Nigeria and the international oil companies agree on new cash call policy that will increase the country’s revenue by $2 billion and arrears repayment framework of cash call as net revenue is expected to increase to $14 billion by 2020
| By Maureen Chigbo | Dec 15, 2016 @ 16:32 GMT |
EMMANUEL Ibe Kachikwu, Nigerian minister of State for petroleum resources, has reached agreement with the international oil companies, IOC, on a new cash call exit policy in a move which will restructure the financing template for oil earnings, increase investments and boost government revenues.
The historic agreement, which will bring clarity and stability to the management of the country’s main revenue source was announced by Kachikwu while giving an account of key achievements of the ministry in 2016 on Wednesday. It has already received the approval of the Federal Executive Council.
It is 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.
The net payments to the Federation Account is expected to double from about $7billion to over $14billion by 2020 and the immediate effect of the new cash call policy will increase net Nigeria’s revenue per annum by about $2billion.
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.
It would be recalled that based on historical records, the current cash call system has been 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 $42.5 per barrel Oil price which the 2017 budget is predicated on and $24 per barrel fiscal cost recovery proposed for 2017 in FGN medium term expenditure framework, MTEF, recently submitted to the National Assembly, NASS, over $13 per barrel will accrue to government as royalties and taxes from joint venture oil and gas production apart from $2.8 per barrel estimated as government share of profit, at 57 percent 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 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.
Aside this key agreement on joint venture cash call arrears payment and future funding mechanism signed today, it would be noted that under the stewardship of Kachikwu as minister of state for petroleum resources and leadership of President Muhammadu Buhari, the ministry has also made considerable accomplishments in the international frontiers through maintaining robust relationships and strengthening linkages within and outside the petroleum producing community.
The minister listed the achievements recorded in 2016 include the
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.
There is also the successful election of Mohammed Sanusi Barkindo of Nigeria as the Secretary – General of the OPEC; 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 and the rise in oil prices to $55/per barrel for the first time in 16 months after negotiations with non-OPEC producers
In addition, Kachikwu’s leadership also witnessed 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. It also provided leadership and support to other APPA members in the development of legislation, institution and systems for local content in Africa.
According to a statement made available to Realnews by Idang Alibi, director, Press, ministry of petroleum resources, the minister of state pledged that the ministry will 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.