(Sundiata Post) – An agreement entered into by the Federal Government and International Oil Companies (IOCs) in December 2016 that would have resulted in the clearance of about US$6.2 billion in cash call arrears is no longer operational,
The agreement failed to take-off because the government has failed to honour her obligations as agreed, leaving IOCs confused on government’s position.
According to industry sources, there are four major arrears of the agreement for the cash call exit, which the companies expected government to be committed to before they can be convinced that it is serious.
The Federal Government had a 90-day period within which it and the IOCs should come to an agreement on four major contentious issues, for the agreement to come into effect. But the 90-day window has since elapsed (in March) without the issues being resolved.
The IOCs had insisted that the NNPC would have to acknowledge the $7 billion debt it owed first, even before negotiating the deal, and that has been the only headway in the agreement so far. But another four major issues post agreement, remain unfulfilled, BusinessDay reports.
One of the first issues that was supposed to be fulfilled in the 90-day window, was that the government should open an escrow account where $500 million of the US$1 billion initial payment would be deposited, to show goodwill and intention to fulfil the terms of the deal. The 90-day window passed with that happening.
The IOCs also insisted that oil companies can no longer be going to Abuja to seek the go ahead of NNPC to go ahead with projects above $10 million but that they would rather be more comfortable if the value of the projects were increased. This is because it took long in getting the NNPC to approve these projects, and by the time approval came, the IOCs had already spent significant sums of money on the project, which creates new arrears for the NNPC. Consequently, the IOCs asked that the value of projects that required joint approval be raised to about $50 million and above, but the NNPC is yet to get back to them on this, well beyond the 90-day window.
Furthermore, to avoid unnecessary delays in getting approvals to go ahead on contracts, the IOCs asked that if there is a budget that required joint approval, and the NNPC delays in granting that approval, after a certain number of days, that budget should be deemed approved.
Where this happens, it was agreed that to ensure that everyone is operating above board, a third party independent reputable auditor would be called on to audit the books of the joint venture partners once a year.
It is understood that government is yet to give a definite feedback on all the proposals, more than 180 days since the agreement came into effect, leaving the IOCs more confused than before because they do not have a clear cut idea of what the government’s intensions are.
They government, it is understood, paid some money to the IOCs in April and May this year, but did not specify if the payments were part of the arrears, pre-2016 or payments for 2016 arrears.
IOCs are also not sure whether the payment would be sustained in subsequent months, so that they can plan, based on the payments.
With government’s failure to honour it part of the bargain, industry operators fear that the country’s production level would continue to decline. Such a siyuation, they say, would have adverse consequences on the economy, in view of the current low prices of crude oil at the international market.
BusinessDay has been told that oil and gas companies are currently only restricting their activities to routine maintenance jobs on their facilities, as against engaging in new production fields.
The government had reached an agreement in December, with oil companies to exit the JV cash call arrangement in January this year.
The position of the IOCs is in sharp contrast to that which the Federal Government has presented to the public.
Emmanuel Ibe Kachikwu, Minister of State for Petroleum Resources, had announced in April, that the government had started redeeming its pledge to settle outstanding joint venture cash call debts it owes international oil companie, (IOCs), with $400 million released to them in April.
The payment was supposed to be part of the $1.2 billion cash call debt owed the IOCs in 2016. This was however different from the discounted $5.1 billion cash call arrears it negotiated in December 2016 with the IOCs.
Nigeria produces more than half of its oil under joint operating agreements (JOAs) with five IOCs comprising ExxonMobil, Shell, Nigeria Agip Oil Company (NAOC), Chevron and Total.
Kachikwu also said a monthly repayment plan of $70 million was worked out with the Central Bank of Nigeria (CBN) to offset the $1.2 billion debt in one year.
The negotiated $5.1 billion debt, he emphasised, would be repaid from incremental oil production by the IOCs.
The minister had explained that on the basis of the payment, the IOCs were beginning to regain confidence in Nigeria’s oil industry, adding that the country’s oil production could increase by 700,000 barrels per day (bd) by 2018 from the development.
“At the time that we did the joint venture review that we came up with, we had two components to it. The first was the $6.8 billion of arrears covering about six years, which were owed the oil companies.
“In our negotiations, we were able to trim that down to about $5.1 billion, so we knocked off $1.7 billion out of it and then spread the $5.1 billion over the next five years, to be paid from incremental production, not from existing production.
“In other words, they will have to go find new oil and from that new oil, recover their money because we didn’t want to imperil the 2.2 million that everybody is already used to,” said Kachikwu.
He added: “The second tranche of the money which was not in the $6.8 billion or the $5.1 billion, depending on where you stand, was a figure of about $1.2 billion, which represented only 2016 arrears, and the oil companies insisted that it needed to be repaid completely because they couldn’t begin to add that to the $5.1 billion.
“We eventually agreed to pay in several tranches. $400 million out of that for the first tranche and then the remaining $700 million paid in monthly installments for a period of one year; that will roughly be about $60million or $70 million every month, after the first $400 million.”
The minister stated that the payment of the first $400 million would jumpstart the whole process of crystallising the agreement that had been reached on JV funding and which was paid a couple of days ago.
“That was a major milestone and we have made provisions through the Central Bank, for the payment of the balance on a monthly basis,” Kachikwu explained.
The NNPC could not be reached for comments. (BusinessDay)