UNITED STATES (OBSERVATORY NEWS) — Nigeria this week passed new legislation that would require international oil companies to better share revenue, a move that, according to President Mohammed Bukhari, constitutes a “watershed moment” for Africa’s largest oil producer.
Abuja, which is demanding at a late date a “fair share” of its oil revenues, that this amendment will generate billions of dollars in state coffers, saying that this would be a historic development.
But some experts see the effort as an unprepared attempt to boost state finances in difficult economic conditions, warning of the dangers of deporting foreign investors.
The new legislation is redrafting production-sharing agreements and amending the Offshore Deep Sea Oil Recovery Act, which has been in force without any amendment since its enactment in 1993, when Nigeria was still governed by a military regime.
Under the original law, these agreements between the state and international oil companies must be reviewed if the price of a barrel exceeds 20 dollars.
Although the price of a barrel has risen well above this threshold over the past 20 years, the revenue-sharing formula has remained unchanged.
The Bukhari government has accused previous governments of pursuing personal interests and kept most of the oil revenues in private hands.
Indeed, many Nigerian political officials have invested in oil extraction and marketing, and have even obtained licenses for oilfields while in power.
This situation led the government to approve “fee ratios” following the development of the price of oil, up to 10% when the price exceeds $ 150 a barrel.
From now on, oil companies will have to pay a fixed tax of 10% on oil fields at sea and 7.5% on oil fields onshore at specified depths.
According to the presidency, these amendments will generate additional revenues of at least $ 1.5 billion by 2021.
– Financial crisis –
However, these optimistic expectations may be dissipated if foreign companies decide to limit their investments under conditions that are no longer favorable to them as before, knowing that half of public spending is funded by oil revenues.
In recent years, particularly in the light of Nigeria’s downturn in 2016, the country has gradually increased pressure on some of the world’s largest oil companies, including Shell, ExxonMobil, Chevron Eni, Total and China National Offshore Oil Corporation (CNOOO). C).
In mid-October, the government stirred controversy by asking multinational oil companies for $ 62 billion in lost revenue, saying it should have been paid if the law had been amended earlier.
“We have no idea how the government will reach such an amount,” a representative of one of the main oil companies who referred the case to the courts, then told AFP.
Faced with a wave of condemnation that met the resolution, the oil minister acknowledged that it is unrealistic to demand such an amount, noting that it is possible to reach a compromise.
“The financial crisis that is forcing the federal government to allocate an increasing part of its revenues to repay its debt is one of the reasons Nigeria has reviewed the production-sharing agreement,” said John Ashburn, an emerging markets expert at Capital Economics in London.
– “Declining investments” –
Despite its vast oil and gas reserves, Africa’s largest population lives mostly in extreme poverty on less than $ 1.90 a day.
Several voices have been raised since the turn of the millennium to demand the amendment of the 1993 law, but until this week, all attempts were hampered at the level of parliament.
A representative of the oil sector, speaking on condition of anonymity, warned that the bill heralded “the beginning of declining investments in the deep sea” in Nigeria.
“Oil companies have already started withdrawing their investments from Nigeria,” he said.
Experts in the oil sector said that the extraction operations at sea, especially in the deep sea has cost so far very high amounts, and the new amendments may reflect on their cost-effectiveness.
“These new fees may increase the cost above the cost-effectiveness threshold,” said John Ashburn.
But he pointed out that oil companies always exaggerate the negative consequences whenever they face an increase in fees, adding, “Companies always loom this threat when they face new taxes, but rarely give up their activities.”
This article is written and prepared by our foreign editors writing for OBSERVATORY NEWS from different countries around the world – material edited and published by OBSERVATORY staff in our newsroom.
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