, payable over the period of about five years. It is important to note that this will not be a cash burden on the Federal Government as payments will be made via incremental production from each JVC.
Highlighting major achievements of the Ministry in 2016, Dr Kachikwu noted that aside this key agreement on Joint Venture Cash Call Arrears Payment and Future Funding Mechanism signed Thursday, the Ministry under his stewardship as Minister of State and President Muhammadu Buhari as Minister, has also made considerable accomplishments in the international frontiers through maintaining robust relationships and strengthening linkages within and outside the petroleum producing community.
These includes: Successful tenureship and handover of the Presidency of four key international energy organisations namely The Gas Exporting Countries Forum (GECF), Organisation of Petroleum Exporting Countries (OPEC), African Petroleum Producers Association (APPA) and West African Gas Pipeline Authority (WAGPA); successful election of Mohammed Sanusi Barkindo of Nigeria as the Secretary-General of the OPEC and the successful mobilisation of OPEC members and Non-OPEC Oil Producers to dialogue on the stabilisation of the global market in Doha, Algiers which culminated into the achievement of freeze on production at the 171st conference in Vienna.
Other achievements include the rise in oil prices to US$55/per barrel for the first time in 16 months after negotiations with non-OPEC producers; Nigeria’s successful negotiation of an exemption from the production freeze; Successful hosting of the 52nd Conference of Ministers of African Petroleum Producers Association in March 2016 (APPA); Leadership and support to other APPA members in the development of legislation, institution and systems for local content in Africa.
The Minister of State pledged that the Ministry would continue to drive innovation and change in its approach to delivering an oil and gas industry that is internationally competitive and is governed by open and transparent processes to ensure security of investment for both domestic and international investors.